‘Baby Bonds’ Can Help Democratize the Stock Market, for Real

Nearly all stock market wealth in this country is now owned by the super rich. The wealthiest 10% hold about 93% of all household stock market wealth in this country, Axios reported recently—a record high.

The Institute for Policy Studies analyzed Fed data and found that the lion’s share of these gains went to the richest 1% alone. This elite group owns 54% of public equity markets, up from 40% in 2002.

The bottom half of the country? They own just 1%.

How do we boost the wealth ownership of the bottom half of households? One bold solution is to establish children’s savings accounts, also known as “Baby Bonds.”

There’s been a lot of chatter about the “democratization” of the public stock market. The Fed estimates that 58% of U.S. households have some money in the stock market, mostly through retirement funds like IRAs and mutual funds.

But that hype is missing a key trend: Nearly all that wealth is controlled by the wealthiest 10% of us. As Gillian Tett observed in the Financial Times, “If nothing else, these rising concentrations merit far more public debate, since they challenge America’s self-image of its political economy and financial democracy.”

How do we boost the wealth ownership of the bottom half of households? One bold solution is to establish children’s savings accounts, also known as “Baby Bonds.”

Senator Cory Booker and Representative Ayanna Pressley have introduced the American Opportunity Act, a federal baby bond bill. Under this proposal, children would be provided with a $1,000 savings account at birth, with annual contributions up to $2,000, depending on family income.

At the age of 18, the proceeds of these accounts would become available to recipients for educational expenses, purchasing a home, or making investments that provide for long-term returns. For example, those funds could be invested in mutual funds and retirement funds to increase the nest eggs for non-wealthy individuals.

A number of states, like Connecticut, and a few cities, like Washington, D.C., are already creating baby bond programs. Others have introduced legislation to create them.

Connecticut has a far-reaching program aimed at reducing the state’s racial wealth divide and boosting the wealth of all low-income households. Starting in July 2023, Connecticut began depositing $3,200 into a trust in the name of each new baby born into a household eligible for Medicaid. The program is known by the acronym HUSKY after the popular state college mascot.

Recipients will be able to redeem that capital between the ages of 18 and 30 if they remain Connecticut residents. The HUSKY bonds are projected to grow to between $10,000 and $24,000 in value, depending on when they are withdrawn. The funds will be tax-exempt to the beneficiaries and available for investments such as higher education or job training, homeownership, and small business start-ups.

Other states that have either introduced baby bond legislation or are seriously considering it include California, Massachusetts, Maryland, North Carolina, New Jersey, Nevada, Washington, Wisconsin, and Vermont.

Innovative programs like these can help bust up the dangerous concentration of wealth at the top of our country’s economic ladder. In an age of unprecedented inequality in this country, it’s an idea whose time has come.