January 26, 2023
A new report released by the Baby Bonds Task Force from The Office of Economic Empowerment claims that state investment into government-issued Baby Bonds could help close the racial wealth gap across Massachusetts.
Massachusetts is an extremely expensive state and as time goes on, the racial wealth gap continues to widen. According to a study conducted by the Boston Fed, the median net worth of black households in the Greater Boston area was just $8 compared to over $247,000 for white households. This severe economic inequality signifies that future generations of many black families will not have access to the opportunities necessary to adequately support themselves and their families or secure successful outcomes in education, housing, or employment.
By creating a Baby Bonds initiative, Massachusetts can address the needs of our community and promote a more inclusive and productive economy for future generations.
The report outlined 4 key recommendations for the Massachusetts Baby Bonds program:
- Eligibility and Funding: Ensure children under the age of one who are enrolled in certain aid programs and children who are in the DCF foster care system should be automatically enrolled in the Baby Bonds program. A sustainable funding source will also be necessary to ensure the program's longevity.
- Building Financial Capability and Engagement: An advisory committee should be created in order to provide Baby Bond participants and their families with early, targeted, and consistent engagement, which will include financial education.
- Accessing and Using Baby Bonds: The report outlines clear regulations regarding how Baby Bonds funds should be utilized and accessed for participants between the ages of 18 and 35 years old. Funds must also showcase contribution to the Commonwealth's economy.
- Trust management, oversight, and operations: A trust should be established for Baby Bonds participants to invest a single account with appropriate risk characteristics. The creation of an online platform will also be necessary to ensure that the participant is able to access and update their account details with personal information.
In numerous reports, Baby Bonds programs have been shown to minimize the racial wealth divide and to address the systemic barriers that have prevented black and brown families from accumulating wealth. As it is designed to be an asset-building program, the Baby Bonds initiative will have the ability to provide young people from low-income households and those who are in the DCF foster care system with a substantial monetary endowment to allow them to build wealth overtime.
In order for this program to be sustainable, it will require adequate and a steady stream of government-funding. In addition, as the Baby Bonds program's intention is to aid minority and low-income families in building generational wealth, there needs to be additional streams of funding distributed to low-income and minority communities. Baby Bonds promote wealth creation and can only be accessed at 18 by the participant, so this program needs to operate in conjunction with other programs to ensure families can survive and thrive on a day-to-day basis.
By investing in our youngest residents, Baby Bonds are an important tool for breaking down the multigenerational cycle of poverty and income inequality.
Read the full report here.
Recent updates regarding Baby Bonds legislation:
- Legislation introduced in the Commonwealth aims to reduce the racial wealth gap by creating a statewide "Baby Bonds" program. The investments are made and managed by the government on behalf of newborn children in low-income households with little opportunity to generate wealth. The funds are then made available to the child once they turn 18, and can be used for college, starting a business or even to purchase a home. Deborah Goldberg, State Treasurer, called it a proactive approach to addressing historic inequities.
At the federal level, Congresswoman Ayanna Pressley introduced a Baby Bonds bill to address wealth inequality.
- The American Opportunity Accounts Act, also known as “baby bonds”, would give every American child a fairer chance at economic mobility by creating a seed savings account of $1,000 at birth. The funds would sit in an interest-bearing account that would receive additional deposits each year depending on family income. At age 18, account holders could access the funds in the account for allowable uses like buying a home or paying for educational expenses. The legislation is fully paid for by making common sense reforms to federal estate and inheritance taxes, including restoring the estate tax to 2009 levels.