Baby Bonds: America’s Big Bet on Addressing Racial Wealth Inequality
By: Insight Center For Community Economic Development
Tags: Racial Wealth Gap, Economic Inequality, Economics, Racial Wealth Inequality, Baby Bonds

By Anne Price, President

President Franklin Delano Roosevelt (FDR), born 138 years ago yesterday and widely considered one of the most popular and important presidents in American history, is credited with renewing faith in the economy during the Great Depression.

FDR established numerous social programs, from Social Security to Unemployment Insurance. While these programs gave rise to the wealthiest generations in American history, it is important to recognize that they also discriminated against people of color who were excluded from the wealth-building opportunities of the New Deal.

Yet FDR demonstrated that government intervention is necessary to remedy vast inequality. As characterized by New York Times columnist David Leonhardt, FDR’s projects were “big, tangible and unmistakably the work of the federal government.” Showcasing rather than hiding the power and efficacy of government to get things done, his projects “changed how Americans thought about government.”

After decades of neoliberalism undermined the efficacy of federal government, we are seeing growing demand for federal action to address our biggest challenges — among them yawning income and wealth inequities that are fracturing our society and undermining our democracy, with clear fault lines by race and ethnicity.

This moment demands a visionary change and transformative investments to help level the playing field across the growing landscape of racial wealth inequality.

Baby Bonds should be one of our nation’s next big bets.

Fundamentally, Baby Bonds are trust accounts funded by the federal government and provided to every newborn infant. At their most basic level, they provide substantial assets to young adults who would otherwise not have the financial means to pursue higher education or home ownership without going into or exacerbating substantial debt.

The structural failures of our economy have set up an entire generation to build less wealth than the previous one for the first time in American history. Recent research by the Urban Institute shows that wealth inequality will persist or worsen as growing wealth inequality fuels educational and upward mobility disparities. The St. Louis Federal Reserve finds that “young people in their 20s and 30s have taken a greater hit from the recession than any other age group, bringing into question whether the American dream of upward mobility is obtainable for them.”

While the concept of Baby Bonds is not new, there has been limited research conducted on the impact they could have at a national level. A study led by Naomi Zewde, a postdoctoral research scientist at Columbia’s Center on Poverty and Social Policy, considered the impacts of a hypothetical national Baby Bond program looking specifically at young adults ages 18–25. Overall, the study finds that the policy would considerably narrow wealth inequalities by race and that every racial group would be better off at the median with such a program.

With Baby Bonds, the overall median for this age group comes to nearly $77,000 — up from $29,000. While racial differences would still exist, the program would reduce Black-white wealth disparity from a factor of 15.9 to 1.4 at the median. Finally, the study shows that Baby Bonds would not only improve the wealth position of all young adults, but also improve the distribution of wealth.

In a recent co-authored Insight Center report, we make the case that Baby Bonds could potentially foster greater community wealth-building efforts, allowing family and community members to pool resources to acquire an asset and stymie the economic pulls of low-wealth family members. Research shows that poverty in the family is a drain on the ability of middle-class Black families to build and keep wealth.

Finally, paired with massive reforms to our criminal legal system to address fines and fees and other wealth stripping mechanisms in that system, a Baby Bonds program could mitigate some of the impact of mass incarceration that disproportionately affects Black and Latinx families. Mass incarceration and criminal fines and fees have multigenerational effects on wealth and long-lasting economic consequences.

A young adult trust can serve as an important lever in tackling economic and racial inequality and the power that comes with concentrated wealth. Equally important, it offers a foundation for a reimagined role for government — this time, with an eye toward seeding true equality.

Indeed, the program could more realistically be considered as moving toward an “Economic Bill of Rights” for all Americans, a robust initiative on which leading economists Darrick Hamilton, Mark Paul, and William Darity Jr. have written:

“The impetus is to embed this into a cultural understanding that this is our birth right. Every newborn infant in the United States should have a birthright to a trust account that would enable them to move toward economic security later in life.”

As FDR boldly proclaimed, “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

It’s time to pursue progress in a way that FDR pushed forward but did not fully realize: using our nation’s shared resources to tackle concentrated wealth and foster economic opportunity and security for all, regardless of race, gender, or zip code.