Could $3,200 ‘Baby Bonds’ Help End Poverty in America?

Some states that have considered baby bond programs haven’t gotten the political support and budget to fund them. (Photo: AP)
Some states that have considered baby bond programs haven’t gotten the political support and budget to fund them. (Photo: AP)

Summary

  • Connecticut, California and others are considering trust accounts some call ‘baby bonds’

A new investment program being tested in some states makes the case: what if the poorest children started life with some money in the bank.

That is the premise of a program catching on among Democratic leaders around the country. So-called baby bonds have been discussed in at least eight states and lawmakers have approved programs in Washington, D.C., Connecticut and California.

The idea is for the government to deposit a few thousand dollars into a trust account for each infant born to parents below a designated income level. As adults, the beneficiaries can use the money—plus investment returns—to help pay for education or a home.

Some states that have considered baby bond programs haven’t gotten the political support and budget to fund them.

Connecticut—a state where Democrats hold the governor’s office and both chambers of the legislature—offers a window into potential obstacles. The state was the first to approve baby bonds in 2021 but still hasn’t funded the $600 million initiative.

If implemented, Connecticut’s proposal would be by far the biggest in the country, six times the size of one now under way in California. Officials nationwide are paying close attention.

“When we’re able to have this type of momentum nationwide, it passes the message down to fellow legislators to really think about not only the promise that we’re delivering to kids for the future, but the ways this is a fiscal investment that will save the state money in the long run," said State Sen. Melissa Agard of Wisconsin.

Connecticut’s baby bonds program was meant to fund the creation of trust accounts with deposits up to $3,200 per child for 12 years. At 18, beneficiaries who completed a financial literacy course could use the money to start or invest in a Connecticut business, buy a home in the state, pay for higher education or save for retirement. A first time family could qualify for eligibility under the state’s public health insurance with an income of $65,382.

Lawmakers intended to fund the program through bonding but ran into opposition from Gov. Ned Lamont. Former state treasurer Shawn Wooden championed the program as a way to buoy the state’s economy and promote racial equity, earning the backing of the Black and Puerto Rican Caucus.

Baby bonds were envisioned by economistsDarrick Hamilton of The New School, and Duke University’s William Darity Jr. Hillary Clinton floated the idea of a federal program during her 2008 presidential bid.

“The most critical ingredient to generate wealth is wealth itself," Mr. Hamilton said. “All the financial literacy in the world is useful and valuable, but limited if you have no finances to manage."

Some other countries have similar initiatives. Singapore offers per-child grants aimed at increasing fertility rates. Canadian children from low-income homes are eligible for an education investment fund. Israeli children receive savings accounts regardless of income, to go toward education, homeownership, or a business. The United Kingdom allocated money to child trust accounts from 2002 to 2011, then switched to tax-free savings accounts.

Some conservative policy analysts oppose giving public funds directly to poor families and favor the U.K.’s program of encouraging savings by making investment earnings tax-free. Marc Joffe, a state policy analyst at the conservative-leaning Cato Institute, said Connecticut shouldn’t borrow to cover the program.

“If legislators think this is a priority, they should find other items in the budget to cut," he said.

Still political and business leaders are treating baby bonds as a lower spending priority than other programs that serve a wider, more middle-class population. Lawmakers in Connecticut voted to delay the program’s launch from July 2021 to July 2023.

At the Connecticut Business and Industry Association, top spending goals include reducing taxes, increasing school funding, and adding affordable child care and housing, said Chief Executive Chris DiPentima.

Shondell Vann says her daughter, who was born in August 2021, is one of the children who missed out on the baby bonds program due to the funding delay. A 28-year-old single mother who makes a living designing custom goods, like backpacks and tumblers, Ms. Vann is studying business management at her local community college.

“I’m trying to set myself up, so [my daughter] doesn’t have to worry about struggling paycheck to paycheck, but an opportunity like this was just a little bit more of a leg up," Ms. Vann said.

California in 2022 created trust accounts for about 50,000 minors in the foster-care system who lost parents or caregivers to Covid-19, using a one-time allocation of $100 million from the state general fund. Elected leaders in Massachusetts, Nevada, Maryland, Iowa, New Jersey, Wisconsin, Louisiana and Delaware have also discussed baby bonds initiatives.

Washington, D.C., in 2021 approved a bill providing $32 million to pay for baby bonds for three years, but long-term funding efforts have bogged down.

In Connecticut, some are still working to find the money. State Sen. Marilyn Moore, a Democrat from Bridgeport, said the money could come from taxes on cannabis sales.

“Now, it’s just a matter of agreeing how we can fund it and we can get very creative," said Connecticut state Rep. Geraldo Reyes.

Luz Holmes, a 28-year-old expectant mother who is enrolled in Connecticut’s Medicaid program, would be among those whose children would qualify if the baby bonds program starts this July.

Ms. Holmes says she recently became a homeowner and has $55,000 in student debt after earning a degree in public health.

“An initiative like baby bonds is showing every child that you believe in their future success, and we want that opportunity," she said.

Write to Brenda León at brenda.leon@wsj.com

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

MINT SPECIALS