Baby Bonds: Trust Funds for America’s Children

In today’s sprawling, complicated, and fast-moving society, having money opens countless doors. It means more educational opportunities, more job opportunities, and a huge advantage in the playing field we call life. Democratic candidate Cory Booker recently proposed a plan dubbed “baby bonds” which would attempt to level that field for all children in the United States. Under his plan, every newborn would receive a savings account with $1,000 at their time of birth, and the federal government would deposit into these “American Opportunity Accounts” based on their socioeconomic status. By the time these accounts are full and their beneficiaries reach 18 years of age, the poorest children would receive $46,200, and the wealthiest $1,700.

Designed to combat poverty across the nation and prevent the intergenerational poverty cycle that often afflicts poor Americans, these baby bonds could completely transform the way young adults see money and the future. With experts noting that relative mobility rates, or the chance that a child born to parents in the bottom fifth of the national income distribution reaches the top fifth, currently hover at 7.5 percent in the U.S.—half of Canada’s current 13.5 percent—it seems about time America’s poor youth are given the chance to fight the poverty cycle.

But baby bonds won’t just benefit the poorest citizens of our society. Rising tuition prices, coupled with the rising cost of living in America, make it difficult for adults—let alone students and young people—to live comfortably and debt-free. That could all change. The money from these AOA accounts could be used to purchase a car, pay for college, or start a new business, giving young Americans a chance to get on their feet and prepare for the real world. The economic potential of such an initiative is boundless—all it needs is a little faith.

Aside from providing young adults with a much-needed financial boost, Booker and his team argue that baby bonds would serve to heal the racial wealth gap that plagues American society today. The Federal Reserve found that the median net worth of a white household was roughly $171,000 in 2016, almost 10 times that of a black household, which was estimated to be around $17,600. Researchers have also found that in 99 percent of neighborhoods in the U.S., black men earn less in adulthood than white men who come from similar socioeconomic backgrounds. Statistics like these indicate just how deeply entrenched racism is in American culture, whether it be in the workplace or on the street; it is a result of centuries of oppression. The pervasiveness of racism today in all facets of American life has restricted the social and economic growth of minorities, both through education and employment discrimination. It is imperative that modern society addresses these concerns and begins to take political action.

Numerous Democratic politicians have also proposed solutions designed to lessen the racial wealth gap, including student loan initiatives and even universal basic income. But researchers at the Center for American Progress, a research group that aims to approximate the impact of the policies of 2020 Democratic candidates, have found that baby bonds are the most effective way of achieving racial parity, with experts estimating that the program would reduce the black-white wealth gap by 24 percent over the next four decades. This would mean that by 2060, the median wealth of white U.S. families would be about 2.7 times that of black families. Other Democratic proposals, including Elizabeth Warren’s plan to make college debt-free, are not expected to lessen the wealth gap by more than 10 percent, and Warren’s specifically would result in a white-black median wealth ratio of 4.6, far higher than Booker’s projected results.

Cory Booker’s plan, though in its early stages of development, has already faced much opposition in Washington, with skeptics pointing out that “trust funds” of this kind would give children less incentive to work for themselves and save for the future. The lack of requirements placed on the spending of the baby bonds is equally alarming to the program’s critics, considering the potential cost of the program is estimated at around $60 billion a year. For comparison, the budget of the entire Department of Education in fiscal year 2019 was $59.9 billion. But in the context of overall federal spending, paying for baby bonds would be a minor financial endeavor. In the same spending period, the budget for the Department of Defense was $686.1 billion.

To put it bluntly, the cost of waging forever wars in foreign nations is over 10 times the estimated cost of financially supporting our nation’s young children.

Yet, as with every ambitious proposal to revolutionize American society, baby bonds should be well-regulated, and their use should be limited to proper purposes. Entrusting the bond recipients with complete control of their accounts could be disastrous and end in a complete waste of taxpayer dollars—after all, teenagers tend to buy first and ask questions later. Instead of simply handing teenagers large sums of money, the federal government and banks should reserve these bonds for educational and professional purposes and ensure that the money is used in a productive manner. Recipients should be able to withdraw funds to finance higher education, career and vocational training, GED programs, and the living expenses that accompany such programs. Living expenses could include childcare for single or working parents, food, rent, and transportation, all which are costly services that may make it difficult, if not impossible, for recipients to participate in training and educational programs. Student loans are another huge expense which could be dealt with by using funds from AOA accounts.

But what makes Booker’s plan unique is not its finances and predicted social impact, but its subjectivity. Unlike Andrew Yang’s proposal for universal basic income, which would provide every American with $1,000 every month no matter their circumstance, Booker’s plan takes into account a person’s socioeconomic status, thereby distributing wealth more evenly and financing the needs of people who need it the most. Unlike a universal basic income, which grants the money with no strings attached, his plan would also allow the federal government to have more control over the money they are giving to America’s youth.

In a time of such heated racial tension and the looming threat of a possible recession, baby bonds would give American children of lower socioeconomic status a huge financial boost and provide them with the opportunities afforded to their more affluent peers. Booker’s proposal is not perfect, but it is the beginning of a plan that could provide a viable solution to excessive student debt, resolve the black-white wealth gap, and ultimately, help America’s kids grow up.