Proposed ‘baby bonds’ legislation targets racial wealth gap in Massachusetts

Massachusetts’ racial wealth gap has long been one of the most notorious statistics in state politics. A 2015 study by the Federal Reserve Bank of Boston found that the median net worth for white households in Greater Boston was $247,500. For black households, it was just $8. 

Current legislation before the Massachusetts Senate strives to narrow that gap by tackling generational poverty at its root. Bill No. S.1999, called “An Act Addressing the Racial Wealth Gap,” looks to ensure future financial security for eligible children by granting them trust funds at birth.

These so-called “baby bonds” aim to make economic opportunity a birthright.

How do baby bonds work and who is eligible? 

Baby bonds are government-administered investment accounts for newborns. The current proposal before the Senate directs the Massachusetts State Treasurer to invest a fixed amount into these trust funds, the largest deposits being for children from households with the lowest income.

Over time, the investments would increase in value; a 2022 report by the state’s Baby Bonds Task Force estimates that if newborns receive an initial deposit of $6,500, the invested proceeds could grow to $15,600 by age 18 and reach up to $28,000 over 30 years.

Recipients would become able to access their fund once they turn 18 and be required to invest their money into “wealth-building activities” such as buying a home or starting a business. They could maintain and grow their accounts up until age 35, provided that they still reside, work, or pay taxes in Massachusetts.

“Why is asset building so important and why is breaking down the racial wealth gap so important? Because it actually is beneficial to not only the individuals but to our economy overall,” State Treasurer Deborah Goldberg, whose office would administer the program, told Boston.com. “It’s a proactive approach to a healthy economy, as opposed to having people who have enormous need and will need funding for supporting them in their needs. It’s just a very logical way of both helping individuals and helping our state as a whole.”

While the current bill does not specify who would qualify for a baby bond, the Baby Bonds Task Force recommends that children receive automatic eligibility if, prior to turning one year old, they are either enrolled in the Transitional Aid to Families with Dependent Children program (TAFDC) or are in the custody of the Department of Children and Families. Overall, an estimated 8,000 infants would qualify for baby bonds each year. 

A brief history of baby bonds

Massachusetts is not alone in considering a baby bonds program. Connecticut was the first state to establish such an initiative in 2021, when it passed legislation allotting a $3,200 trust fund to each newborn enrolled in the state’s public health coverage program. Washington D.C. followed suit soon after, creating funds with $500 for each child born to a low-income family after Oct. 1, 2021.

More recently, in 2022, California approved funds of up to $8,000 for children in the state’s foster care system and children from low-income families who lost a parent or guardian to COVID-19. In addition to Massachusetts, seven other states have introduced baby bonds legislation: Iowa, Wisconsin, Washington, Delaware, Nevada, New York, and New Jersey.

The concept of baby bonds has gained traction on the federal level. In February 2023, Representative Ayanna Pressley of Massachusetts and Senator Cory Booker of New Jersey reintroduced the “American Opportunities Accounts Act,” which would fund a $1,000 savings account for every child in America. Every year, each account would receive up to an additional $2,000 deposit depending on family income. The bill, which was referred to the Committee on Finance, has yet to pass through the Senate.  

The argument for baby bonds in Massachusetts

It’s no secret that Massachusetts has a high cost of living — in fact, according to a 2023 study, Massachusetts is now the fifth most expensive state to live in. With housing costs on the rise and many families still reeling from the economic toll of COVID-19, baby bonds have emerged as a key proposal to combat poverty and tackle the state’s racial wealth gap. The 2022 task force suggested that a baby bonds program would naturally address this gap, given that families of color are overrepresented in the communities that the legislation targets. Among the over 8,000 babies enrolled in TAFDC each year, a third are Latinx and a quarter are Black.

There is plenty of research to support these claims. A 2019 study found that a baby bonds program implemented in the 1990s could have reduced the median racial wealth gap between black and white young adults from a factor of about 15.9x to 1.4x. A 2021 study concluded that, out of five interventions that would reduce the national wealth gap between Black and white households, a baby bonds program would be the most impactful. 

However, baby bonds programs have been met with some pushback. Critics maintain that long-term investment efforts like baby bonds programs can detract from existing antipoverty programs that allow for more short term, immediate assistance. Some also point to the high costs of implementing baby bonds. In Massachusetts, for instance, a baby bonds program would cost roughly $52 million annually.  

“Baby bonds is not a silver bullet. It’s a tool in the toolbox,” Alayna Van Tassel, Executive Director of the state’s Office of Economic Empowerment and a Deputy Treasurer, said. “We really think that types of programs [should] be working in tandem. Baby bonds is a long-term investment, and short-term investments are also part of a real solution to help close the racial wealth gap.” 

What’s next for baby bonds?

Massachusetts’ baby bonds bill has been reported favorably out of the Joint Committee on State Administration and Regulatory Oversight and is currently being reviewed by the Senate Ways and Means Committee. Goldberg said that officials are still working on locating a funding source for the program.

“It’s a far more complicated thing that we have to figure out now: where it comes from. That will be in the legislative process,” she said. “Candidly, with what is going on in the economy and with budgeting this coming year, it’s going to be even more challenging, but that doesn’t mean we won’t continue to push for the program.”

Requiring financial education in schools is crucial to baby bonds’ path forward, according to Goldberg. In 2021, she and Senator Patrick O’Connor filed “An Act Requiring Financial Education in Schools,” legislation that the Baby Bonds Task Force said should accompany baby bonds. If passed, the bill would create a “Financial Literacy Trust Fund” that would be administered by the Commissioner of Elementary and Secondary Education.

“I believe in proactively addressing the challenges that everyone throughout Massachusetts faces and having a total approach that ensures that, by proactively addressing these issues, we are creating economic stability and economic security throughout the entire state for everyone,” Goldberg said.

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