Connecticut's baby bonds program will mean that from July 1 onward, every child born into poverty in Connecticut will have an investment waiting for them when they turn 18.
Connecticut is launching a first of its kind baby bond program to dismantle cycles of poverty in a state with some of the most dramatic economic disparities in the country.
As someone researching and writing about the racial wealth divide for the last twenty years, Connecticut’s Baby Bond program is the most significant step I’ve seen a state take that begins to address the racial wealth divide. Addressing wealth inequality requires putting substantial assets in the pockets of those in asset poverty. It also requires a long-term timetable.
Starting July 1, Connecticut will deposit $3,200 into a trust in the name of each new baby born into a household eligible for Medicaid (known by the acronym HUSKY in Connecticut). These young people will be able to redeem that capital any time between the ages of 18 and 30 (provided they are still Connecticut residents). The modest initial bond amounts are projected to grow to anywhere from $10,000 to $24,000 in value, depending on when they are used. The tax-exempt funds are available for investments such as starting a small business, higher education or job training, and homeownership.
Due to the over-representation of Black and Latino households in poverty, the focus on babies in poverty guarantees a disproportionately positive impact on these communities. Hopefully, this program will inspire similar legislation across the country.
Connecticut’s Baby Bond program builds off decades of analysis and advocacy in addressing poverty. In 1959 over 50% of African Americans lived in poverty; by 2019, less than 19% of African Americans lived in poverty. This 19% poverty rate is still more than twice that of non-Hispanic whites but is an example of substantial economic improvement for African Americans. Removing barriers to economic and social opportunities through policy change was key to making this happen. The Black Freedom Movement of the 1950s and 1960s pushed for important legislation like the Civil Rights Act of 1964 and 1968. The Black Freedom Movement also helped advance the War on Poverty and its programs like the Supplemental Nutrition Assistance Program, Medicaid, and the Earned Income Tax Credit, all vital to the dramatic decrease in poverty. Today we see the state of Connecticut taking the lead in moving the nation forward in confronting poverty and economic inequality.
Baby Bonds stem from the wealth-building movement popularized by Michael Sherraden’s 1992 book “Assets and the Poor: New American Welfare Policy.” The book’s theme was the need to build off of the income supplement programs of the mid-20th century and develop asset-building policies that moved the people experiencing poverty beyond income maintenance or day-to-day survival. In 2003 the Saving for Education, Entrepreneurship, and Downpayment (SEED) Initiative launched a Child Saving Account based on Sherraden’s Individual Development Account. By 2017, 54 Children Savings Account programs serving 382,000 children in 32 states and Washington, DC, were in effect.
The 90s-inspired program was miniscule, however, with initial deposit amounts typically around $50. If policymakers wanted the CSA system to have “an identifiable impact on communities of color facing deep racial wealth inequality,” a report I co-authored for Prosperity Now put it in 2018, then they needed to “establish CSAs with larger initial deposits or greater wealth transfers.” We also noted that programs needed to better target children of color and seed such programs with at least $1,000.
The notion of a “baby bonds” public benefit system – not to be confused with the investor class’s habit of terming small-value corporate investments ‘baby bonds’ – fulfilled both these objectives of finer targeting and larger monetary value.
In 2010, Economists William Darity and Darrick Hamilton proposed a “baby bond” program designed to address the racial wealth divide. Connecticut’s program stems from Darity and Hamilton’s baby bonds work. Connecticut’s program has a substantial $3,200 seeding for the baby bond and a projected return of three to eight times that initial investment. Even the high-end $24,000 cash-out value would not bridge the near $150,000 wealth divide between Blacks, Latinos and whites, of course. But even the low-end projected return of $10,000 for children born in poverty would roughly double the median wealth of Black and Latino households.
Hopefully this is the beginning of a trend. States nationwide should begin creating similar wealth-building programs. Connecticut’s Baby Bond program will strengthen Senator Corey Booker and Congresswoman Ayanna Pressley’s push for the American Opportunity Accounts Act, a federal baby bond program that would provide $1,000 for every American child and additional amounts up to $3,000 total for the lowest-income Americans.
For generations, there has been little bridging of racial wealth inequality and addressing multi-generational asset poverty. The soon-to-be enacted Baby Bond program in Connecticut, similar proposals in other states, and the proposed American Opportunity Account Act, show that the country may finally be willing to progress on bridging the racial wealth divide.
Dedrick Asante-Muhammad is NCRC’s Chief of Organizing, Policy and Equity.