Why Baby Bonds?

Addressing the Racial Wealth Gap

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

Much of the framing of the racial wealth gap argues that it is due to the poor choices and decision-making of, largely, Black, Latinx, and Indigenous people. This framing is wrong, as has been demonstrated by carefully conducted studies. The intergenerational racial wealth gap is structurally created and has virtually nothing to do with individual or racialized choices or behavior. Instead, wealth transfers within families 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, which is driven by the structures of our society, especially structural racism. Young adults from households without wealth or with very limited wealth, who are disproportionately Black, Latinx, and Indigenous, receive very little capital from their families. Without initial seed capital, these young adults begin their lives far behind those of their white counterparts in building wealth over their lifetimes.

This is what makes Baby Bonds a great policy initiative. Baby Bonds is seed funding that establishes, in perpetuity, an economic birthright to capital. Baby Bonds are specifically intended to meaningfully close the racial wealth gap by providing the most public resources to children whose households have the lowest amount of wealth. Baby Bonds is an economically and racially just approach, as it targets wealth, a domain and outcome in which Blacks and other people of color are at a significant disadvantage compared to their white neighbors.

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 familial financial position in which the child is born and grows. Baby Bonds guarantees 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 have the power to bring equity to the 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 familial socioeconomic position in which an individual is born.