Chuck Collins: 'Baby Bonds' can help reduce America's intense concentration of wealth

The old Boston Stock Exchange building. The exchange opened in 1834 and closed in 2007, when it was absorbed by NASDAQ.

Via OtherWords.org

BOSTON

The wealthiest 10 percent of Americans hold about 93 percent of all household stock-market wealth in this country, Axios reported recently — a record high.

The Institute for Policy Studies analyzed Fed data and found that the lion’s share of these gains went to the richest 1 percent alone. This elite group owns 54 percent of public equity markets, up from 40 percent in 2002.

The bottom half of the country? They own just 1 percent.

There’s been a lot of chatter about the “democratization” of the public stock market. The Fed estimates that 58 percent of U.S. households have some money in the stock market, mostly through retirement funds such as IRAs and mutual funds.

But that hype is missing a key trend: Nearly all that wealth controlled by the wealthiest 10 percent of us. As Gillian Tett observed in the Financial Times, “If nothing else, these rising concentrations merit far more public debate, since they challenge America’s self-image of its political economy and financial democracy.”

How do we boost the wealth ownership of the bottom half of households? One bold solution is to establish children’s savings accounts, also known as “Baby Bonds.”

New Jersey Sen. Cory Booker and Massachusetts Congresswoman Ayanna Pressley have introduced the American Opportunity Act, a federal Baby Bond bill. Under this proposal, children would be provided with a $1,000 savings account at birth, with annual contributions up to $2,000, depending on family income.

At the age of 18, the proceeds of these accounts would become available to recipients for educational expenses, purchasing a home, or making investments that provide for long-term returns. For example, those funds could be invested in mutual funds and retirement funds to increase the nest eggs for non-wealthy individuals.

A number of states, such as Connecticut, and a few cities, such as Washington, D.C., are already creating baby bond programs. Others have introduced legislation to create them.

Connecticut has a far-reaching program aimed at reducing the state’s racial wealth divide and boosting the wealth of all low-income households. Starting in July 2023, Connecticut began depositing $3,200 into a trust in the name of each new baby born into a household eligible for Medicaid. The program is known by the acronym HUSKY after the popular state college mascot.

Recipients will be able to redeem that capital between the ages of 18 and 30 if they remain Connecticut residents. The “HUSKY Bonds’’ are projected to grow to between $10,000 and $24,000 in value, depending on when they are withdrawn. The funds will be tax-exempt to the beneficiaries and available for investments such as higher education or job training, homeownership and small business start-ups.

Other states that have either introduced Baby Bond legislation or are seriously considering it include California, Massachusetts, Maryland, North Carolina, New Jersey, Nevada, Washington, Wisconsin and Vermont.

Innovative programs such as these can help bust up the dangerous concentration of wealth at the top of our country’s economic ladder. In an age of unprecedented inequality in this country, it’s an idea whose time has come.

Chuck Collins, based in Boston, directs the Program on Inequality and co-edits Inequality.org at the Institute for Policy Studies.