Why Baby Bonds?

Building Lives That Are Prosperous, Healthy, Fulfilling and Self-directed

The U.S. has an inequitable and unjust distribution of wealth, particularly with respect to race, ethnicity, and gender. According to the most recent data from the Federal Reserve, at the median, the typical Black and Latine household has 10 and 12 cents respectively in wealth for every dollar owned by the typical white household.

Much of the framing of the wealth gap argues that it is due to the poor choices and decision-making of certain people. This framing is wrong, as has been demonstrated by carefully conducted studies. The intergenerational wealth gap is structurally created and has virtually nothing to do with individual choices or behavior. Instead, wealth transfers within families better position some young adults with capital to purchase wealth-generating assets.

Whether a young adult has access to this seed money is not based on individual action or inaction, but rather on the economic position in which an individual is born. Young adults from households without wealth or with very limited wealth receive very little capital from their families. Without initial seed capital, these young adults begin their lives far behind those of their more economically advantaged counterparts in building wealth over their lifetimes.

This is what makes Baby Bonds a great policy initiative. Baby Bonds is public seed funding that establishes, in perpetuity, a guarantee to “start up” capital for young people. Baby Bonds are specifically intended to meaningfully close the wealth gap by providing the most resources to children whose households have the lowest amount of wealth.

How Baby Bonds Work

Through Baby Bonds, money is set aside and managed by the government, before or shortly after a newborn’s birth, and placed in trust as an investment for that child’s future. The accounts are substantial and based on the family’s financial position in which the child is born and grows. Baby Bonds promise a birthright to capital, a nest egg so to speak, for every child born into poverty. 

Here’s how the Baby Bonds proposal works: Between the ages of 18 and 30, participants born into poverty can access the realized returns of the Baby Bonds investment (valued at $11,000 for 18-year-olds in the Connecticut model) for one of at least four wealth-building activities—to help buy a home, start or invest in a business, pay for college or other post-secondary education or training, or save for their own retirement. The program will be complemented with a financial education course, which will provide young people with the knowledge and support needed to make the best use of these resources.

An Economic Birthright to Capital

Wealth is as much the beginning as it is the end of an economically secure life. We often think of wealth as an outcome, but its true essence is functional—that is, what wealth can do for you. Wealthier families are better positioned to finance elite education, access capital to start a business, reside in higher amenity neighborhoods, exert political influence, purchase well-established counsel if confronted with an expensive legal system, leave a bequest, and withstand financial hardship resulting from any number of emergencies, including, as we so poignantly witnessed, those resulting from the COVID-19 pandemic.

With a Baby Bonds program, the privilege of wealth would no longer be an exclusive domain of the historically wealthy. For those that have been economically disenfranchised, the program invests in a capital foundation to build wealth and asset security. The program complements social security for older people and provides a more comprehensive social security designed to provide capital finance from cradle to grave.

Baby Bonds—along with other investments in people and places—have the power to build a more fair transmission of economic advantage across generations, and establish a more moral and decent economy that facilitates assets, economic security, and social mobility regardless of the race and economic position in which an individual is born.