Baby Bonds Bill Passed to Aid Savings for Low-income Families

Back • Publication Date: June 15, 2021 • Fiscal & Economics

Connecticut children born into low-income families are poised to receive a government-funded savings account that could provide them with as much as $10,600 by the time they turn 18.

The legislature approved the proposal on Wednesday as part of the general bonding bill, which still needs to be signed by the governor. Under the bill, $50 million will be directed toward providing accounts of $3,200 for about 15,600 children whose mothers are receiving insurance through HUSKY A, the state’s Medicaid program.

State Treasurer Shawn Wooden, who originally proposed the program, called its passage “historic.”

“While Connecticut has the highest annual income per capita in the country, it also has one of the highest rates of income inequality in the nation,” said Wooden, in a press release.

The U.S. Census Bureau ranked Connecticut in 2018 as having the third-highest level of income inequality in the country, behind New York and Washington D.C, according to a report from Connecticut Voices for Children.

The returns are based on a projected average rate of return on investment over 18 years of 6.9 percent, based on the assumed rate of return for public pension plans in Connecticut. $10,600 in 18 years.

Once the children reach adulthood, they have until age 30 to decide what to do with the money. The state gives them four choices — pay for higher education, purchase a house within the state, start a business in the state, or put the money into a retirement account.

The program is the first of its kind nationwide, and is a smaller-scale version of a program proposed on the federal level by Senators Cory Booker, D-New Jersey and Tammy Baldwin, D-Wisconsin, and Congresswoman Ayanna Pressley, D-Massachusetts, called the American Opportunity Accounts Act. Under this proposal, all children would receive $1,000 at the time of their birth, with an additional yearly deposit amount based on their household income. The bill has yet to come up for a vote in either the House or the Senate.

Naomi Zewde, a professor at City University of New York, modeled the results of Booker’s baby bond proposal. According to Zewde, Connecticut’s program could serve as a pilot for an eventual federal version.

“A lot of federal programs start at the state level,” said Zewde. “If a state does it and implements it well, and it has good outcomes for state residents … then they’ll end up doing it at the federal level.”

According to Zewde, baby bond proposals have the potential to shrink the racial wealth gap.

Compared to the current median wealth among white young adults of $46,000, and the median wealth among Black young adults of $2,900, Zewde said her modeling suggested that Booker’s baby bond proposal could close that gap significantly, bringing the median wealth up to $57,845 for Black young adults and $79,159 for white young adults.

But Zewde told CT Examiner that even a smaller program like Connecticut’s could be significant, helping young people pay for an associate’s degree, or attend community college without debt.

Zewde said the families who benefit the most from baby bonds are the ones who don’t have the chance to save money.

“The definition of poverty is having trouble meeting basic needs, like paying rent and food, clothing, utilities,” she said. “So, if you’re struggling to meet those needs every month, saving is not realistically going to happen.”

If a family is always worrying about basic necessities, said Zewde, it becomes nearly impossible to think about life changes like a move or starting school. Having some money set aside, she said, can make that long-term planning a reality.

“They kind of grow up knowing that there is that money in the future, and planning for how they can use it best,” she added. “And that can be something that generates hope.”

Authors: Emilia Otte •  Source: CT Examiner • View