This post was originally published on Urban Wire, the blog of the Urban Institute.


For policymakers at the federal, state, and local levels, the relationship between public policy and racial wealth inequity is top of mind. Recently, momentum has grown behind one policy with the potential to reduce the Black-white wealth gap: baby bonds, the publicly funded child trust accounts that target children from families with low wealth or low incomes. When the children reach adulthood, they can use the funds for wealth-building activities such as purchasing a home or starting a small business.

Versions of the baby bonds program currently exist and are in the early implementation stages in Connecticut and Washington, DC. A pilot program also exists in California for children who lost a primary caregiver to COVID-19 or have long-term stays in the state’s foster care system. But the distribution amount is yet to be determined, and there are no current use restrictions.

Because baby bonds are a nascent policy, no empirical studies on their effects have been published. However, we provide a literature review of three simulation studies that model the potential effects of baby bonds in our recent brief, finding that all three show reductions in racial wealth inequities.

Findings from the field

The three simulations we analyzed all find that baby bonds would reduce Black-white racial wealth inequities, though they differ in scale. Naomi Zewde’s 2019 study found that the wealth gap between the median white and Black young adult would be reduced to a ratio of 1.4 to 1, compared with the current 15.8 to 1. In terms of dollars, the median white young adult in the US currently has nearly $16 for every $1 the median Black young adult has. If baby bonds were implemented, Zewde predicts the median white young adult would have $1.40 for every $1 their Black counterpart has.

Christian E. Weller, Connor Maxwell, and Danyelle Solomon’s 2021 study estimated that baby bonds would reduce the white-Black wealth gap to a ratio of approximately 2.7 to 1 by 2060, with the median household holding $2.17 million wealth compared with the median Black household having $798,000. Lia Mitchell and Aron Szapiro (PDF) predict baby bonds would narrow the white-Black wealth gap to a ratio of about 3.4 to 1 for the median adult ages 18 to 25.

Research from related programs also supports the idea that investing early in babies from families with low incomes can have positive effects on wealth inequities. Research by the Institute on Assets and Social Policy (PDF) finds that a universal, progressive children’s asset-building program with an initial deposit of $7,500 for low-wealth households and incremental declines to $1,250 for the highest-wealth households could close the median Black-white wealth gap by 23 percent and the median Latino-white wealth gap by 28 percent.

Ensuring the success of baby bonds

These simulations are promising, as all the studies indicate that the policy would reduce Black-white racial wealth inequities by more than half. But for any early life wealth-building policy to influence racial wealth inequities, the following principles are key:

  1. Policy design. For baby bonds to be most effective in reducing racial wealth inequities, six design features are particularly important: automatic enrollment and universal eligibility, financial progressivity, flexible use of funds, public funding, substantial initial endowments, and individual account holders.
  2. Federal implementation. To date, baby bonds have been implemented at the state and local levels. A federal program would provide a larger investment and even greater potential to help young people with lower wealth enter adulthood on a strong footing. A federal program would also allow young adults to keep their benefits as they move across states—whereas now, most state-run proposals have residency requirements. Research shows racial wealth inequities are not the result of individual choices but the systemic benefiting of white families at the expense of families of color, meaning federal programs are crucial for pursuing racial equity.
  3. Holistic income and wealth approach. Baby bonds will be most effective when they’re coupled with other policies aimed at supporting short- and long-term economic well-being, including cash assistance, guaranteed income, and child care supplements. Coupling baby bonds with systemic change and antidiscrimination policies could ensure people of color reap the same benefits from their assets, and reparations could begin to address the decades of wealth stolen from Black Americans.

As policymakers continue to pursue efforts to increase racial equity and close long-standing wealth gaps, this research offers new support for baby bonds and other redistributive policies that can help Black Americans enjoy a more prosperous future.

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