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baby bond
The Best Black Economy in Generations Isn’t Enough
To overcome centuries of inequality, we’ll need dedicated public policy such as Investment in quality education, access to affordable healthcare, affordable housing, job creation, and Baby Bonds.
Sep 04, 2024
As the country moves rapidly toward the 2024 elections, Black Americans are experiencing the best economic conditions they’ve had in generations. Record low unemployment rates, record low poverty rates, and record high levels of income and wealth paint a picture of Black prosperity.
Yet African Americans remain mired in great economic insecurity, reflected in their low opinion of the economy, widespread asset poverty, and ongoing economic inequality between Black and white households.
The best Black economy in generations, in short, isn’t enough. To overcome centuries of inequality, we’ll need dedicated public policy.
Black median income today is still nearly $30,000 lower than the white median—it’s not even caught up with the white median income of 1972.
Let’s look at some numbers from a new report we put out for the Joint Center and the Center for Economic and Policy Research.
From 1972 to 2022, the annual Black unemployment rate averaged 11.6%. Last year, it averaged 5.5%, a historic low. That’s good news, but it’s barely put a dent in the gap between Black and white employment.
We calculate that Black America would need an additional 1.4 million jobs for Black people to be employed at the same rate as white people. This employment gap cost Black Americans roughly $60 billion last year compared to what they’d have made if those jobless individuals were working.
So for African Americans, the racial employment divide remains quite costly. Other indicators tell a similar story.
For example, Black median household income is also at its highest point in a generation, growing from about $41,000 in 2011 to nearly $53,000 in 2022—a nearly 30% increase. That same year, median Black wealth also reached a new high of nearly $45,000, more than double the post-Great Recession low of about $17,000.
Still, Black median income today is still nearly $30,000 lower than the white median—it’s not even caught up with the white median income of 1972. And the average Black median wealth of about $45,000 means the vast majority of African Americans fall well short of the $190,000 to $570,000 estimated as necessary to reach middle-class status.
Will these disparities correct themselves on their own? Not likely.
As the Institute for Policy Studies and the National Community Reinvestment Coalition found in their 2023 “Still A Dream” report, the nation is still moving at a glacial pace when it comes to bridging Black/white economic inequality. If the country continues at the rate it’s been moving since the 1960s, it will take over 500 years to bridge the racial income gap—and nearly 800 years to bridge the racial wealth gap.
So while Black Americans are experiencing significant economic gains, these advances are insufficient to overcome entrenched inequalities. The economic progress we see today is a foundation, not a finish line. It speaks to the need for comprehensive policies that address ongoing barriers to economic security and wealth-building.
Investment in quality education, access to affordable healthcare, affordable housing, job creation targeted to high-unemployment communities, and new publicly financed asset building opportunities like Baby Bonds are essential. These measures can help ensure that the economic gains of today translate into sustained prosperity and security for future generations.
As we approach the presidential election, let’s not make this election a contest between individuals but of policies that can heal our deep wounds of racial and economic inequality.
Addressing these issues with urgency and commitment will not only improve the economic outlook for Black Americans—it will create the basis for a more united country.
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Connecticut’s Baby Bond Experiment Could Help Bridge the Wealth Gap
It will take a lot to address America’s extreme wealth concentration, but one ingredient is critical: tangible financial resources.
Feb 29, 2024
Consider a tale of two babies born in the same American city, Jake and Justin. Jake, born into an economically secure white family, is primed for success. His grandparents set up a college savings plan for him. With both parents in professional careers, there’s ample income to secure him a quality education and extra-curricular activities. During college summers, Jake works at his uncle’s real estate firm, eyeing the launch of his own contracting business post-graduation.
Across town, Justin’s story unfolds in a neglected Black neighborhood. Justin’s father, hindered by a prison record, finds only sporadic low-wage construction gigs. His mother, an administrative assistant, scrimps to support Justin’s potential. Despite hurdles, Justin enters college, funding his education with loans and a campus job. Intent on securing a coveted tech internship, Justin juggles extra shifts to support his family when his mother is laid off. Struggling to balance work and studies, Justin eventually drops out of college.
The wealth gap is the ugly shadow of American prosperity, fueled by historic and ongoing wrongs.
Jake and Justin will carry the indelible mark of their beginnings throughout their lives: Jake’s life will embody security; Justin’s, the stark reality of wealth inequality.
What if, at that critical moment, Justin had resources to reduce his work hours and take that tech internship? What would his life look like?
Connecticut’s baby-bond initiative aims to find out.
America’s First Baby Bonds
Connecticut has made history as the first state to implement a baby bonds program—fully funded for 12 years of babies.
The state will invest $3,200 for each baby covered by HUSKY, the state’s Medicaid program—that’s about 15,000 babies a year and a whopping 36% of the state’s children. Kids are automatically enrolled; no action is required. Upon reaching adulthood (18-30), participants can claim funds for specific wealth-and-opportunity-building purposes like higher education, a home purchase, or starting a business in the state. To receive the funds, they have to be Connecticut residents and need to complete a financial literacy course (hopefully not one funded by self-serving Wall Street firms). The initial $3,200 investment is anticipated to grow to $11,000 - $24,000, depending on when claims are filed.
Turning the idea of baby bonds into reality was a rocky road: The Democratic-led Connecticut General Assembly passed the bill in 2021, championed by former Democratic Treasurer Shawn Wooden. However, Gov. Ned Lamont and his team initially opposed the program’s funding, citing concerns over borrowing more than $50 million annually. Internal conflict heated up, as revealed in a January 2023 investigation by the Connecticut Mirror, exposing tensions between Wooden and the governor’s staff. Yet, following the publication, the situation took an unexpected turn. The program became a reality.
The sticking point of funding was solved by a plan to use a $393 million reserve fund established in 2019 during the restructuring of the state’s cash-strapped pension fund for municipal teachers. Originally designed to cover shortfalls in pension fund contributions, this reserve could be repurposed. To safeguard the pension system and meet ratings agencies’ requirements, a $12 million insurance policy was necessary, leaving approximately $381 million available for investment in the baby bonds program.
An Economic Shadow
The wealth gap is the ugly shadow of American prosperity, fueled by historic and ongoing wrongs. Picture wealth as your financial mojo—the sum of all your assets minus debts. It won’t surprise you to hear that white men and white families are more likely to have wealth, and a hefty sight more of it, than women, households of color, or women of color.
Racial wealth gaps reflect the country’s troubled history of discriminatory policies that have barred people of color from growing wealth. The sad fact is that things have not been getting better. The Federal Reserve’s Survey of Consumer Finances shows the racial wealth gap widening during the Covid-19 pandemic. Between 2019 and 2022, median wealth increased by $51,800, yet the gap surged by $49,950. This leaves a significant $240,120 difference between median white and Black households. Meanwhile, child poverty in America started surging as pandemic benefits ended and inflation hit hard: The child poverty rate actually doubled in 2022. The official poverty rate that year was 11.5% overall, but for Black Americans it was 17.1%.
Obviously, this is not a fair playing field. Kids don’t choose their economic circumstances.
Giving children a stake in America’s future is consistent with both a liberal and a conservative economic philosophy.
Treasurer Erick Russell, who got the Connecticut Baby Bonds Trust rolling, described the program as “leveling the playing field in the sense that regardless of what family you’re born into, or where in the state you’re born into, or what resources your parents have, you have a fair shot at having economic opportunity and growth right here in Connecticut.”
Notably, Russell refers to the wealth gap as “generational” rather than “racial.”
This move acknowledges that while the wealth gap in the U.S. is substantially shaped by racial injustices like slavery, segregation, redlining, and discriminatory lending, it’s a complex issue. Women generally contend with wealth-building hurdles such as occupational segregation, caregiving responsibilities, and restricted access to family planning. Additionally, many whites, including men, encounter barriers to wealth accumulation such as geographic disparities, limited education access, and family structure.
Calling the wealth gap generational is also politically savvy: It makes long-term policy fixes more appealing, taps into family values, sparks empathy among voters concerned about their descendants’ financial future, and garners broader support for anti-inequality measures. Plus, it shifts blame away from individuals and fosters the idea of fair opportunities, a concept voters across the political spectrum can cheer for.
There are several ongoing debates about the details of Connecticut’s program: What if political opponents gain the power to axe it? What happens after the 12 years is up? Might the program further stigmatize children born into poverty? Is it big enough to make a difference?
It will take a lot to address America’s extreme wealth concentration, like fairer tax policies and rigorous enforcement of anti-discrimination laws in housing, employment, and education. But another ingredient is critical: tangible financial resources.
Capitalists Need Capital
One thing is clear: Giving children a stake in America’s future is consistent with both a liberal and a conservative economic philosophy. Conservatives believe in limiting government spending, and baby bonds pass the test: A program is pretty cheap compared to other forms of government spending. It’s also consistent with a notion dear to the hearts of free marketeers: Baby bonds allow more people the opportunity to benefit from the markets.
Economist Darrick Hamilton, founding director of the New School for Social Research’s Institute on Race, Power, and Political Economy and a key architect of the baby bonds concept, acknowledges the devils in the details of Connecticut’s plan. But he is optimistic that state-level programs, even if imperfect and limited in scope, serve to mainstream baby bonds and help take the idea from theory to action. The ultimate goal for Hamilton is a nationwide baby bonds plan funded directly by the Treasury, akin to Social Security.
When asked about the top issue in addressing the country’s wealth gap, Hamilton responds succinctly: “Capital.”
He underscores the fact that if you lack capital in a capitalist system, you aren’t going to get very far. You can save all you want, but if you don’t have any transfers of resources from your parents or grandparents to help with things like college or the down payment on a house, it’s going to be very difficult to build wealth. “The problem with wealth-building is not how much you actively save,” says Hamilton. “It’s access to capital.” He adds that “most people with wealth generate it from owning an asset that began with some initial capital that passively appreciates over their lifetime.”
In Hamilton’s vision of a federal program, the amount allotted to each child varies based on their family’s wealth, ranging from $500 for affluent families to up to $60,000 for those at the bottom of the economic spectrum. On average, each child would receive approximately $20,000.
Inspired by Hamilton’s work and Connecticut’s plan, state-level proposals have sprouted up all around the country, including Washington, Massachusetts, Nevada, California, and North Carolina. In New Jersey, Newark Mayor Ras Baraka and 2025 Democratic gubernatorial candidate has suggested that baby bonds will be part of his agenda if he becomes governor. In Georgia, the Georgia Resilience and Opportunity (GRO) Fund is piloting a program with a simple slogan: “Wealth begets wealth.”
Undoubtedly, the wealth gap negatively impacts everyone, no matter how affluent you happen to be or what color you are. It shreds social cohesion and economic stability, limits upward mobility, and perpetuates cycles of injustice. It’s terrible for democracy, concentrating political power and paving the way to societal unrest and diminished well-being for all.
Connecticut’s experiment could be an important step in dissipating the country’s shameful economic shadow. And give the Justins a fighting chance.
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‘Baby Bonds’ Can Help Democratize the Stock Market, for Real
Innovative programs like these can help bust up the dangerous concentration of wealth at the top of our country’s economic ladder.
Jan 19, 2024
Nearly all stock market wealth in this country is now owned by the super rich. The wealthiest 10% hold about 93% of all household stock market wealth in this country, Axios reported recently—a record high.
The Institute for Policy Studies analyzed Fed data and found that the lion’s share of these gains went to the richest 1% alone. This elite group owns 54% of public equity markets, up from 40% in 2002.
The bottom half of the country? They own just 1%.
How do we boost the wealth ownership of the bottom half of households? One bold solution is to establish children’s savings accounts, also known as “Baby Bonds.”
There’s been a lot of chatter about the “democratization” of the public stock market. The Fed estimates that 58% of U.S. households have some money in the stock market, mostly through retirement funds like IRAs and mutual funds.
But that hype is missing a key trend: Nearly all that wealth is controlled by the wealthiest 10% of us. As Gillian Tett observed in theFinancial Times, “If nothing else, these rising concentrations merit far more public debate, since they challenge America’s self-image of its political economy and financial democracy.”
How do we boost the wealth ownership of the bottom half of households? One bold solution is to establish children’s savings accounts, also known as “Baby Bonds.”
Senator Cory Booker and Representative Ayanna Pressley have introduced the American Opportunity Act, a federal baby bond bill. Under this proposal, children would be provided with a $1,000 savings account at birth, with annual contributions up to $2,000, depending on family income.
At the age of 18, the proceeds of these accounts would become available to recipients for educational expenses, purchasing a home, or making investments that provide for long-term returns. For example, those funds could be invested in mutual funds and retirement funds to increase the nest eggs for non-wealthy individuals.
A number of states, like Connecticut, and a few cities, like Washington, D.C., are already creating baby bond programs. Others have introduced legislation to create them.
Connecticut has a far-reaching program aimed at reducing the state’s racial wealth divide and boosting the wealth of all low-income households. Starting in July 2023, Connecticut began depositing $3,200 into a trust in the name of each new baby born into a household eligible for Medicaid. The program is known by the acronym HUSKY after the popular state college mascot.
Recipients will be able to redeem that capital between the ages of 18 and 30 if they remain Connecticut residents. The HUSKY bonds are projected to grow to between $10,000 and $24,000 in value, depending on when they are withdrawn. The funds will be tax-exempt to the beneficiaries and available for investments such as higher education or job training, homeownership, and small business start-ups.
Other states that have either introduced baby bond legislation or are seriously considering it include California, Massachusetts, Maryland, North Carolina, New Jersey, Nevada, Washington, Wisconsin, and Vermont.
Innovative programs like these can help bust up the dangerous concentration of wealth at the top of our country’s economic ladder. In an age of unprecedented inequality in this country, it’s an idea whose time has come.
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