Building an Economy with Purpose: The Transformative Potential of Baby Bonds

This article introduces a three-part series—Building Wealth for the Next Generation: The Promise of Baby Bonds—a co-production of NPQ and the Institute on Race, Power and Political Economy at The New School for Social Research in New York City.

Extensive research shows that public policy can shape economic outcomes. The public can demand economic policies that benefit the broader population. A key question becomes: What kind of economic policies should the public demand?

We argue that the economy can and must work differently. More equitable, race-explicit, and transformative policies aren’t just morally necessary—they are strategic imperatives to advance human dignity, autonomy, peace, and purpose.

One important economic policy tool gaining momentum in recent years is the baby bond. Baby bonds are publicly funded trust accounts, seeded at birth for every child, with the purpose of reducing wealth inequality. These accounts grow over time, maturing when the child reaches adulthood. The money can be used for key wealth-building activities like education, homeownership, or starting a business.

How can baby bonds move from a policy idea to a routine tool of economic policy at the state and federal levels? This series—developed by the Institute on Race, Power and Political Economy, directed by Dr. Darrick Hamilton—will explore that central question.

Here, we discuss the idea of baby bonds within the greater context of the economy. In the next article, we offer a more nuanced analysis of how to make the policy work on the ground. In the last article of this three-part series, we profile how Connecticut passed the first ever state-funded and state-led baby bonds legislation, which is now being considered or implemented in states across the country.

How Economic Policy Reproduces Wealth Inequality

The economy…should work to uplift human flourishing, equality, and shared prosperity.

What is the purpose of an economy? It’s a fundamental question that economists, policymakers, and advocates often overlook. Yet, this question is critical when confronting deep-rooted economic inequities. The economy should not exist merely to serve markets or maximize profits or even gross domestic product (GDP); it should work to uplift human flourishing, equality, and shared prosperity.

For decades, economic policy has largely ignored the core elements of human flourishing—self-determination, productivity, and thriving communities. Instead, policies have benefited a select few, leaving many with little hope of thriving. This is especially true for millions of Black, Indigenous, and people of color in the United States who have been historically marginalized.

For people who lack adequate income, shelter, healthcare, or employment, their life choices are severely constrained. To change this, public policy must go far beyond income redistribution; it must help people build wealth—a key buffer against economic uncertainty and an engine of generational progress.

Wealth is a fundamental measure of stability and opportunity. It enables people to plan their futures and live self-determined lives. Alas, when examining racial economic disparities, wealth is where the largest gaps emerge.

According to the latest Survey of Consumer Finances, conducted by the Federal Reserve, as of 2022, the median White family held over $285,000 in wealth, while the median Black family wealth was around $44,900—just 15 percent as much. The median Latinx family fared slightly better at about 20 percent of the median White family wealth. These disparities are not the result of individual failures but of deliberate policy choices rooted in systemic racism: the combined result of the legacy of slavery, Jim Crow, redlining, and ongoing discrimination.

How does economic policy reinforce racism? One important example comes from the New Deal era. Landmark labor protections like the Social Security Act of 1935 and the Fair Labor Standards Act (FLSA) of 1938 offered unemployment insurance, retirement security, and a minimum wage but excluded domestic workers and agricultural laborers—the majority of whom were Black, Latinx, and immigrant workers.

This exclusion wasn’t incidental—it was a political compromise to appease Southern lawmakers who sought to maintain racial and economic hierarchies by denying Black workers access to these benefits. As historian Vanessa May details, these Southern legislators found allies elsewhere, including among White middle-class women in the North.

As a result, millions of Black and Latinx workers were denied the financial security provided to others, preventing them from building wealth during a critical period of US economic growth. The impact of this exclusion rippled across generations, creating a structural disadvantage for workers of color that continues today.

Another example is federal highway construction and urban renewal of the mid-20th century. These initiatives disproportionately displaced Black communities by demolishing thriving neighborhoods to make way for highways or redevelopment projects. For example, in Saint Paul, MN, the historically Black Rondo neighborhood was virtually destroyed when the federal government built Interstate 94 through the community. Similar stories occurred across the country, including the destruction of the Hayti district in Durham, NC.

A nationwide baby bond program could reduce the wealth gap between young White and Black Americans by up to 80 percent.

These so-called “urban renewal” efforts uprooted families, eradicated local businesses, and erased entire communities. In doing so, they stripped Black families of their primary wealth-building assets—homes and businesses—permanently hindering their ability to achieve economic security. The effects of these projects are still felt today, as many displaced families were unable to recover financially, again contributing to the widening racial wealth gap.

Despite increased awareness of these structural inequities, racial disparities persist.

Government intervention can create meaningful change, but as the above examples illustrate, that change can often be for the worse.

However, it can sometimes be for the better. For instance, the GI Bill benefited nearly half of all veterans with education support in the five years after World War II, as well as low-interest home loans. Over 10 million veterans had benefited from the legislation’s provisions by 1956.

To be clear, the GI Bill’s legacy is complex. On one hand, it helped create a “middle class” of (primarily) White homeowners, with a generational impact on wealth. On the other hand, for Black veterans, the benefits were modest at best, due to segregation in education and housing. An estimated one in three students at historically Black colleges and universities after the war were Black veterans, but the schools largely did not have the capacity to fulfill the demand and were compelled to turn away many applicants. Concurrently, redlining put home loans for Black Americans largely out of reach.

Despite its mixed legacy, the history of the GI Bill demonstrates that government can foster broad-based wealth creation. Baby bonds offer a similar promise, and its universal structure ensures that the benefits truly extend to all.

The Promise of Baby Bonds

How do baby bonds work in practice? Consider an account starting with an initial deposit of $1,000 at birth, with annual contributions of $2,000 made by the government. If we conservatively estimate that these funds earn a 5 percent annual return, by the time the recipient turns 18, the account would be worth about $50,000, enough to support a down payment on a house, college tuition, or help to fund the start of a small business—all critical activities that build wealth.

A 2019 study by Naomi Zewde, then a postdoctoral scholar at Columbia University and currently a professor at UCLA, estimates that such a nationwide baby bond program could reduce the wealth gap between young White and Black Americans by up to 80 percent. For example, under a baby bond program, the median wealth of young Black Americans could increase from just $2,900 to $57,845, offering a significant step toward closing the racial wealth gap.

In Connecticut, where a more modest statewide baby bond program was enacted in 2021, projections show that participating children could receive between $11,000 and $24,000 when their accounts mature. Similar programs are under consideration in other states, like Washington and New Jersey, with the potential to yield similar results.

But baby bonds are more than a financial instrument—they represent a radical shift in public policy. By ensuring every child has access to a financial foundation, baby bonds directly challenge the entrenched systems of power and privilege perpetuating inequality.

Consider this: Instead of reacting to inequality by redistributing wealth after it has been hoarded, policies like baby bonds ensure every child starts with a solid foundation. Baby bonds, in short, restructure the economy to prioritize human development from the very start.

Central to this vision is a recognition that true freedom and equality require not just political and civil rights but also the economic rights necessary to ensure that everyone has the opportunity to succeed.

This idea is not new. In his 1941 State of the Union address, President Franklin D. Roosevelt outlined his vision for an economy that ensures “freedom from want.” Three years later, in his 1944 State of the Union address, he refined this vision with what he labeled a “second Bill of Rights.” Roosevelt believed that true freedom extends beyond political liberties and encompasses the economic security that allows individuals to live with dignity and opportunity.

In many ways, baby bonds are a modern manifestation of Roosevelt’s vision of “freedom from want.” They offer an economic right—a foundational financial resource—that ensures no child is born into an economic system that prevents them from fully participating in society. Just as Roosevelt envisioned a future where no American would face poverty, hunger, or insecurity, baby bonds offer a way to help achieve that promise by providing the financial tools necessary to overcome systemic barriers to wealth and opportunity.

A Focus on Transformative Action

Baby bonds are just one example of the kind of bold, transformative policy the nation needs to address centuries of structural racism and economic exclusion. But they are not a silver bullet that will reverse generations of racial and economic injustice. A comprehensive, multifaceted approach must incorporate other key policies:

• Health Equity and Housing Policy: To truly address inequality, public policy must ensure that people’s basic needs, such as health and housing, are met. Policies like universal healthcare and social housing can provide the stability people need to thrive and accumulate wealth over time.
• A Job Guarantee and Guaranteed Income: Every individual should have the right to meaningful work and a baseline of income to meet their own needs. A job guarantee would provide secure employment for all, while a guaranteed income would ensure that no one is left behind in an increasingly precarious labor market. These policies work together to stabilize household incomes, reducing poverty and providing the foundation for wealth building.
• Public Goods and Place-Based Policies: Public goods such as public transit, quality education, and community infrastructure are powerful tools for closing racialized wealth gaps. Access to reliable transportation and well-resourced schools can significantly expand economic opportunities for marginalized communities. Place-based policies that invest in underdeveloped and historically excluded areas provide the foundation for equitable economic development at the local level, ensuring that growth benefits everyone, not just a select few.

Today’s Opportunity 

We are at a critical juncture. The national conversation around economic freedom is shifting. For too long, economic freedom has been defined as the freedom for capitalists and corporations to thrive unchecked. Though the outcomes of the recent national elections would seem to underscore many voters’ commitment to that old narrative, we also see a new vision emerging—one that understands true economic freedom as the ability for all people to share in the economy’s benefits. Baby bonds are a prime example of this shift. As more children are born into poverty each year, the need for baby bonds grows more urgent.

The wealth disparities present today are not inevitable. They are the result of policy choices. By embracing innovative solutions like baby bonds, the nation can begin to build an economy that truly serves the needs of all people. When we invest in people as the central resource of our economic system, we create the conditions for a more just, healthy, and free society.