These Economists Want to Give Every U.S. Baby a Trust Fund — Here’s Why
Imagine a world where you were handed $50,000 just for being born.
You couldn’t technically touch that money until you came of age — but when you finally turned 18, you’d be able to use it to pay for school, put a down payment on a house or start up your own business.
I mean, can you even fathom the possibilities?
Well, there are some economists who want us all to take a minute to do just that.
Baby Bonds: Another Way to Look at Universal Income
Last weekend, Darrick Hamilton, associate professor of economics and urban policy at the New School, presented the idea of “Baby Bonds” at the American Economic Association conference in Philadelphia.
Hamilton, along with his partner William Darity, an economics professor at Duke University, proposed that giving every baby born in the United States a trust fund could seriously help to lessen the income inequality this country is facing.
With the implementation of Baby Bonds, each child would be given a lump sum based on their parents’ wealth, and a sliding scale would determine exactly how much each child gets.
The children of the ultra-wealthy would receive the lowest amount, $500, while the children born into extremely poor families would receive as much as $50,000. A baby born into a typical middle-class family would generally receive around $20,000.
The Trouble with Baby Bonds
But that left everyone with a lot of questions.
Where would the money come from?
Would the recipient be able to use the money in any way they choose?
What about those people who aren’t able to decide how to use their bond? Would someone else be able to control it?
Hamilton and Darity offered up their own solutions to some of the more popular questions.
Hamilton suggests that Baby Bonds would cost about $80 billion per year, or about 2% of annual federal government spending. If the program was implemented now, the U.S. would have 18 years to build up a budget before the first payments went out.
Included in the proposal is a formula that explains how, when and why each child would get the amount they were set to receive, although some critics rejected such a structured and rule-bound program.
When it was pointed out that some people may be on board with the proposal only if it replaced several other welfare programs, Hamilton noted that Baby Bonds are meant to function more like Social Security for young people than as a total replacement of the “social safety net.”
How Does a Baby Bond Compare to a Universal Basic Income?
Over the last few years, the concept of a universal basic income (or UBI) has been gaining popularity. Earlier this year, Hawaii considered a UBI as a way to stem an ever-growing homeless population.
But while UBIs and Baby Bonds are both ways of fighting future income inequality, Baby Bonds would be the more inexpensive of the two in the long run.
UBIs require a constant stream of money — enough to cover basic human needs — which would be handed out to every person, every year. With Baby Bonds, an amount similar to one person’s single, annual UBI payment would be given out just once per person per lifetime.
Implementing a UBI across the U.S. would cost as much as $1 trillion per year, while handing out Baby Bonds would ring in at just $80 billion.
And while one of the concerns that UBI supporters face again and again is that it will remove any incentive to remain a productive member of society, Baby Bonds forgo that issue by offering one shot to make it count — and nearly two decades for a person to decide what to do with it.
For many young people, it could be the ticket out of a revolving door of generationally driven socioeconomic hardship.
“The key ingredient of how successful you’ll be in America is how wealthy your family is,” Hamilton said.
Baby Bonds, he proposes, could change that.
Grace Schweizer is a junior writer at The Penny Hoarder.