What are Baby Bonds?

The idea behind baby bonds is to provide every newborn child with a government-funded savings account, which grows over time and can be accessed once they reach adulthood. Under certain versions of the policy, more money is provided for the accounts of children from low-income families.

The goal: to give young people from low-income families access with access to financial capital that they wouldn’t otherwise have, helping them to pursue higher education, buy a home, or start a business.

The idea for baby bonds was popularized by economist Darrick Hamilton as a race-neutral way of improving social mobility, helping low-income people to enter the middle class, and addressing the racial wealth gap.

Connecticut became the first U.S. state to introduce a baby bonds program in 2021, with the state providing starting CT Baby Bond accounts for Connecticut children from low-income families who are eligible for Medicaid.

Notably, under the CT Baby Bonds program, young people must complete a financial literary program before they can receive the money — which they must use for things like housing, education, starting a business, or saving for retirement.

Who wants baby bonds?

Many progressive politicians and policy experts have advocated for baby bonds as a way of addressing the root causes of poverty.

The money that recipients would receive when they turn 18 would open up new possibilities in their lives, helping them to invest in themselves, avoid debt, and secure their place in the middle class.

Progressive legislators like Congresswoman Ayanna Pressley (D-MA) and Senator Cory Booker (D-NJ) have backed the baby bonds idea through their proposed legislation entitled The American Opportunity Accounts Act.

Under the bill, each American born would start their life with $1,000 invested in a personal American Opportunity Account.

Each year, that account would receive up to $2,000 (depending on family income) while accruing interest.

The program is designed to help out low-income children the most, with Black and Latino populations benefitting disproportionately from the program.

For Americans who want to reduce economic inequality without the specific racial targeting that comes from policies like reparations or affirmative action, the race-neutral and income-based nature of baby bonds can appeal to voices on different sides of the inequality debate.

Baby Bonds Abroad

Baby bond-like policies were introduced in the United Kingdom, Hungary, and Singapore in the early 2000s.

United Kingdom: The British Labour Party introduced its child trust account policy in 2005, allowing any British person born after 2002 to open a government-funded account to ensure they'd have some savings when they turned 18.

Proponents of the policy called it an example of asset-based welfare, which is the notion that the government can do a better job of eradicating poverty by giving assets to people (so they can accumulate wealth and secure economic independence in the long-term) in addition to providing them with the cash and services needed to survive in the short-term.

Although the program was eventually scrapped in 2010 after the Labour Party lost power, the first accounts were cashed out in 2020 after the 2002 cohort turned 18.

Singapore: The Singaporean government implemented the Baby Bonus Scheme as a way of encouraging young people to have more children.

In addition to a baby bond savings account known as a Child Development Account (CDA) with savings-matching for parents who wish to contribute, the program also provides a cash bonus, tax incentives, and parental leave to young families that had children.

LEARN MORE:

1. Interview with Baby Bonds pioneer Darrick Hamilton: Ezra Klein interviewed Dr. Darrick Hamilton, who popularized the baby bonds idea in a 2010 paper co-authored with Dr. William Darity Jr., about the idea for the New York Times.
   
   Click here to read the interview transcript or listen to the podcast.
   

2. Conservative pushback against the Baby Bonds idea: Economist Ryan Bourne wrote an article for the libertarian Cato Institute think tank criticizing the baby bonds idea on the grounds that they would not encourage a culture of saving among recipients and that the program would just “expand federal government subsidies.”
   

3. Progressive criticism of the policy: Matt Bruenig of the People's Policy Project argued that low-income children would be better off if their parents were given the money that would otherwise go into the Baby Bonds account when the children are young and in their developmental stage. Or, the government could provide a lump sum to young people when they turn 18 instead of having to save and manage the money for 18 years.

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