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Baby bonds: 'There should be automatic enrollment so that no children get left out,' expert says

Prosperity Now Policy Fellow Shira Markoff joins Yahoo Finance Live to discuss how baby bonds can help narrow the racial wealth divide, the essential elements of a state or local baby bonds policy proposal, and the child tax credit.

Video Transcript

KARINA MITCHELL: The wealth divide in the US is growing. As of the end of 2020, the wealthiest 10% of households possess just under 70% of the nation's total wealth. One way to help ensure children of lower income families get off to a sound start is through the baby bonds program. Here with more on that is Shira Markoff, Prosperity Now policy fellow. Shira, thanks so much for being here. A lot of lawmakers are pushing for this initiative. Cory Booker supported it from New Jersey. I'm wondering if you can explain what are baby bonds. How do they work?

SHIRA MARKOFF: Yeah, so baby bonds are a policy idea that were initially created by Darrick Hamilton, who is a professor at the New School. And basically, the idea is that the government would set aside funds for children early in life. And then those funds grow over time. And then when children reach adulthood, they're able to use those funds to buy assets that are going to help them to become more financially secure and to build wealth over their lifetime, like a home or a small business or putting money aside for retirement or for post-secondary education.

And so the idea is that we're helping to level the playing field so that children from lower wealth households, who are disproportionately Black, Latinx, and Indigenous, have the opportunity to build wealth that some of their wealthier counterparts might have.

KARINA MITCHELL: And then what are some of the essential elements of a baby bond policy that actually has a strong impact?

SHIRA MARKOFF: Yeah, so I think the first really key piece is that there be a substantial amount of money put into the accounts. So we want to ensure that by the time the children reach adulthood, that they have enough money in there to make one of those purchases that I mentioned-- a home or a small business or a post-secondary education.

And so there needs to be a significant amount of money put into the account. That amount does differ depending on the local context and the local market, but it needs to be kind of in the thousands to tens of thousands of dollars to be put in that account, with the most money going towards kids from households with the least resources.

And some of the other kind of key elements are that there should be automatic enrollment so that no children get left out. So basically, if you're kind of born in the US or you're born in a particular state and you're eligible, you're automatically enrolled. Another piece is making sure that the program doesn't affect families' eligibility for the benefits that they use right now, so SNAP or Medicaid or a cash assistance. So we want to make sure that these funds don't count towards their eligibility for these benefits.

And then the last piece is really about sustainable funding. So this is a long-term investment in children. And we want to make sure that this money doesn't disappear if financial kind of budgetary pressures change or political winds change. So having kind of a dedicated source of funding that ensures that the program continues for generations to come is really important.

KARINA MITCHELL: And then Shira, at the federal level, what's being done for baby bonds, what is the status of the proposals being done there?

SHIRA MARKOFF: Yeah, so there was a proposal reintroduced in February 2021 by Senator Cory Booker and Representative Ayanna Pressley, the American Opportunity Accounts Act, which would create a national baby bonds program. It had 15 co-sponsors in the Senate from across the Democratic spectrum, so from Bernie Sanders to Amy Klobuchar and Senator Chuck Schumer.

Unfortunately, it's kind of caught in the same situation with the closely divided government that we see elsewhere in other programs in DC. And so we don't really expect it to pass in the short run. But what we have seen in the last two years is a growing interest in passing programs at the state level, with states saying, you know, we don't need to wait for the federal government to act. This is something we can do. And so last year, Connecticut passed legislation and DC passed legislation. And so this is something that we feel is really going to be helpful in kind of building momentum towards eventual passage in Congress.

KARINA MITCHELL: And then, Shira, how do baby bonds fit with other areas trying to sort of help shore up financial stability for young kids? How does it compare, for example, with extending child tax care credits permanently, for example?

SHIRA MARKOFF: Yeah, so, you know, the baby bonds program is really trying to address a very specific issue, which is the racial wealth divide. But we know that, really, the income is also important. It's basically a foundation for people to then be able to build financial security and wealth. And so we want to make sure that we're also addressing that at the same time. So we don't see baby bonds as a standalone program. We see it as kind of part of a suite of services that addresses financial security.

And so the child tax credit, you know, we at Prosperity Now are big advocates of permanent expansion of the child tax credit, which is providing money each month to-- or had been providing money each month to families with children. And so these really go hand in hand because you have baby bonds setting money aside for kids' future, while the child tax credit is helping families to become more financially stable and financially secure in the kind of shorter term.

KARINA MITCHELL: OK, we will leave it there. Thank you so much, Shira Markoff, Prosperity New policy fellow. Thanks for stopping by today. And Funding Our Future is an alliance of organizations dedicated to making a secure retirement possible for all Americans. Alexis.