For many young Black Americans, affording a home or college can feel like an impossible dream. But in the US capital, local officials think they may have an answer: “baby bonds”.

The programme – which will deposit up to $1,000 per year into eligible children’s bank accounts – is among a number of baby bond and savings schemes aiming to ensure poorer children start out their adult lives with a nest egg.

Backers say they can help tackle growing racial divides in wealth – defined as the total net value of a household’s assets including savings and property – which in turn fuel wider economic inequality.

“Wealth really translates into opportunity,” said Signe-Mary McKernan, a vice president at the Urban Institute think-tank that focuses on inclusive economic growth and has carried out research on baby bonds.

“Wealth is insurance against tough times – tuition to get a better education or a better job, capital for a small business or to buy a home.”

Although baby bonds and similar schemes are typically open to anyone who falls below an income threshold, they help to combat racial economic inequalities as Black and other racial minority families are disproportionately likely to be poor.

In Washington, the typical white family has 81 times more wealth than a Black family, according the DC council, which created the baby bond scheme.

The city’s bonds could be worth more than $25,000 by the time a child turns 18, said Urban Institute policy associate Madeline Brown, at which point they can access the money to study, buy a home, start a business or save for retirement.

The programme’s trust has been funded but is awaiting final legal and technical tweaks before it launches, according to a city spokesman.

Lawmakers in Connecticut have approved their own baby bond programme, and California has passed a more limited scheme, focused on foster youths and children who lost parents in the pandemic.

Seven other states have introduced legislation to create baby bonds, and more are studying the issue, Brown said.

Maryland’s new governor, Wes Moore, was elected in November on a platform that included a baby bonds proposal that analysts say would be the largest in the country.

Shawn T Wooden, who spearheaded Connecticut’s baby bond law as state treasurer, told Context that the police killings of George Floyd and other Black Americans prompted him to look for “more transformative policies.”

“As the father of two Black boys and the only Black statewide elected official in New England at the time, I was compelled to...address the long-standing racial inequities that permeate our society, particularly with respect to economic disparities,” he said.

Widening gap

Racial wealth inequities in the United States have been increasing since the 1980s.

White families had a median household wealth of $1,84,000 in 2019, compared with $23,000 for Black families and $38,000 for Hispanic families, according to data from the Federal Reserve Survey of Consumer Finances.

Credit: Context

The US Treasury has warned that “under current conditions” the gap will continue to widen.

Failure to address the racial wealth gap could cost the US economy up to $1.5 trillion by 2028, according to McKinsey, a consultancy.

In light of that stagnating progress, baby bonds “can go a long way in achieving what we want to see,” said Miriam Calderón, chief policy officer with Zero to Three, an advocacy group that focuses on infants and toddlers.

“When families are thriving, babies are thriving. Baby bonds are a really promising policy that...are an important part of this puzzle,” she said.

While the effectiveness of baby bonds is as yet unproven, a 2019 analysis by researcher Naomi Zewde, then with City University of New York, found that a programme benefiting all US newborns would narrow wealth inequality by nearly 90%.

Federal legislation first introduced in 2018 has sought to create a national programme that would deposit up to $2,000 a month for children born to low-income families.

Though the bill has failed to progress, a Senate report in December backed baby bonds as a way to create economic opportunity for all at “a time of rising inequality and declining social mobility”.

Critics have lambasted such proposals. Ryan Bourne, with the libertarian Cato Institute think-tank, has warned the federal proposal amounts to “redistribution” and a backdoor expansion of federal subsidies for home purchases or college tuition.

Indeed, Connecticut’s baby bonds law remains the subject of political wrangling, with funding still up in the air.

Connecticut Governor Ned Lamont’s office declined to say whether he would support its eventual funding.

“It is premature for the governor to put baby bonds on the (broader) bond agenda until programmatic and budgetary concerns expressed by the implementing agencies are addressed,” Communications Director Adam Joseph said in an email.

A mother and child take part in a Brilliant Baby event in Oakland, California. Credit: Oakland Promise/Handout via Thomson Reuters Foundation

College education

Several cities are already undertaking narrower versions of baby bonds, creating savings accounts for newborns to eventually use for college.

For many families, relatively small amounts in the fund can have an outsized impact, said Joci Kelleher, director of the Brilliant Baby programme at California nonprofit Oakland Promise.

“The idea is not that this can pay for college (but) it plants that idea in a family’s mind,” said Kelleher.

Since 2017, Brilliant Baby has created savings accounts for babies born to low-income families in the city of Oakland that sign up. Each account, seeded with $500, could grow to about $2,000, Kelleher said.

One widely cited study from 2013 found children from poor families with even small amounts of money put away for college were three-times more likely to attend and four-times more likely to graduate.

Yabnely Lara, who enrolled her youngest child in Brilliant Baby in 2018, said at first she was confused about why the programme was already focusing on college for a toddler.

But after she signed up, Lara noticed a change in her own thinking.

“It made me think that somebody else is putting money (away) for my child, so I need to start doing things for him too,” said Lara, 39, who has since started working for the programme.

“We started taking classes and trainings, and we started saving money.”

Those impacts on families’ outlooks are what drove the mayor of St Paul, Minnesota, to create a similar programme that started operating in 2020.

“For some children, high school feels like a finish line,” Mayor Melvin Carter said by phone.

While the money is not enough to pay for college, “it can become a vehicle, starting in early childhood, beyond high school graduation. That ends up being the first step”.

This article first appeared on Context, powered by the Thomson Reuters Foundation.