Updated: Aug 20
Written by Gabe Agüero and Connor Dudas
It turns out baby bonds aren't so infantile after all.
Connecticut recently established a “baby bonds” initiative, which, according to State Treasurer Shawn Wooden, simultaneously represents anti-generational poverty, racial equity, and economic growth legislation. Functionally, bond distribution will be associated with recipiency of state medicaid. Accordingly, for each child birth covered by Connecticut medicaid infrastructure, $3200 will be allocated to a government trust, and subsequently invested and managed by the state treasurer’s office until the child reaches adulthood. Once available, the money’s applications are incredibly restricted. It can only be allocated toward education, down payments on Connecticut homes, investments in entrepreneurial enterprises or Connecticut businesses, or as contributions toward retirement savings. Additionally, recipients will be obligated to graduate a prerequisite financial literacy curriculum (perhaps CELI can help with this).
Connecticut Baby Bonds will be subsidized through state general obligation bonds, municipal bonds secured by a state government's ability to impose taxation, for the first 12 years of its existence. Under a conservative rate of return projection, the recipient’s savings account would experience 6.9% annual growth, and increase considerably to approximately $11,000. Beneficiaries would have up until their 30th birthday to apply to claim the passively appreciating funds.
Legislatively, Wooden’s Baby Bonds initiative was resoundingly bipartisan, encountering negligible congressional resistance. A desire to ameliorate metastasizing racial economic inequality was a significant motivation behind the aforementioned legislation. Although ostensibly a race neutral program, Black and Hispanic children are disproportionately overrepresented in state medicaid eligibility and would therefore benefit particularly from the baby bonds initiative. In addition to advancing economic egalitarianism, Baby Bonds could theoretically mitigate the economic repercussions of America’s racial wealth disparities, estimated by McKinsey and Company to constitute $1 to $1.5 trillion in inefficiencies. A 2019 Columbia University study discovered that the implementation of a baby bonds program would virtually eradicate racial wealth incongruities among young adults. Nonetheless, Connecticut’s Baby Bonds initiative scarcely eliminates the necessity of supplemental anti-poverty mechanisms, according to director of federal tax policy at the Center on Budget and Policy Priorities Chuck Marr.
The economic benefits of baby bonds will materialize in increased university enrollment, homeownership, and business formation, in addition to meaningfully improved financial behavior among recipient’s families. Indeed, Washington University in St. Louis published research entitled “Child Development Accounts generate assets, positive outlook, and parental investments,” which established that child development savings accounts increase financial risk aversion and reduce impulsivity among recipient’s families.
Additionally, Connecticut’s Baby Bonds legislation illustrates a salient distinction in the comparative liquidity of anti-poverty mechanisms. Traditional anti-poverty initiatives, including nutritional assistance or unvarnished cash transfers incentivize relatively liquid consumption on rudimentary commodities such as food, rent, or electricity. Conversely, bond initiatives, particularly with maturity stipulations or allocation restrictions, stimulate illiquid consumption on post secondary or vocational education, residential properties, or entrepreneurial pursuits, which generates a distinctive advantage in the accumulation of generational wealth or its foundations. The aforementioned variation in consumptive liquidity corresponds acutely to the magnitude of the cash or resource infusion. Recurring payments are substantially more conducive to liquid consumption.
Further, the passively appreciating nature of Connecticut’s child development savings accounts incentivizes conscientious borrowing and credit accumulation by providing socioeconomically disadvantaged communities with the ability to responsibly establish credit through student loans, mortgages, or entrepreneurial financing.
Finally, the macroeconomic ramifications of Wooden’s legislative magnum opus are tantalizing: an increasingly educated and qualified workforce, stimulated consumer participation in housing and education, and increased business diversity and the consumer, worker, and community prosperity that accompanies it. Ergo, it is counterproductive to interpret Baby Bonds as merely an “anti-poverty” measure, certainly not in an immediate or isolated capacity, but as rather as a legitimate, comprehensive, and ambitious investment in subsequent generations of financially underprivileged communities
Board, Hearst Connecticut Media Editorial. “Editorial:” Connecticut Post, Connecticut Post,
Connecticut Public Radio | By Patrick Skahill. “State Launches Ambitious 'Baby Bonds'
Program Targeted At Closing Racial Wealth Gap.” Connecticut Public, 8 July 2021,
Csd. “New Research: Child Development Accounts Generate Assets, Positive Outlook,
and Parental Investments.” Center for Social Development, 7 Apr. 2021,
Thelilynews. “A Groundbreaking Connecticut Law Would Give a $3,200 Bond to Every Child