Baby Bonds in the Opportunity Economy

What Are Baby Bonds?

In last week’s post on this blog, I said that baby bonds are among the things that may be needed to make Kamala Harris’s Opportunity Economy more than a slogan. Since many of my readers may not be familiar with the idea of baby bonds, I want to explain what they are and how they would work.

The idea is that each baby born in the United States would receive at birth a treasury bond that would be held in trust for the child until he or she reaches adulthood. The amount of the bond would depend on the wealth of the child’s family. Children born into wealthy families would receive smaller bonds than children born into poor families. Darity and Hamilton, who originally proposed the idea in 2010, suggested that children in the lowest wealth quartile might receive bonds worth at least $50,000, while children in the highest wealth quartile would receive a much smaller amount.

Each bond would be held in trust for the child until it reached adulthood, and the interest earned would be reinvested. When the child became an adult, the money would then become available to pay for education, to purchase a house or for any other approved purpose. While the bond was held in trust, it would appreciate considerably in value. A $50,000 bond earning 4% interest would be worth a little over $109,000 when the child reached the age of 21.

Why Give Baby Bonds?

The point of giving children baby bonds would be make equality of opportunity more real in the United States. In the United States today, wealth is very unequally distributed, and wealth can be passed on from one generation to the next. It may be passed on directly in the form of assets that are inherited, but it may also be passed on indirectly by paying for education or training. A young woman from an affluent family who wished to become an engineer, for instance, could obtain a degree in engineering without accumulating heavy debts to pay for it, because her family would be able to pay for her education. Her freedom from debt would then enable her to save money to buy a house, to fund her retirement or to pay for the education of her children, who, like their mother, would begin their professional lives without a heavy burden of debt. Thus, the family's wealth would be passed down through the generations.

In contrast, a young woman from a poor family would have to borrow a substantial amount of money to obtain an engineering degree, and the resulting debts would hamper her ability to save all through her life. She would never become as wealthy as her peer who began her professional career without the burden of debt. The poor woman would not be able to pay the full cost of her children's professional education, and so, they, too, would begin their professional lives with heavy burdens of debt. The family's situation would improve but only slowly across several generations.  The point of baby bonds is to eliminate at least some of the disparity between the young woman from an affluent family and the young woman from a poor family and to place them on a more equal footing. Thus, baby bonds would be an important element of the Opportunity Economy.

Some States Are Doing It

The baby bond idea is actually being implemented in some states. Time magazine reports:

In July 2023, Connecticut deposited $3200 into an account for a newborn creating the nation's first ever baby bond. Over the net 18 to 30 years, the effects of time and compounding interest will give that baby up to $24,000 to pay for college, make a down payment on a home, start a business or do other things that will shape her life and build wealth. 

Baby bonds should definitely be a part of the Opportunity Economy.