Can baby bonds reduce childhood poverty? California thinks so | California

During the pandemic, tens of thousands of children in California lost a caregiver due to Covid. Since then, these kids, who are predominantly Black, Latino and Indigenous, have experienced instability, economic precariousness and grief that will carry long-term impacts.

This year, the state is launching an initiative aimed at helping them, as well as children who were in the foster system at the time: baby bonds.

More than 58,000 children will be eligible.

Baby bonds are state-run trust funds that children can access once they reach the age of 18. Advocates and legislators across the United States are increasingly looking to this model not only to support specific groups of underserved children, but also as one step in closing the racial wealth gap and eradicating childhood poverty.

Since tracking started in the 1960s, the national child poverty rate has hovered around 20%, far higher than most wealthy countries. Pandemic-era financial-assistance programs such as an expanded child tax credit brought child poverty rates to an all-time low of 5% in 2021, only to return to previous levels once those programs were removed.

Some states are taking matters into their own hands. Connecticut became the first state in the nation to implement a baby bonds initiative in 2023. Now, more than a dozen other states have drafted legislation that would create similar programs.

“We’re very excited,” said Kasey O’Connor, the director of the California baby bonds program. “This is an investment in their futures.”

The baby bonds model

The baby bonds model, conceptualized by economists Darrick Hamilton and Sandy Darity in 2010, was first introduced as a federal public policy strategy to address the racial wealth gap.

The way Hamilton and Darity envisioned it, all US babies would get a bond upon birth that they could access at 18, but the amount would vary based on household income, with children from low-income families receiving more than those from wealthy families. Since the concept was to target income instead of race, baby bonds would be “race-conscious but not race-exclusive”, Hamilton said.

White households have, on average, $250,000 in wealth, compared with $27,000 for an average Black household and $49,000 for an average Hispanic household, according to the most recent Pew Research Center analysis.

Although the wealth of Black and Hispanic households has grown over the years, the racial wealth gap has only widened, according to the most recent data from the Federal Reserve.

But the idea of using baby bonds to close this gap is taking off. It’s “contagious”, said Hamilton, professor of economics at the New School. “The racial wealth gap is in our national lexicon in a way it wasn’t two years ago.”

Federal legislation to create a baby bonds program was introduced by the senator Cory Booker and the representative Ayanna Pressley in 2019, and is currently waiting to be taken up by the judiciary committee.

At least 10 pilot programs are being run across the country, according to David Radcliffe, director of local and state policy at the New School’s Institute on Race, Power and Political Economy, who convenes a monthly planning session.

Under the California program, once participants reach age 18, they will receive access to an account with at least $4,500 in it that they can use with no strings attached. (They can also leave the money in the account longer, so it has more time to grow.)

Unlike the original baby bonds model, the California initiative will first enroll youth, not babies, and the accounts are trust funds, not bonds, which means they will have a longer investment period and a higher rate of return.

Shimica Gaskins advocated for the baby bonds legislation as director of the California anti-poverty non-profit Grace. She said it fills an important gap for these children since, before this, “no one was focusing on the social, emotional and financial implications for [them] in the long term”.

The program, which currently has a budget of $100m with $15m added annually, will eventually be expanded to include all babies born to low-income families in the state, said O’Connor, the California program director – around 160,000 each year.

“My larger hope for this program is that this is one piece of the robust supports we have for every child in California so that they can be as successful as possible, as they transition into adulthood,” said Gaskins.

The Connecticut program, meanwhile, targets low-income households directly, by enrolling newborns who are eligible for state health insurance. Connecticut began enrolling children in 2023 and last year created accounts for more than 16,000 children, state officials said.

Each newborn is given $3,200, which the state treasurer’s office estimates will grow to between $11,000 and $24,000 over the next 18 years. Unlike the California program, the use of the money is restricted to “wealth-building programs”, such as education, down-payment assistance or starting a business.

“We understand that there is no silver bullet to addressing poverty,” said the state treasurer, Erick Russell. “We approach this as one piece of a puzzle.”

A form of reparations

Baby bonds often come up in broader conversations around reparations.

“At all junctures, it is meant to be a reparative initiative,” said Marcus Anthony Hunter, a national reparations organizer. “Rather than individuals or adults, the focus is on children specifically.”

Baby bonds were designed to have bipartisan appeal, according to Hamilton, because babies are seen as politically neutral and because – since bonds build wealth – the programs aren’t seen as “anti-capitalist”, he said.

Simulations run to determine the potential impact of a federal baby bonds program show their promise. According to a 2019 study, baby bonds can significantly reduce the wealth gap. Without them, the median white wealth is 16 times that of young Black people, said the study, published in the Review of Black Political Economy. But baby bonds can reduce this disparity to a factor of 1.4. “Baby bonds considerably narrow wealth inequalities while simultaneously improving the net asset position of young adults and alleviating asset concentration,” the study said.

Another report by the Urban Institute showed that baby bonds have the potential to “reduce though not eliminate racial wealth disparities”.

Hamilton sees baby bonds and reparations as “complements, not substitutes” for other reparative programs.

“If you did the reparations, you would still need baby bonds,” Hamilton said. “Our society does what it does. Capital consolidates and it excludes.

“The big feature, if we want to redress wealth, is capital itself.”