One in 4 Louisiana children lives in poverty. These children’s families can hardly afford to meet their basic needs, let alone save for the future. To put our state on a path to address this, Rep. Royce Duplessis has introduced House Concurrent Resolution 94, which asks the Department of Children and Family Services to study a policy tool that has gained national popularity in recent years: baby bonds.
Baby bonds are not actually bonds—that is, they are not debt-financed instruments sold to raise capital from investors. Instead, as proposed by economists Darrick Hamilton and William Darity, they are a sort of publicly guaranteed trust fund, created at a child’s birth.
Each time an eligible baby is born, Louisiana would create a “baby bond” account for them and make an initial contribution. From that point, the design of the program can vary. Some proposals would have the state making additional annual contributions, while others just vary the size of the initial investment based on family income at the time of birth. In either case, the state would invest the baby bond funds in low-risk instruments, similar to public employee pension funds. The bonds would mature when a child reaches adulthood, and the money could be used to pay for higher education, home ownership, or to start a business.
If Louisianans turning 18 today were able to collect a baby bond deposited in 2004, depending on how exactly those funds had been invested and the rate of return they produced, those young adults could be collecting substantial amounts of money.
Assuming an average annual return of 7% and an initial investment of $3,500 by the state, beneficiaries would collect about $11,800 each today. Or if these baby bonds had been invested such that their interest rates matched the S&P 500 Index over the last 18 years, that $3,500 would have produced a little over $21,000 per account today. This is money that a young person could use to help pay for college, start a small business, or put a downpayment on a home and get on a path to financial independence.
Two baby bond programs currently exist in the United States — Connecticut and Washington, D.C. both created programs in 2021 targeted to children born to their poorest residents. Several other states are exploring the concept as well, including Iowa and Wisconsin, due in part to the promise these baby bond programs hold for reducing economic and racial inequity.
While baby bonds would benefit anyone who qualifies, they would have a particularly positive impact in reducing racial wealth gaps.
Economic researchers at the Urban Institute have found that the median American white family has 10 times more wealth than the median Black family, and eight times the wealth of the median Latino family. Baby bonds would help to close these gaps by providing families with no wealth, and often very low incomes that do not allow for saving, with direct financial support to their children when they need it most: when they reach young adulthood. Depending on how the baby bond program is designed, the payouts could be quite substantial.
HCR 94 would not create a baby bond program. But studying this issue – and how it could help families in Louisiana – is an essential first step. The power of baby bonds lies in its promise to secure a more prosperous future for our children — and that makes HCR 94 one of the most important measures being considered this session.
– Jackson Voss, Economic Opportunity Policy Analyst
