Could government-funded trust accounts for every newborn finally bridge the American wealth gap?
In short: The American dream often emphasizes hard work and grit, but economist Darrick Hamilton argues that economic security is largely determined by the wealth you are born into. To disrupt this cycle, he and William A. Darity propose baby bonds: federally funded trust accounts that provide every child with personal seed money.
The proposal for baby bonds, or child trusts, aims to address the reality that wealth, rather than income, is the primary driver of economic stability. While many believe that wealth is accumulated through saving income, research suggests this is rarely the case. Wage stagnation means that a significant portion of American households, including those earning between $40,000 and $100,000, often live paycheck to paycheck. Even among those who do save, systemic barriers—such as high banking fees and limited access to credit—prevent low-income families from building meaningful assets. Consequently, more than half of all American households reported zero or negative net worth in 2015.
William A. Darity Jr. and Darrick Hamilton argue that wealth is the foundation for opportunity. It provides the capital necessary to purchase a home, fund a debt-free education, or launch a business. Without this initial cushion, inequality becomes self-perpetuating, as wealth begets more wealth. The current disparity is stark: in 2016, the Federal Reserve reported a median household wealth of $171,000 for white families compared to just $17,600 for black families. In some regions, the gap is even more extreme; the National Asset Scorecard for Communities of Color found that U.S.-born black households in Boston had a median net worth of only $8.
The baby bonds mechanism would provide every newborn in the United States with a trust account held until they reach adulthood. These accounts would be calibrated to the family's wealth, ensuring that those born into less affluent circumstances receive greater support. By providing this endowment, the policy seeks to decouple a child's future potential from their family's starting position. Proponents emphasize that financial literacy is ineffective without actual capital to manage, and that providing this seed money is a necessary intervention to ensure that every individual has the resources to build their own economic security.
This approach is rooted in stratification economics, a field that examines how group-based identities and social beliefs reinforce poverty. By focusing on asset-building rather than just income, the policy aims to provide the stability required to weather financial shocks like job loss or illness. As Darity notes, wealth provides choices, and for those born without it, the lack of capital effectively locks inequality in place across generations.
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Sources
- Summary by Intellect · source: How "baby bonds" could help close the wealth gap | Darrick Hamilton
- Also: The Big Idea - Baby Bonds: A Leg Up for Everyone | Sanford School of Public Policy
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