This spring, DC’s mayor proposed significant cuts to the city’s baby bonds program, limiting the number of children eligible for the program and reducing the deposit amounts. According to Urban estimates, for a child born in 2024, these changes would reduce the maximum fund value the child would receive at age 18 by nearly $12,000 (in 2024 dollars), from $21,000 to just $9,100.

The DC Council has since voted on an updated version, subject to approval or veto by the mayor, restoring the original annual deposits for a smaller number of children born between October 1, 2021 and October 1, 2024 but leaving the future of the program’s funding—including for those children—tied to revenues from the city’s expansion of sports betting. This back-and-forth illustrates a key decision that can benefit baby bonds and other early life wealth-building programs—making the total target fund amount per child explicit to increase the efficacy of these programs.

If these programs are to provide equal access to wealth-building activities such as homebuying, business ownership, and higher education, they need to provide substantial funds to recipients. Existing state and local programs do not have the funding to offer these programs sustainably or at scale because they are often battling budget cycles, as the DC case demonstrates. Without federal investments, states, counties, and cities may need to explore other options to ensure they can continue supporting families with low incomes and address the racial wealth divide.

Existing early life wealth-building programs vary widely in expected fund amounts

Across the early life wealth-building space—including the learning community we host focused on child development accounts and baby bonds—consensus exists around the need for these accounts to yield life-changing sums of money. Last year, we specified that target fund amounts should have a logical connection between the initial amount and the ultimate size of the fund. These amounts can be tied to the value of wealth-building assets such as homes, businesses, and higher education.

Current state, county, and local programs, however, are not standardized and do not have the same initial contributions, subsequent deposits, or investment options. Take two examples:

• In statewide child development account programs, a common initial deposit amount is $100. Pennsylvania’s Keystone Scholars program, for example, provides every child born in or after 2019 with $100 in a 529 account. Connecticut’s baby bonds program, on the other hand, invests an initial contribution of $3,200. Across baby bonds proposals, initial deposits range from $500 in DC and Iowa to $4,000 in Washington State.
• Automatic annual deposits can help accounts accrue, but few programs have them. In DC, each account is seeded with a $500 initial contribution and—under the original design—up to $1,000 in annual contributions (income dependent). Many child development account programs seed accounts and provide additional matches or incentives, but not automatic deposits. For example, Maine’s Alfond Grant provides an initial contribution of $500 and no additional annual contributions from the foundation. If families open a NextGen 529 account and add $25 before their baby’s first birthday, however, they receive an additional $100.

These differences can lead to large variations in projected account balances by the time an account holder reaches the age of 18 (ranging from an estimated $3,000–$5,000 in the Iowa and New Jersey baby bonds proposals to $53,000 in the 401Kids bill introduced in Congress earlier this year).

Outside funding sources can supplement fund amounts but come with tradeoffs

In October, the learning community—via our principles for federal early life wealth-building policy—articulated that there should be a

 “large, initial federal deposit for the benefit of participating children [that] creates a financial anchor for the policy, with growth over time.”
 

But without federal investments or large allocations up front, programs must explore other ways to reach a substantial target amount for recipients. Connecticut was able to access nearly $400 million set aside in a reserve fund to guarantee at least 12 years of funding for its baby bonds program. Some places have considered allowing contributions from multiple streams, including nongovernment entities like foundations and even families, but these contributions come with tradeoffs.

Existing programs for early life wealth building, such as child savings account programs, allow for or rely on family contributions. Senator Casey’s introduced 401Kids program encourages family contributions as a key source of funding for such accounts, which proponents of the bill say could reach balances of $53,000 by the time children reach age 18. But other legislation, such as the proposed American Opportunity Accounts Act, does not allow for family or outside contributions because families with more means could make greater contributions, driving inequity by disproportionately benefiting middle- and high-income families who already have access to various investment vehicles.

To combat further inequities from family contributions, researchers and implementation partners have suggested a contribution cap. Researchers focused on the racial wealth divide have found, however, that such mechanisms already exist in 529 program structures yet we continue to see inequities. If achieving a target sum requires outside contributions, introducing a cap may still be a viable option.

Private and philanthropic contributions could also bolster early life wealth-building fund amounts, but jurisdictions should consider how proximity to communities with greater access to opportunities can lead to inequities in contribution distribution. Donors are more likely to make charitable donations to organizations and groups that are physically nearby as donors perceive the impacts of their contributions to be greater when they can see their effects. Though this pattern may not replicate for early life wealth-building programs, there is a risk that geographic proximity influences the size of funds.

Some state programs have attempted to mitigate this inequitable distribution of contributions. In the Connecticut baby bonds program, for example, private organizations and philanthropies can contribute to a birth year cohort, not individual accounts. This structure reduces the risk of inequity in total final amounts and the administrative burden of adding contributions to individual accounts.

This approach works in Connecticut because the program’s eligibility is means tested. In a universal program in which each child in a jurisdiction has an account, program administrators might need to consider different formulas to ensure that when large gifts are received, the largest sums go to the children most in need.

Financial institutions are also grappling with whether to allow employer contributions to early life wealth-building accounts, much like current retirement savings programs. Employer contributions could further inequities, however, as they often offer greater benefit to middle- and high-income earners than low-income, part-time, and waged employees. Jobs with better retirement savings programs are also less accessible, with a lack of higher education as a key barrier. Potential solutions could include state or federal supplements for accounts that do not receive employer contributions.

Ensuring young adults have start-up capital for life

As states and localities explore early life wealth-building policies, they should keep in mind the field’s consensus about the need to achieve significant sums to narrow the wealth gap. In program design and implementation, states and localities should consider equity gaps and future synergy with any potential federal investments.

External contributions are one way to supplement funding for early life wealth-building programs, but they also carry risks for the equity and efficacy of these programs. When weighing these options, we encourage state, county, and local programs to consider how to prevent widening the wealth gap when making decisions around contribution opportunities.