Baby Bonds: A New Public Investment Tool For Building Intergenerational Wealth

Baby Bonds (formally known as the Child Trust Fund Program) is a newly redeveloped District program to address stark racial wealth and opportunity gaps by opening and contributing to bank accounts for children. Public money will be invested in a savings and investment account when a child whose birth is covered by DC Medicaid is enrolled in the program. These accounts benefit children whose families are affected by the legacy of discriminatory policies that have historically blocked access to intergenerational wealth. 

The account grows through both interest and additional annual contributions from the District–as long as the family income remains below the eligibility cutoff. Only children in families with incomes less than three times the federal poverty line – $77,460 for a family of three as of 2024 – remain eligible for annual investments. Once an eligible child turns 18, they can use the funds for education, starting or investing in a business, buying a home in the District, or saving for retirement. It’s important to note that allowable expenses for Baby Bonds extend beyond traditional college savings plans in order to open additional pathways to prosperity for young people in the form of home ownership and entrepreneurship. The legislation creating the program wisely made enrollment nearly automatic for any District resident born as of October 1, 2021, whose birth was covered by Medicaid, and who has a valid social security number or other form of identification. 

The DC Council passed Baby Bonds (officially the Child Wealth Building Act of 2021) in December 2021, funded it each year after, and made the Office of the Chief Financial Officer (OCFO) responsible for implementation. As of September 2024, the OCFO had invested initial funds in a trust to begin collecting interest, but had not yet begun formally enrolling children. The OCFO shared in a February 2024 hearing that they expected to start enrolling children within six to eight months, but enrollment likely stalled due to funding cuts and uncertainty in the Mayor’s proposed fiscal year 2025 budget. 

Based on the final budget DC Council passed for FY2025, children eligible for the program before October 1, 2024 will retain the right to a $500 seed deposit and subsequent annual deposits ranging from $600 to $1,000, with families with lower incomes receiving higher annual contributions Per the original law’s design, after October 2024, no initial deposits will be made for newly eligible children and annual deposits for all enrolled children will be based on how much revenue comes in from taxes on sports betting, progressively structured for contributions of up to $1,000 per child per year.

The Potential Impact of Baby Bonds

The DC Council’s news alert about the Baby Bond legislation notes that white District households have 81 times the wealth of Black households and 22 times the wealth of Latine households. Research shows that greater wealth (not just greater income) tends to correlate with better health and longer lives, and differences in parent and grandparent intergenerational wealth lead to differences in their grandchildren’s income prospects. Baby Bonds—because they provide public seed funding for the accounts and do not rely on family contributions, automatically enroll children (unlike the opt-in model of matched savings accounts), and expand allowable uses beyond education—add to the wealth-building policy landscape in ways that show promise for reducing long-standing racial economic inequities. A 2020 simulation found that a national policy instituting Baby Bonds could reduce the wealth disparity between young white and Black Americans from 16 times the wealth to 1.4 times the wealth, which would be a massive shift. 

Funding and Estimated Participation

The District is working with an IT and banking vendor to set up Baby Bonds account portals to be able to start enrolling children, so enrollment numbers are not available yet. However, the OCFO estimated roughly 44,350 participants by 2040. The District currently has roughly 124,475 children and youth under 18, so if the population stays stable, that means roughly one in three young District residents will be enrolled in Baby Bonds. While we do not have racial demographic data yet, the Baby Bonds legislation calls for reporting the race of program participants. Given that roughly 93% of District children enrolled in Medicaid are Black or Latine, this program is likely to be targeted in a way that helps narrow the racial wealth gap.

Recommendations

• Fully fund this program at the levels originally intended. DC Council was right to legislate a substantial and progressively structured annual contribution model consistent with the Urban Institute’s baby bonds principles to catalyze children’s future economic stability. The Mayor’s proposed FY25 budget significantly reduced the program’s scope (see our April 2024 testimony) and due to budget constraints the Council was only able to restore partial program funding. 
• Amend the legislation to allow additional children to benefit. Specifically:
  • Include births covered under the DC Healthcare Alliance, not just Medicaid, if at time of birth, the child’s parent is enrolled in Alliance.
  • Increase flexibility around residency requirements. As noted by the Council Office of Racial Equity, many Black families are pushed out of the District by high housing costs. Some children may also leave for other reasons (out-of-state foster care placement, moving to a facility to support particular disabilities, or attending college at age 17 or younger). The legislation, as written, excludes these children from any Baby Bonds payout.
  • Automatically include children experiencing homelessness, regardless of Medicaid enrollment. Roughly half of 0-12 year-olds and roughly a third of 13-17 year-olds in the Homeless Management Information System are not enrolled in Medicaid, and these children should be able to benefit from Baby Bonds. Separate from Baby Bonds enrollment, the District must also ensure that children and expectant parents experiencing homelessness have prompt access to health care upon entering the homeless system. 
• Clarify through regulation how program processes will actually work.
• Conduct significant targeted outreach. Many of the indirect benefits of the government funded college savings programs on which Baby Bonds builds result because families know the money is there. These funds have been shown to help sustain high parental expectations about children’s education, help children develop a college-bound mindset and increase concrete communication about postsecondary plans. If families don’t know they’re in the program, they, and the District overall, will lose out on some potential benefits. We recommend robust outreach, particularly in wards 5, 7, and 8 where the overwhelming majority of District children likely to be eligible for this program reside. Raising awareness of the Baby Bonds program is a way for the District to show its residents that it’s investing in their future and success.