How CSAs and Baby Bonds Can Work Together to Close the Racial Wealth Gap

Last month, Senator Cory Booker (D-NJ) announced his intention to introduce a bill to address massive income inequality in the United States. American Opportunity Accounts (AOAs), or “Baby Bonds” seek to aid in closing the racial wealth gap that underlies much of the inequality that afflicts American society.

Proposed Baby Bonds Would Expand Financial Opportunity for All

AOAs are a bold effort to expand financial opportunity at scale—something at the core of Commonwealth’s work. We see an exciting opportunity for AOAs and Children's Savings Account (CSA) programs to complement one another and further drive their participants' engagement in saving and planning for the future.

Senator Booker’s bill does four things:

  • Create a universal system of savings accounts, opened at birth, and seeded with $1,000 for each child
  • Deliver annual supplemental deposits to the accounts based on family income, ranging from $0 to $2000
  • Manage the funds “in a low-risk account” shielded from inflation and market fluctuations
  • Reserve the funds until age 18 and dedicate them to “asset building” purposes such as education after high school, homeownership, and retirement

Closing the Racial Wealth Gap

Central to Sen. Booker’s vision is closing the racial wealth gap that underlies much of the inequality afflicting American society. With supplemental deposits based on family income, the benefits of the program would go largely to children of color. Sen. Booker’s office suggests that the average black child will accrue $29,038 in their account and the average Latinx child would get $27,337, compared to $15,790 for the average white child. There is also some evidence that CSAs could hold the potential to narrow the black-white and latino-white wealth gaps. Addressing the racial wealth gap is an essential part of achieving wealth for all.

Baby Bonds and Children’s Savings Accounts Working Together

The idea behind the proposed legislation is not new. For almost two decades, bills have been introduced to create universal seeded accounts, though none have been enacted at the national level. At the state and local level, Children’s Savings Accounts (CSAs)—built on the same idea that an early start on accumulating assets can have positive impact on children’s educational and life outcomes—are increasingly popular. A growing body of research suggests that CSAs improve outcomes in a variety of areas, including education, health, and economic mobility. Just this year, Massachusetts and Pennsylvania introduced statewide programs (SeedMA Baby and Keystone Scholars, respectively) that will kick off in 2019.

One notable difference between Sen. Booker’s AOAs and CSAs is that AOAs were not designed for family contributions; encouraging saving and other types of family engagement is a core strategy for many CSA programs. For example, Commonwealth’s work on CSAs has centered on conducting research—speaking directly to participants and families in Boston and Pittsburgh—to understand what program design features can increase participation and ongoing engagement.

CSAs and AOAs need not replace or compete with one another—there is opportunity for AOAs to work in tandem with CSA programs that engage financially vulnerable families in saving and planning for their children’s financial futures. Family participation in CSAs may build college-going motivation, expectations, and confidence, while Sen. Booker’s AOAs could provide them with a sizeable nest egg that directly addresses asset poverty.

Commonwealth is committed to increasing the success of CSA programs by conducting research and consulting with initiatives to increase participation rates and ongoing engagement. Commonwealth’s work on CSAs has focused on speaking directly to participants and families in Boston and Pittsburgh—to understand what program design features can increase participation and ongoing engagement.

  • We worked with the City of Boston to conduct consumer research to inform the design of its CSA program, Boston Saves. We continue to work with Boston Saves to understand how the program can better serve families and students as the city prepares to scale the program citywide.
  • Since 2014, we have worked with FUNd my Future, a CSA program in Pittsburgh. The program began at Propel Charter Schools, where we helped with program design. We are providing evaluation support as FUNd my Future has expanded to serve the entire City of Pittsburgh.

Through research and partnerships, Commonwealth is committed to expanding financial opportunity for children and families with Children’s Savings Accounts and other policy innovations that target the wealth gap.

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