Baby Bonds: Securing a Brighter Future for Young Learners

Aug 7

Marvin Smith, Policy Council Member

Transitional phases throughout one’s life can result in a significant amount of financial hardships. When I graduated college in Chicago, after a move from the greater Boston area where I grew up, I was fortunate to receive an inheritance of $5,000 left to me by my grandmother, Nidia de los Santos. She was a hard working and loving woman who moved her life from the Dominican Republic and diligently saved money for years, amassing a small nest egg of which I benefited from when she passed away. It was this gift that allowed me to secure an apartment and purchase the basic necessities to get me through my first few years as a young adult. These funds helped me begin a new life in a new city.

I often think about this support and the financial privilege it provided me as it financially covered common “hidden costs” for young adults starting out their lives—more than 25% of young adults do not have a savings account at all. Our country could (and should) support young people who don’t have access to resources like I did.

In my own work and across the EdLoC Network, we are continuously trying to elevate solutions to address the pervasive wealth gap among Americans, especially gaps based on race. Baby bonds, first proposed by economist Dr. Darrick Hamilton, can start as early as birth and would help children of color begin their adult lives with the economic resources they need to build long-term economic security and generational wealth.

The American Opportunity Accounts Act (AOAA), introduced in 2023, can make baby bonds a reality. Introduced by Senator Cory Booker (D-NJ) with 15 cosponsors, including Majority Leader Chuck Schumer (D-NY), and Senators Amy Klobuchar (D-MN) and Elizabeth Warren (D-MA), continued advocacy by a diverse group of allies and Republican co-sponsors will make legislation advancement a success. I’m excited by the opportunity for EdLoC, in coalition with many others, to embrace this promising proposal and advocate boldly for its passage.

How Do Baby Bonds Work?

The baby bond proposal would provide approximately four million children born in the U.S. each year with an American Opportunity Account seeded with $1,000—managed by the Treasury Department. These accounts would automatically receive up to a $2,000 deposit annually until the child turns 18. Once they turn 18, the young adults would be able to invest funds from their account into wealth-building opportunities, such as higher education, starting a small business, or even homeownership. Baby bonds have the ability to benefit all families, but will specifically have a positive impact for young Black and Brown adults. Under the bill, young adults accrue the following:

A Black child would accrue $29,800

A Latinx child would accrue $22,300

A white child would accrue $11,690

Leveling an Uneven Playing Field

There is no pathway to addressing major challenges our society faces without transformative education policies at all levels of government. Yet, investments in education alone aren't enough. We need to also invest in and support policies, like baby bonds, that directly address wealth inequality to ensure learners are able to reach their full potential and lead lives of economic prosperity.

Baby bonds address a racial wealth gap stemming from a long history of government and private-sector policies and practices that benefit white households over households of colors, including the Homestead Act, the Social Security Act, redlining, and implementation of the GI Bill. Current tax policies also continue to exacerbate the wealth divide. Under the 2017 Tax Cuts and Jobs Act, 80 percent of tax breaks went to white households—40 percent going to white households in the top five percent of earners. We’re now at a point where wealth inequality has increased so sharply by race, Black households only having 12 cents per $1 of the wealth of non-Latinx white households.

Wealth shapes children’s futures in the U.S., placing those without it on an uneven playing field as young adults. Young adults born into wealth will likely receive help paying for college or buying their first home, while someone born into a low-income household starts from zero. Having to take on student loans and debt makes it harder to become financially stable and build wealth to pass onto future generations—around 45 million student loan borrowers owe more than $1.6 trillion, with borrowers of color disproportionately holding more amounts of student debt and having more difficulty repaying loans.

We will need collective action to build awareness of baby bonds and the progress we’re seeing already in various states across the country where this legislation is emerging. Education leaders particularly can join the effort by bringing their lived and professional experiences from working directly within school systems, to show how baby bonds can support low-income learners. Connect with local coalitions for baby bonds in your state and join efforts to rally support from your legislators—our collective voice has power, and together we can drive the change our future learners need.

This article was written by and reflect the personal views of Marvin Smith, a proud member of EdLoC, its Policy Council, and Boulder Fund Selection Committee. Marvin is the Chief Public Affairs and Development Officer for the Advanced Education Research and Development Fund. He has devoted his career to working collaboratively with learners and caregivers, educators, researchers, policymakers and investors to improve the quality of public education for all students, especially students of color and those experiencing poverty.

EdLoC National