Baby bonds have emerged as a promising tool to boost wealth building among communities with fewer financial resources and to reduce the racial wealth gap. These bonds are publicly funded trust accounts created for children at birth. When they reach age 18, they can use the funds to make select investments, such as purchasing a home, paying for their education, creating a small business, or saving for retirement.
Although baby bonds are promising, young adults still see homeownership as foundational to building wealth. And buying a home requires a strong balance sheet. The most recent data suggest the average first-time homebuyers who obtained a mortgage had a credit score of 727 and a debt-to-income ratio of 40 percent—a high hurdle for many young adults. And young adults from historically marginalized communities face even greater barriers to mortgage readiness.
Our assessment of the Cash Catalyst program—an accelerated baby bonds program in Connecticut that aims to understand how young adults might use baby bonds in practice—highlights the important role of a healthy balance sheet, considering how young adults said they’d prefer to use the funds. Though our sample size was too small to draw broad conclusions, our findings suggest that baby bonds programs should clearly address young adults’ weaker financial condition to optimize the wealth-building potential of baby bonds.
Half of Cash Catalyst participants plan to use their baby bonds to purchase a home
The Cash Catalyst program sought to use financial education and $2,000 in immediate debt relief funds to strengthen participants’ balance sheets by improving credit scores, reducing debt, increasing savings, and supporting more stable employment. Participants—people ages 18 to 30 from underserved communities—attended financial education sessions and took a digital financial course created by MoneyByrd.
The program also provided randomly selected participants a $20,000 cash injection to invest in housing, retirement, business creation, or education.
Urban’s assessment focused on the short-term outcomes of the financial education. We collected baseline survey data in August 2025 before the education sessions began and follow-up survey data in November 2025 after participants completed the sessions. We then analyzed survey data for the 42 participants (out of a total of 55 participants) who completed both the baseline and follow-up surveys.
From the baseline survey, we found that half of participants reported they would use a $20,000 cash injection to purchase a home, while 29 percent would use it to start a small business.
But building wealth through homeownership typically requires a mortgage. And to obtain a loan, an applicant must not only have a down payment and closing costs—which $20,000 in baby bonds could cover—but also a good credit score, a low debt-to-income ratio, and proof of stable employment.
Many Cash Catalyst participants were in a job training program sponsored by ConnCAT and had been employed for half of the past year or more. Despite having stable employment, our survey data showed that many participants would still struggle to obtain a mortgage given their balance sheets, despite interest in building wealth through homeownership.
Half of participants didn’t know their credit score. Among participants who knew their credit score, 76 percent reported a credit score below 660 on the baseline survey.
The median participant had a debt-to-income ratio of 48 percent—higher than the 40 percent average for first-time homebuyers—and very few liquid assets to pay for a down payment or closing costs. This lack of liquid assets could have also driven the large share of participants (54 percent) who reported feeling financial stress more than half of the week.
These results align with previous Urban research that found younger adults often have more debt and face greater financial precarity because they’re in an early stage of their careers. These challenges are even greater among young adults of color—who made up most Cash Catalyst participants—because of generations of discriminatory financial policies.
Financial education workshops may have supported behaviors that can lead to improved balance sheets
As part of our assessment, we also held focus groups with participants to understand their experiences in the six financial education workshops.
Participants said the budgeting and credit training had the greatest impact on them, with some saying it helped them become more mindful of their spending, better track expenses, and plan ahead for bills. Participants reported learning not to take on more debt than they could repay, credit’s influence on major life decisions, and strategies for paying down debt, such as prioritizing smaller balances or higher-interest accounts. In addition, several participants said the financial education workshops helped them feel less afraid of making financial decisions and recognize that financial growth is a long-term process.
Results from our follow-up survey suggest that the financial education workshops helped increase participants’ financial knowledge and shape their financial behavior. The follow-up survey showed a decline in the share of participants reporting a missed payment in the previous 12 months. Compared with the baseline survey, more participants reported they used online banking or financial technologies and they knew their credit score, indicating an increase in financial literacy.
Still, changes in key balance sheet metrics were uneven or unchanged following the financial workshops. Though half of participants reported an increase in liquid savings, the other half experienced a decline or no change.
About 42.9 percent of participants indicated that the number of days experiencing financial stress had decreased, while 57.1 percent experienced either an increase or no change. Few participants reported a change in their credit card debt, with most participants reporting no change.
Though participants reported few changes to key balance sheet indicators, the changes in financial behavior they reported during our focus groups—such as having a financial plan—and on the follow-up survey could help them strengthen their balance sheets in the future. Fewer missed payments could help them achieve a higher credit score and more manageable debt-to-income ratio. Increased use of online banking suggests greater attention to—and management of—personal cash flows among participants. And knowing their credit score can help improve financial behaviors (PDF).
A strong balance sheet can help young adults make the most of baby bonds
Though the small sample size and short three-month follow-up window limit the scope of these findings, our results suggest that wraparound services like financial education and immediate debt relief could help baby bonds recipients strengthen their balance sheets before pursuing homeownership as a way to build wealth.
To help address balance sheet constraints among participants, baby bonds programs could consider partnering with innovative mortgage lending pilots that seek to expand access to loans for borrowers with low wealth. Alternatively, programs could offer financial education that could help increase participants’ willingness and confidence to invest in assets whose accessibility is less contingent on current balance sheet conditions.
Doing so could help baby bonds deliver on the promise of wealth building and narrowing the wealth gap.
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