These fact sheets are part of a series. Learn more about the the national impact of a federal baby bonds policy and what young adults and city leaders had to say about the potential impact in their communities.

Federal, state, and local policymakers are looking for solutions to address wealth inequality. These fact sheets explore the potential of a national baby bonds program to create new wealth opportunities for young people and reduce longstanding inequalities in four US cities: Atlanta, Baltimore, Boston, and Oakland. 

Why This Matters

Momentum has grown behind baby bonds, which are publicly funded child trust accounts that target children from families with low wealth or low incomes. When the children reach adulthood, they can use the funds for wealth-building activities, such as purchasing a home or starting a small business.

Federal, state, and local baby bonds programs have been proposed and implemented across the country, but little evidence exists around the impact of these programs on wealth inequities. Moreover, the impact of a federal program is likely to differ by localities because regions face their own historical barriers and challenges to wealth building. Providing evidence on the impact of baby bonds at the local level can inform the design and potential support of future local and national baby bonds programs.

Key Takeaways

Using the design of baby bonds proposed in the American Opportunity Accounts Act (AOAA), we model the impacts of a national baby bonds program using Urban’s Dynamic Simulation of Income Model (DYNASIM). Our research provides some insights into what impact a federal baby bonds proposal would have on family wealth, student loan debt, home equity, and retirement savings across the four cities in our analysis:

• If the AOAA were implemented in 2024, such that the first cohort of children would gain access to their accounts when they turn 18 in 2042, we project that baby bond account balances could average between $28,000 to $38,000 for young adults across the four cities in our analysis.
• Median family wealth is expected to increase after the implementation of a federal baby bonds policy. For Black families in Oakland and Hispanic families in Atlanta, median family wealth is projected to increase by $50,000. Though Black and Hispanic families are projected to see a greater increase in wealth than white families, white families are still projected to have twice as much wealth as Black and Hispanic families in the four cities after a federal baby bond.
• Both the percentage of student loan borrowers and the amount of student loans that borrowers have is expected to decrease after the implementation of a federal baby bonds policy. Depending on the city, the share of student loan borrowers for Black, Hispanic, and white men and women could decrease between 2 and 22 percent. Average student loan debt is also projected to decrease across some of these groups by between $4,000 and $12,000.
• Although our federal baby bond projections do not show a meaningful change in homeownership rates, we do find that baby bonds may increase the amount that individuals have in home equity. Black women in the four cities we analyzed may benefit the most, with an estimated increase in home equity between $20,000 and $38,0000.
• A federal baby bonds program is expected to increase retirement savings in the four cities analyzed by between $11,000 to $52,000, with men of all races experiencing the greatest projected increase.

How We Did It

We used Urban’s microsimulation tool, DYNASIM, to estimate how the AOAA might impact family wealth, student debt, home equity, and retirement savings across sex, race, and ethnicity. DYNASIM simulates major life events and outcomes—including education, health, family formation, labor market, and retirement—for a sample of the US population, starting in 2007 and ending in 2100. We reweighted national estimates to project how a national federal baby bonds policy may impact Atlanta, Baltimore, Boston, and Oakland.