Black and Latino families have much lower median wealth than their white counterparts. The wealth disparities are stark. In 2019, the median net wealth of a typical white family in the U.S. was about $171,000, compared with $17,000 for Black families, according to Brookings. This wealth gap is especially pernicious given the fact that the personal or family savings of the entrepreneur is the top source of capital used by businesses at startup.

One idea to counteract these gaps and generate wealth that could be put to productive uses is “baby bonds.” Under a baby bonds policy, the federal government would create investment accounts for infants, with larger seed grants for families with lower household wealth, and smaller grants for those with more wealth. The value of the bond would increase over time through additional contributions and the returns generated by the investment. The recipient would not be eligible to access it until they reach adulthood. Once fully matured, funds could be used for activities that promote productivity or socioeconomic mobility, such as an investment in education or training or the initial capital to start a business. To address unacceptable racial wealth gaps and put all Americans on a stronger path to entrepreneurship, policymakers should:

• Create a baby bonds program with automatic enrollment at birth and program-provided funds structured progressively – both the seed grant at birth and the annual deposits made by the government. 

Supporting Evidence

• Child development accounts, or child savings accounts, have been linked to improved social and emotional well-being in children, heightened educational expectations, improved early academic achievement, better college outcomes, and a greater return on a postsecondary degree.
• A 2018 study of a hypothetical baby bonds program found that while racial wealth differences would still exist, implementing such a program would reduce the median Black-white wealth gap from a factor of 15.9 to 1.4.

POLICY IN PRACTICE: On July 1, 2021, Connecticut became the first state to implement a state-level baby bonds program. This investment will provide each child born under the state’s Medicaid program after July 1, 2021, a fund of $3,200, which they can access once they come of age. This investment can be used for further education, starting a business, or buying a first home. The investment remains available to the individual from age 18 to 30. Although this state policy is too new to evaluate, the expectation of the policymakers is that it will be an important lever to close the racial wealth gap.