This story was produced by the Globe’s Money, Power, and Inequality team, which covers the racial wealth gap in Greater Boston. You can sign up for the newsletter here.
Imagine a government program that would create a savings-bond-like investment for every child at birth. At age 18, that child could take the accumulated savings and invest it as they wish — in a business, or in a home, perhaps toward a college degree. Anything that could help them build up wealth.
They’re called baby bonds, and the idea is catching on. Connecticut became the first state to create such a program, in 2021. California later approved a similar trust fund program. Other states including Vermont, New York, and New Jersey have considered proposals as well.
And now, the idea is under consideration in Massachusetts, with the state treasurer and lawmakers pushing legislation that would create a trust fund for the most impoverished residents. Proponents say the proposal has the potential to end cycles of generational poverty and could help narrow the state’s sizable racial wealth gap.
”We’re removing people from needing assistance and helping them actually be participants in our economy,” said Treasurer Deborah B. Goldberg, whose office would oversee the program. “It’s a win-win.”
The proposal in Massachusetts has taken many forms, but the general concept would call for the state to invest a fixed amount on behalf of eligible newborns, and they could access the accumulated returns at age 18. A leading version now before the Senate Ways and Means Committee would allow recipients to maintain their accounts until age 35, as long as they continue to reside, work, or pay taxes in the state.
A state-commissioned report last year recommended that if eligible newborns received an initial deposit of, say $6,500, for example, the invested proceeds could grow to $15,600 by age 18, and to as much as $28,000 over 30 years..
With an estimated 8,000 infants qualifying a year, the program could cost roughly $52 million annually.
Goldberg said officials have not yet identified a funding source for the program, though the proposed bill before the Senate allows for private donations in addition to state money.
“Hopefully it will be a priority, and it will receive the kind of funding it needs,” Goldberg said.
The interest in Massachusetts in baby bonds was sparked in large part by the notorious 2015 Color of Wealth report by the Federal Reserve Bank of Boston, which found that Black families in Boston had a median $8 net worth, compared to $247,500 for white families. Though subsequent studies used different methodologies, they all come to the same conclusion: a more than 180 percent difference between the net worth for Black and white residents.
Darrick Hamilton, an economist who helped conceive the baby bonds concept, and who coauthored the 2015 wealth report, said the initiative presents a unique opportunity to Massachusetts, where systemic inequality and a culture of innovation coexist.
“You have this inequality, but also a state that’s been at the forefront of innovative power-making,” Hamilton said. “It’s a prime place to [implement baby bonds].”
Massachusetts also has a “greater resource base” than neighboring states, Hamilton said. It also has a high cost of living, and baby bonds, combined with other support programs, such as assistance for a down payment on a house or grants to start a business, can be crucial.
“With baby bonds, the endowment needs to be large enough that it . . . can put the person in an asset like a home,” Hamilton said.
The idea has gained traction nationally; Representative Ayanna Pressley of Massachusetts and Senator Cory Booker of New Jersey filed a bill in Congress that would create a $1,000 seed savings account for every child at birth. But Goldberg doesn’t think that should stop Massachusetts from investing in its own program.
“We know how long it takes for things to happen in D.C.,” Goldberg said. “We could use their expertise and some of their modeling” to create a more equitable economy here, she said.
In Connecticut, the state deposits $3,200 into a baby bonds trust fund for each newborn enrolled in its public health coverage program. The state will invest the funds, and beneficiaries can access the accumulated balance at age 18. Last year, California approved a trust fund of up to $8,000 each to children who lost a parent or guardian to COVID-19.
The leading proposal in Massachusetts would create a trust fund, overseen by an advisory board and a community advisory committee. The bill doesn’t specify who would qualify for the funds, but a Baby Bonds Task Force that was convened in 2022 recommended automatic enrollment for newborns under the age of 1 who are enrolled in the state’s Transitional Aid to Families with Dependent Children program, or TAFDC, as well as foster children under the age of 1 who are in the custody of the Department of Children and Families.
Along with two advisory committees, the treasurer’s office would lean on a network of schools and community organizations that work closely with families that qualify for the baby bonds program.
More than 8,000 babies are enrolled in TAFDC each year, according to state data. Almost all of them live in households with incomes less than 50 percent of the federal poverty line. A third are Latinx, 28 percent are white, and more than a quarter are Black. DCF said it had 1,400 children under 2 in foster care during a recent count.
Lisa Wong, town administrator for South Hadley, who chaired the task force, said a collaboration between the state and community agencies could help spread awareness of the program, and combat any distrust that prospective participants could have in a government-funded initiative.
Wong said local government should be involved, to step in to help families who often don’t have the wherewithal to plan far ahead.
“Even though the funding might be coming in significant part from the government, it is being supported, vocalized, and utilized hand-in-hand with people at the local level that are already interacting with our families,” Wong said.
“I’ve seen firsthand the struggle between wanting to make investments in your children and making ends meet,” Wong said. “And for today’s generation of parents and children, that challenge is even greater.”
If approved, the baby bonds legislation would build upon several existing programs that aim to narrow the wealth gap. Launched in 1999, the Midas Collaborative a nonprofit network of community organizations in Massachusetts funded by the public and private sectors, gives matching savings grants to low-to-moderate-income families with individual development accounts.
In 2020, Massachusetts launched the BabySteps program, which gives any child a $50 deposit to open a 529 savings account, a state-sponsored college savings plan, within one year of birth or adoption. Since its inception, more than $1.6 million has been invested into more than 32,000 accounts.
Critics say such efforts take away from existing antipoverty programs that provide for more immediate assistance.
Connecticut Treasurer Erick Russell said some residents brought up such concerns when his office began planning a baby bonds initiative in 2021.
But, he said, an effective government should be able to strike a balance between making short-term investments and long term ones.
“It’s not the silver bullet, it’s not the solution to generational poverty, it’s not the solution to the racial wealth gap,” Russell said. “But it is a piece to the larger puzzle for helping to move people and communities forward.”
Tiana Woodard can be reached at tiana.woodard@globe.com. Follow her @tianarochon.