December 9, 2022

The racial wealth gap between white and black families in the United States is more of a divide than a divide.

In 2019, the average household wealth of white families was nearly $ 190,000, nearly eight times that of black households, according to the Federal Reserve.

Baby bonds are one proposal to close the gap. Unlike regular bonds, these are not debt instruments that are traded on the public markets. Instead, the proposal would create a federally funded escrow account for every newborn in the US

“I support this idea called Baby Bonds,” Senator Cory Booker, DN.J., told CNBC. Booker proposed a baby bond policy called the American Opportunity Accounts Act, which many of his Democratic counterparts co-signed.

The bill, if passed, would create a savings account for every child with at least $ 1,000.

“Depending on the wealth of your family, each child receives a deposit of up to [age] 18 in that account, more than $ 2,000 for the lowest-income children, “Booker told CNBC.

By the time the child turns 18, they could have nearly $ 50,000 in this account depending on the family’s income. If the child came from a wealthy family, they would make just over $ 1,600 by the age of 18 as they would not receive any annual payments.

Booker’s American Opportunity Accounts Act could narrow the racial wealth gap by 40%, according to investment firm Morningstar. In addition, Babybond recipients could only use the funds for wealth-building activities, including buying a home, training, or starting a business.

According to analysis by Booker’s office and the City University of New York, a baby bond program could cost the US government $ 60 billion to $ 80 billion.

“It’s a bit more than grocery stamps,” said Naomi Zewde, assistant professor at CUNY’s Graduate School of Public Health and Health Policy.

Baby bonds, however, cannot fill the racial wealth gap on their own, and conservative policy experts argue that baby bonds may reduce the incentive to save or to continue learning.

Watch the video above to learn more about how baby bonds might work, the economics behind the proposal, and what is planned next for this federal and state policy.

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