As we advance toward the 2020 presidential election, the 24 (and counting) democratic candidates are making their priorities known. But which of these priorities will most benefit Black women and our children? Baby bonds, which are federally managed trust accounts for newborns that grow from birth to age 18, are one progressive strategy for addressing economic inequality that is gaining national attention. Given that Black women only earn $0.63 on the dollar—and own pennies on the dollar—compared to white men, our road to wealth equity is a precarious ascent. BlackHer Shero Anne Price, president at the Insight Center, told us,
“I think baby bonds would have a disproportionate [positive] impact on women. Black women have the lowest wealth levels of any group in this country that we can measure. While this proposal doesn’t actually close the gap, it significantly narrows it.”
The idea of baby bonds was pioneered by Darrick Hamilton, director of Ohio State University’s Kirwan Institute for the Study of Race and Ethnicity, and William “Sandy” Darity Jr., a professor at Duke University. They propose federally managed trust accounts that are endowed by the government with seed funding based on the wealth position a child is born into—from $100 for children of the wealthiest households to $60,000 for children of the poorest households—and grow at a guaranteed annual interest rate until the child reaches age 18. During his December 2018 TED talk, Hamilton said,
“Wealth begets more wealth.”
He explained that our economic success has more to do with the wealth position into which we are born than our individual choices. Given that almost 30% of Black households have zero net worth, and white households have a median net worth that is 10 times higher than Black households, baby bonds help dispel the old “bootstraps” narrative that if you just work hard enough you will achieve economic success. They would also make wealth transfers possible for families who have been denied access to economic advancement for generations.
A few of the 2020 Democratic candidates are taken by the idea.
New York Senator Kirsten Gillibrand endorsed a recent report, “Ten Solutions to Bridge the Racial Wealth Divide,” published by the National Community Reinvestment Coalition, Institute for Policy Studies, and the Kirwan Institute for the Study of Race and Ethnicity, which highlights baby bonds as its first programmatic solution. While Gillibrand supports the idea, she hasn’t indicated whether it is central to her campaign nor has she provided an implementation strategy.
New Jersey Senator Cory Booker is taking a solid stance on inequality and the wealth gap by centering baby bonds in his campaign. Here’s what we know about Booker’s baby bonds proposal:
- Booker is proposing a universal baby bond program that will give every child born in the U.S. a trust account seeded with a $1,000 endowment. Giving every child the same seed amount may sound fair but it’s not necessarily equitable. If all children start off with $1,000 regardless of household income and wealth, then will this really balance the scales? Perhaps a smaller seed amount for children born into wealth and a larger seed amount for children born into poverty, as Hamilton and Darity proposed, would have a greater balancing effect.
- Account holders can receive additional tiered benefits of $0 to $2,000 per year based on household annual income (with no additional contributions going to families earning more than $126k annually). This sounds a bit more equitable, but we know that wealth—not income—is a greater predictor of economic opportunity and success in this country. White households across all income brackets and education levels have more wealth than their Black and Latinx counterparts. So, a white family earning $80,000 annually will have more wealth than a Black family earning $80,000 annually, which means that if all children receive the same annual benefit, the white child will still come out further ahead. Hamilton and Darity state that wealth must be the primary factor for means-testing Baby Bonds, especially if we want to have a narrowing impact on the wealth gap.
- Once children reach age 18, they can use the funds for an asset purchase such as paying for college, starting a business, or buying a home. Booker’s baby bonds proposal limits the use of funds accumulated in the account to certain wealth-building transactions. While this reflects Hamilton and Darity’s original proposal, it may be viewed as paternalistic. Should the program guarantee funds be used for traditional wealth investments or trust people to make the best decisions with their money based on their circumstances? Does wealth only come in the form of financial assets, or are other assets (e.g., health, transportation, social networks) just as critical for overall success? By restricting the use of funds, we may inadvertently constrain people’s choices and opportunities, which contradicts what baby bonds aim to encourage. Perhaps young people should be able to use their funds more freely – to purchase a car, rent their first apartment, travel to a new country, help out their family, or invest in themselves.
Anne Price encourages us to think critically about the design and implementation of baby bonds.
“There’s a lot hidden that we can’t see. People’s lives are tied up together and bound with other family members. I would love to see what would happen if people combine their trusts. If siblings use their combined trusts to buy land or set up a family account, [their] innovation could build more community wealth.”
Baby bonds have the potential to spur collective investment in our communities.
Booker’s baby bonds proposal is a step in the right direction, but it could be improved to have a greater impact on the wealth gap. There’s an opportunity here for another candidate to propose a bolder, more comprehensive plan that’s closer to Hamilton and Darity’s original intent and vision. Black women have an important choice to make in the 2020 election, and we should leverage our voting power to push candidates to embrace the issues that matter most to us and to design programs and policies that brighten our futures.
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