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CAN BABY BONDS FIGHT WEALTH GAP AND RACIAL INEQUALITY?  
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Lynn Parramore
February 27, 2024
Institute for New Economic Thinking
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_ Connecticut is the first state to fund and enact a baby bonds
program, inspiring more states to create their own plans. Can it make
a difference? _

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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.

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
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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,
Governor 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,
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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
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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.

Treasurer Erick Russell, who got the Connecticut Baby Bonds Trust
rolling, described the program
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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
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if he becomes governor. In Georgia, the Georgia Resilience and
Opportunity (GRO) Fund is piloting a program
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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.

Lynn Parramore
[[link removed]], Senior
Research Analyst

* Inequality
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* Racism
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