Baby Bonds for Racial Equity

CENTER FOR POLICY ANALYSIS AND RESEARCH

Economic and Racial Equity

October 2025

Ashley J. Hodo, MPP, John R. Lewis Social Justice Fellow, National Racial Equity Initiative for Social Justice

Baby Bonds for Racial Equity: Assessing the Impact of Trump Accounts on Wealth Gaps

Introduction

In the United States, the racial wealth gap is a significant barrier to generational wealth for Black communities. In 2022, for every $100 in wealth held by white households, Black households held just $15.1 This disparity reflects a longstanding history of racial discrimination that has denied Black Americans access to a wide range of entitlements, including quality education, homeownership, and other wealth-building investments. Decades of disinvestment in Black communities have resulted in limited opportunities for wealth accumulation and high financial insecurity. To address wealth disparities, federal lawmakers should consider policies that build generational wealth and provide equitable opportunities for economic advancement for Black Americans. Baby bonds— publicly funded savings accounts for children from low-income families—are one such policy. Widely considered a key wealth-building tool for children of color, baby bonds are federally funded trust accounts for newborns and are designed to provide seed money for long-term wealth investments.2 These accounts would accrue interest over time and be accessible to recipients after age 18 for investments in education, homeownership, entrepreneurship, or retirement.

Over the last five years, state lawmakers across the country have introduced or implemented baby bond programs, including California, Connecticut, and Washington, D.C. In 2021, U.S. Senator Cory Booker and Representative Ayanna Pressley introduced the first nationwide baby bond program under the American Opportunity Accounts Act, proposing $1,000 payments for eligible children with subsequent tiered payments according to federal poverty guidelines. The One Big Beautiful Bill Act, enacted on July 4, 2025, includes a modified version of baby bonds called “Trump Accounts.” Trump Accounts are federally managed investment accounts for children born between 2025 and 2028 with a Social Security number, available after July of 2026.

This brief will provide an in-depth look into baby bonds, analyze state-level programs, and compare federal baby bond proposals from the American Opportunity Accounts Act and the One Big Beautiful Bill Act. Ultimately, it argues that Trump Accounts, in their current form, do not serve as an effective wealth-building strategy to advance racial equity. Congress should strengthen the program by providing supplemental payments for children based on federal poverty guidelines. Implementing a tiered payment system, as outlined in the American Opportunity Accounts Act, will help ensure that Black families have a healthy financial start to invest in future opportunities that close the racial wealth gap.

A Deeper Dive into Baby Bonds

Economists Darrick Hamilton and William Darity proposed baby bonds as an innovative mechanism to close the racial wealth gap in 2010. Their approach centers on providing children with publicly funded trust accounts, with greater investments going towards low-wealth or low-income households.

They emphasize that to effectively address racial wealth disparities, baby bond programs should include:

1. Universal Eligibility: Every child should be automatically enrolled at birth to ensure inclusivity and reduce administrative barriers for families.

2. Financially Progressive Structure: Children from lower-income households should receive larger initial deposits or tiered annual contributions based on federal poverty guidelines.

3. Flexible Use of Funds: Funds should be available for wealth-building activities such as higher education, purchasing a home, starting a business, or saving for retirement. Programs must also recognize that wealth-building opportunities vary across race and income.

4. Public Funding: The federal government should provide the majority of the accounts’ funding accounts to ensure sustainability and equity.

5. Substantial Endowment: To meaningfully reduce wealth disparities, accounts must grow to a level sufficient to cover investment expenses (i.e., college tuition, a home down payment, or business startup costs).

6. Individual Control: Upon reaching adulthood, recipients should have the autonomy to decide how to use their funds to support their financial futures.3

These principles offer a strong foundation for policymakers to design baby bond programs that provide low-maintenance, cost-free opportunities for wealth creation. By providing government-subsidized accounts, children can have a more equitable starting point for pursuing higher education, homeownership, and other wealth-building investments. Furthermore, financially progressive structures ensure low-income families receive meaningful support and access to opportunities they may otherwise be denied. While current state programs limit the use of funds to education, homeownership, or entrepreneurship, it is important to ensure that recipients have autonomy over their funds, especially when funds may not fully cover tuition or down payments. To enhance the impact of baby bond programs, government officials should also explore additional funding streams, including corporate partnerships and other public-private collaborations that reduce public costs, provide families with more robust financial support, and promote long-term sustainability.

CPAR | Baby Bonds for Racial Equity: Assessing the Impact of Trump Accounts on Wealth Gaps

A Snapshot of Baby Bonds Across the Country

Since 2021, 22 states across the United States have passed, proposed, or considered baby bonds as a useful wealth-building program for low-income children and children of color. The following states implemented baby bonds programs in response to the COVID-19 pandemic and its adverse economic implications.

BONDS AT THE STATE LEVEL

States

CONNECTICUT

In June 2021, Connecticut became the first state to pass and fully fund a statewide baby bonds program. Led by former Connecticut Treasurer Shawn Wood, State Bill 6659: An Act Concerning the Establishment of the Connecticut Baby Bond Trust, passed with bipartisan support by state lawmakers. The Connecticut Baby Bond Trust Program is for children born after July 3, 2023, and whose birth is covered by Husky Health, the state’s Medicaid program.4 Children are automatically enrolled into the program and will receive an initial deposit of up to $3,200. Children may claim these funds between the ages of 18 and 30. Use of funds is restricted to education, home buying, entrepreneurship, or other longterm investments. Accountholders must also participate in financial literacy training. The Connecticut Baby Bond Trust Program officially began enrolling children in August 2023.

Impact on Black Communities: In 2024, Black households in Connecticut earned $0.63 for every dollar earned by white households.5 The Baby Bond Trust Program addresses these disparities by enrolling 15,000 to 16,000 eligible children annually over a 12-year implementation period. Accounts are also expected to yield between $11,000 to $24,000 for Connecticut’s youth.6

This current program model does not allow additional contributions from families or the state government and largely relies on accrued interest. In comparison, the American Opportunity Accounts Act allows for additional government deposits based on income levels. As a result, these bonds may yield modest returns that limit their impact on long-term wealth accumulation. Connecticut has since expanded private and philanthropic partnerships to bolster the number of children this program can support; however, future programs should explore alternative ways to raise funds for deposits in order to enhance the long-term value of these accounts.

WASHINGTON, D.C.

In response to the growing racial wealth gap in Washington D.C., Councilman Keyan McDuffie introduced the Child Wealth Building Act in May 2021. In D.C., Black families hold a median wealth of $3,500; in comparison white families have a median wealth of $284,000, 81 times higher.7 D.C. City Councilmembers unanimously passed this legislation in December 2021 as a wealth-building investment for children with household incomes at 300% of the federal poverty guideline or below and enrolled in D.C. Medicaid. Eligible children born on or after October 1, 2021, receive an initial $500 deposit into a Child Trust Fund managed by D.C.’s Chief Financial Officer. Subsequent annual payments between $600 and $1,000 are based on federal poverty guidelines. Use of funds is restricted to education, home buying, entrepreneurship, or retirement investments.8

In September 2024, the D.C. Office of the Chief Financial Officer began developing regulations and implementation processes for the Trust Fund, including making initial trust investments to begin accruing interest. Due to changes in the FY25 budget, children born between October 2021 and October 2024 will still receive the initial $500 deposit. Those born after October 2024 will not receive initial deposits, and annual contributions for all enrolled children will depend on revenue from sports betting taxes. These funds will be distributed on a progressive scale of up to $1,000 per child per year. No children have been enrolled in the D.C. Child Trust Fund Program since the Council passed this legislation in 2021.

Impact on Black Communities: In Washington D.C., 41% of children are covered by Medicaid.9 Of those enrolled, 71% are Black.10 The D.C. Child Trust Fund Program is expected to yield between $15,000 and $25,000 for D.C. youth and is estimated to serve nearly 44,350 children by 2040.11

This program does not offer universal eligibility. Children who are not covered by Medicaid are excluded from receiving baby bond benefits. This impacts those enrolled in locally funded insurance programs such as the Immigrant Children Program or the DC Healthcare Alliance Program. These programs provide healthcare to low-income individuals and families who are ineligible to receive Medicare or Medicaid coverage. Advocacy organizations such as We Are D.C. Action have urged council members to extend the Child Trust Fund Program to children insured by these local insurance programs, as well as automatically enroll children experiencing homelessness regardless of Medicaid status. Furthermore, the high cost of living and homeownership that continues to make it difficult for Black D.C. residents raise questions about whether the Child Trust Fund Program yields substantive endowment. For example, the average downpayment for a home in Washington D.C. is $62,000, nearly 2.5 times more than the expected yield of baby bonds.12 Therefore, the D.C. Council should also reconsider broadening the flexibility on use of funds to ensure that they can support other meaningful wealth-building opportunities, including long-term savings and investment accounts.

NOTE: As of May 2025, Mayor Bowser again excluded funding for this program in her FY2026 budget proposal.13 Given of the instability of public funding, the D.C. Council placed a safeguard by using taxes from sports betting to fund the baby bond program. The Council should also explore private and philanthropic partnerships to support this program.

CALIFORNIA

To address the rise in child poverty following the COVID-19 pandemic, advocacy groups such as End Child Poverty California led a campaign for a statewide baby bond program. In California, Black children experience poverty at a rate of 17.8%, compared to 7.2% for white children.14 In response to community pressure, the California General Assembly passed the California Hope, Opportunity, Perseverance, and Empowerment (HOPE) Act, which Governor Gavin Newsom signed into law in September 2022. The bill aims to “create opportunities, economic autonomy, and hope, and to promote intergenerational mobility and asset building.”15 It establishes a trust account for 58,500 children under the age of 18 who have been in foster care for 18 months or more, have lost a parent or guardian to COVID-19 or long COVID, and are qualified for the state’s Medi-Cal for Children.16 Each account is expected to yield approximately $4,500, alongside financial planning services to teach recipients how to manage funds for wealth-building opportunities like education, housing, and entrepreneurship.

NOTE: In May 2025, Governor Gavin Newsom proposed a $50 million funding cut to this program. The program was expected to launch this year.

Impact on Black Communities: Black children are disproportionately impacted by the foster care system, making up 21% of the state’s foster care population despite representing just 8% of California’s total child population.17 Additionally, over 4,000 Black children in California have lost a parent as a result of COVID-19.18 While the program is a meaningful step toward providing system-involved children with economic opportunities, it excludes many low-income Black children who fail to meet the program’s eligibility requirements. Lawmakers should expand eligibility to include additional child poverty indicators and ensure that more children are able to benefit from long-term wealth-building opportunities.

The estimated payout does not significantly offset costs associated with education or homeownership; however, California is one of the few states allowing greater flexibility in the funds’ use. By providing unrestricted funds directly to youth, the program supports economic autonomy and personal decision-making, helping to close the racial wealth gap in ways that are meaningful to each recipient. Moreover, the program does not allow additional payments from the government or familial contributions. Similar to Connecticut’s baby bond program, accounts rely on accrued interest. Future efforts should consider expanding access and contributions to maximize the program’s long-term impact on wealth-building.

Overview: The American Opportunity Accounts Act and The One Big Beautiful Bill Act

AMERICAN OPPORTUNITY ACCOUNTS ACT

Following the economic devastation of the COVID-19 pandemic, President Joe Biden introduced the “Build Back Better” framework that aimed to invest in low- and middle-class families to build a more inclusive economy that expands opportunity for all Americans. This strategy influenced several legislative efforts focused on advancing racial equity and addressing racial wealth disparities. During the 117th Congress, Senator Cory Booker and Representative Ayanna Pressley introduced the American Opportunity Accounts Act, which would create a federally funded, tax-exempt savings account for eligible children under the age of 18. Through the U.S. Department of Treasury, newborns would receive an initial $1,000 deposit with additional payments based on household income, with lower-income families receiving more support.19 These accounts would also earn approximately 3% interest annually, totaling an estimated balance of up to $48,531 after 18 years. Funds may then be used for qualified expenses including education (e.g. for career and technical education or institutions of higher education), homeownership, and other long-term wealth-building investments. This bill would also fund the development of financial literacy programming to help recipients learn to invest and build wealth.20 The American Opportunity Accounts Act failed to receive bipartisan support and did not receive consideration from the House Ways and Means Committee or the Senate Finance Committee.

The chart above highlights the anticipated returns from American Opportunity Accounts. After 18 years, eligible children may receive up to $48,531 to be used for wealth-building investments.

The tiered payment structure of the American Opportunity Account baby bond program bridges gaps in access by prioritizing equity in wealth accumulation. By comparison, the average total cost of tuition for public institutions is approximately $27,100 during the 2022–2023 academic year, and the median home downpayment for a U.S. home climbed to $26,000 in 2024.21 These accounts could offer meaningful opportunities for lowincome individuals to fully cover or offset costs associated with tuition or downpayments, encouraging generational wealth-building.

ONE BIG BEAUTIFUL BILL AND TRUMP ACCOUNTS

On July 4, 2025, President Donald Trump signed H.R. 1, The One Big Beautiful Bill Act, sweeping budget reconciliation legislation that enacts significant tax cuts and spending reforms for various safety nets and other federal programs. This bill establishes federally managed retirement accounts, referred to as “Trump Accounts,” for eligible newborns born between 2025 and 2028. Children will receive an initial $1,000 deposit from the federal government, and families may then contribute up to $5,000 annually. Employers can also contribute up to $2,500 to employees’ dependents’ accounts.22 Similar to the American Opportunity Accounts Act, once the child turns 18, they can use funds to cover expenses for higher education, homeownership, or small business investments. However, unlike American Opportunity Accounts, Trump Accounts are not specifically designed to support low-income children. These accounts are designed like individual retirement accounts (IRAs), emphasizing equal access to investment opportunities rather than equitable pathways to wealth accumulation. As a result, the potential impact of Trump Accounts would largely depend on a family’s ability to contribute, rather than on government interventions that promote equitable outcomes.

The Treasury Office of Tax Analysis anticipates that if families contribute the maximum amount each year until their child turns 17, Trump Accounts could grow between $191,500 and $676,400, depending on investment performance.23 Accounts could grow to as much as $1.9 million if fully funded and left untouched until age 28. Without additional contributions, the Treasury estimates that Trump accounts will grow between $3,000 and $13,800 over 18 years and up to $600,000 if left untouched until age 28.

Comparative Analysis

FEDERAL CONTRIBUTIONS

Trump Accounts provide a one-time $1,000 deposit to all newborn citizens regardless of household income. Without additional contributions, the long-term returns likely could not cover significant life expenses or offer a strong foundation for long-term wealth-building for low-income families. In contrast, the American Opportunity Accounts Act includes tiered contributions based on federal poverty guidelines, providing children an additional $500 to $2,000 annually. This structure uses an equity-centered approach and offers a meaningful opportunity to accumulate wealth over time.

INVESTMENT RISKS

Trump Accounts rely on higher-risk investments such as mutual funds and exchangetraded funds, while American Opportunity Accounts utilize low-risk government bonds. Although stock investments can yield higher returns, they are subject to greater market volatility, which may diminish overall returns. Government bonds protect families from downward market trends and offer stable, predictable growth, resulting in better long-term gains for lower-income families unable to gamble on market stability.

FRAMING AND INTENTIONALITY

Trump Accounts center free-market participation and avoid explicit language related to racial or economic disparities. This lack of intentionality fails to recognize the structural barriers that perpetuate generational poverty and wealth inequality, ignoring the genesis of baby bond programs. The American Opportunity Accounts Act, introduced and supported by Members of the Congressional Black Caucus, aligns with Darity and Hamilton’s original framing of baby bonds as a policy tool rooted to deconstruct systemic barriers to wealth accumulation for historically marginalized communities.

CUTS TO SAFETY NET PROGRAMS

Lawmakers proposed Trump Accounts alongside sweeping cuts to federal social safety nets, which may cancel out any of their projected benefits and negatively impact overall life outcomes for low-income families. Eliminating or reducing access to social services undermines the stability necessary for children or families to benefit from long-term wealthbuilding opportunities. The American Opportunity Accounts Act was designed to complement existing social programs, positioning child trust accounts as a long-term asset-building tool rather than a substitute for immediate needs-based support.

Conclusion

Baby bonds foster equitable opportunity for generational wealth. At the federal level, progressive baby bond policies like the American Opportunity Accounts Act have faced political resistance. However, at the state level, baby bonds have gained bipartisan support. While Connecticut and California have enacted programs under Democratic leadership, Republican lawmakers in states like Iowa and Wisconsin have also shown interest in child wealth-building policies, particularly when framed around supporting working families and building economic freedom. This bipartisan support suggests that political framing may be key to implementing a federal-level baby bond program that meaningfully addresses wealth disparities.

Trump Accounts offer equal access but minimal impact, ignoring systemic inequalities that exacerbate the racial wealth gap. Congress and the U.S. Department of the Treasury should consider additional measures, such as expanding low-risk investment options or matching family contributions. These changes could improve the impact of Trump Accounts while adhering to conservative economic principles. As Trump Accounts will likely fall short of meaningfully closing the racial wealth gap, the American Opportunity Accounts Act remains a strong, equity-centered alternative. Congress could further the potential impact of this bill by expanding flexibility, allowing recipients to use funds for a broader range of wealth-building activities such as debt payments, future healthcare, and emergency expenses, empowering low-income individuals to control their financial wellbeing without being constrained by strict eligibility guidelines.

CPAR | Baby Bonds for Racial Equity: Assessing the Impact of Trump Accounts on Wealth Gaps

REFERENCES

1 Perry, Andre M., Hannah Stephens, and Manann Donoghoe. “Black Wealth Is Increasing, but So Is the Racial Wealth Gap.” Brookings, January 9, 2024. https://www.brookings.edu/articles/black-wealth-is-increasing-but-so-is-the-racial-wealth-gap/

2 Hamilton, Darrick, and William Darity Jr. “Can ‘Baby Bonds’ Eliminate the Racial Wealth Gap in Putative Post-Racial America?” The Review of Black Political Economy 37, no. 3–4 (2010): 207–216. https://link.springer.com/article/10.1007/ s12114-010-9063-1

3 Brown, Madeline, Ofronama Biu, Catherine Harvey, and Trina Shanks. The State of Baby Bonds. Washington, DC: Urban Institute, February 2, 2023. https://www.urban.org/research/publication/state-baby-bonds.; Dionne Jr., E.J. “Baby Bonds Can Help Close the Wealth Gap for Black Americans.” Brookings, June 18, 2020. https://www.brookings.edu/articles/ baby-bonds-can-help-close-the-wealth-gap-for-black-americans/

4 Office of the Treasurer, State of Connecticut. “Governor Lamont and Treasurer Russell Announce 7,810 Babies Have Been Born Eligible for Connecticut Baby Bonds.” CT.gov, January 17, 2024. https://portal.ct.gov/-/media/ott/press-room/pressreleases/2024/ctbabybonds_6months.pdf

5 O’Brien, Patrick. CT Baby Bonds: Investing in Connecticut’s Future. Hartford, CT: Connecticut Voices for Children, January 2024. https://ctvoices.org/wp-content/uploads/2024/01/CT-Baby-Bonds-Final_23rd-TBF.pdf

6 Office of the Treasurer, State of Connecticut. “CT Baby Bonds.” Connecticut Office of the Treasurer. Accessed September 4, 2025. https://portal.ct.gov/ott/debt-management/ct-baby-bonds

7 Kijakazi, Kilolo, Rachel Marie Brooks Atkins, Mark Paul, Anne E. Price, Darrick Hamilton, and William A. Darity Jr. The Color of Wealth in the Nation’s Capital. Washington, DC: Urban Institute, November 1, 2016. https://www.urban.org/research/ publication/color-wealth-nations-capital

8 Office of the Chief Financial Officer, District of Columbia. “Child Wealth Fund: D.C. Law 24-53, Child Wealth Building Act of 2021.” District of Columbia FY 2025 Budget, July 30, 2024. https://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/ attachments/bv_cwf_chapter_2025m.pdf

9 Kaiser Family Foundation. Medicaid State Fact Sheet: District of Columbia. Washington, DC: KFF, May 20, 2025. https:// files.kff.org/attachment/fact-sheet-medicaid-state-DC

10 DC Action. “DC Kids Count: Health & Safety.” DC Action. Accessed September 4, 2025. https://wearedcaction.org/dckids-count/key-measures/health-safety/

11 DC Action. Baby Bonds: A New Public Investment Tool for Building Intergenerational Wealth. Washington, DC: DC Action, September 20, 2024. https://wearedcaction.org/publications/baby-bonds-a-new-public-investment-tool-for-buildingintergenerational-wealth/

12 Clabaugh, Jeff. “Average Down Payment for DC-Area Homebuyers Is Now 10%.” WTOP News, June 17, 2025. https://wtop. com/business-finance/2025/06/average-down-payment-for-dc-area-homebuyers-is-now-10/

13 Murillo, Mike. “‘It Is Really Unfortunate’: Some Child Benefit Programs Cut from DC Mayor’s Budget.” WTOP News, May 29, 2025. https://wtop.com/dc/2025/05/some-child-benefit-programs-cut-others-remain-in-dc-mayors-budget/

14 End Child Poverty California. “Census Data Underscores That Poverty Is a Policy Choice.” End Child Poverty CA. Accessed September 4, 2025. https://www.endchildpovertyca.org/census-data-underscores-that-poverty-is-a-policy-choice/

15 California State Treasurer. HOPE Report to Legislature: California HOPE for Children Trust Account Program. Sacramento: Office of the Treasurer, February 1, 2024. https://www.treasurer.ca.gov/hope/documents/summary.pdf

16 California State Treasurer. HOPE Report to Legislature: California HOPE for Children Trust Account Program. Sacramento: Office of the Treasurer, February 1, 2024. https://www.treasurer.ca.gov/hope/documents/summary.pdf

CPAR | Baby Bonds for Racial Equity: Assessing the Impact of Trump Accounts on Wealth Gaps

17 Olagundoye, Stacy Shwartz, and Melissa Connelly. “How Are Black Foster Youth Faring in California’s Child Welfare System?” Child and Family Policy Institute of California, March 4, 2025. https://cfpic.org/how-are-black-foster-youthfaring-in-californias-child-welfare-system/

18 End Child Poverty California. A Child Is a Child: Black Children’s Health. Accessed September 4, 2025. https://www. endchildpovertyca.org

19 Congresswoman Ayanna Pressley. Baby Bonds One-Pager. Accessed September 4, 2025. https://pressley.house.gov/ wp-content/uploads/2023/02/Baby-Bonds-One-Pager-1.pdf

20 U.S. Congress. House. American Opportunity Accounts Act. H.R.1041. 118th Cong., 1st sess. Introduced February 14, 2023. https://www.congress.gov/bill/118th-congress/house-bill/1041

21 National Center for Education Statistics. “Fast Facts: Tuition Costs of Colleges and Universities.” U.S. Department of Education. Accessed September 4, 2025. https://nces.ed.gov/fastfacts/display.asp?id=76.; Wiskerchen, Sara. “Down Payments Fall as Affordability Worsens.” Realtor.com, May 11, 2023. https://www.realtor.com/homemade/downpayments-fall-as-affordability-worsens-use-realtor-coms-search-tool-to-find-homebuyer-assistance-programs/

22 Hernandez, Fredrick, Aaron Till, and Rachel Snyderman. “2025 Reconciliation Debate: What’s in the Ways and Means Bill?” Bipartisan Policy Center, May 14, 2025. https://bipartisanpolicy.org/explainer/2025-reconciliation-whats-in-theways-and-means-bill/

23 Revell, Eric. “Trump Accounts Plan Would Give Every Newborn US Citizen $1,000 Investment.” Fox Business, June 9, 2025. https://www.foxbusiness.com/politics/white-house-touts-plan-provide-1k-investment-accounts-newborns.; Macias, Amanda. “BBB’s ‘Trump Accounts’ for Kids Could Yield up to $1.9 Million, Treasury Says.” Fox Business, July 30, 2025. https://www.foxbusiness.com/politics/bbbs-trump-accounts-kids-could-grow-1-9-million-treasury-says