The racial wealth gap between white and black families in the United States is more of a chasm than a rift.
In 2019, the median household wealth of white families was nearly $ 190,000, nearly eight times that of black households, according to Federal Reserve data.
âBaby bondsâ are a proposal to help bridge the gap. Unlike ordinary bonds, they are not a publicly traded debt instrument. Instead, the proposal would create a federally funded trust fund account for every newborn in the United States.
âI support this idea called baby bonds,â Sen. Cory Booker, DN.J. Booker proposed a policy on baby bonds called the American Opportunity Accounts Act, which was co-signed by several of his fellow Democrats.
The bill, if passed, would create a savings account for every child with at least $ 1,000.
âDepending on the wealth of your family, each child will receive an annual deposit up to [age] 18 on that account, over $ 2,000 for the lowest income children, âBooker told CNBC.
When the child turns 18, depending on the income of the families, they could have almost $ 50,000 in that account. If the child comes from a wealthy family, he would end up with just over $ 1,600 by the age of 18 because he would not receive annual payments.
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According to investment firm Morningstar, Booker’s American Opportunity Accounts Act could reduce the racial wealth gap by 40%. Additionally, recipients of baby bonds would only be able to use the funds for wealth-building activities, such as buying a home, continuing education, or starting a business.
According to analyzes from the Booker office and the City University of New York, a baby bond program could cost the US government $ 60 billion to $ 80 billion.
“It’s a little more than food stamps,” said Naomi Zewde, assistant professor at CUNY’s Graduate School of Public Health and Health Policy.
However, baby bonds alone cannot close the racial wealth gap, and conservative political experts argue that baby bonds could reduce incentives to save or pursue higher education.
Watch the video above to learn more about how baby bonds work, the economics of the proposal, and the next steps for those policies at the federal and state levels.
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