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What You Need To Know About The Baby Bonds Proposal

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Wealth inequality has reached a flash point in the United States. The world’s top economists are proposing radical solutions for closing the disparity, and the “Baby Bonds” proposal may be one of the most interesting ideas yet: Darrick Hamilton and William Darity want to give every baby born in the U.S. between $500 and $50,000 on the day they’re born.

But can the Baby Bonds concept actually work?

Inequality In The U.S.

Today, America’s top 1% richest individuals control half the country’s wealth, while the bottom 90% hold three-quarters of the national debt. This wealth disparity between the richest and the poorest people has continued to expand, with the richest Americans’ average net worth now 10 times what it was in 1982.

Solving wealth inequality has become a top priority for governments across the globe, and economists are leaving no stone unturned as they try to find a solution.

What Is The Baby Bonds Proposal?

The Baby Bonds proposal seeks to correct wealth inequality by leveling the playing field for the next generation. Hamilton and Darity want to give every baby a bond between $500 and $50,000, adjusted for their family’s wealth. The average middle-class child would receive around $20,000. These bonds would remain locked until the child turned 18, when they would become available to pay for college, buy a home, or start a business.

The program is slated to cost about $8 billion. That figure is hard to swallow, but it represents only .2% of America’s annual budget of $4 trillion. All things considered, the Baby Bonds proposal starts to look pretty inexpensive.

Who Benefits From Baby Bonds?

Since the Baby Bonds proposal scales according to wealth, it provides the biggest benefit for those who aren’t born into wealth. According to Hamilton and Darity, wealth “has little to do with the particular individual.” Some children are lucky enough to have key resources when they reach adulthood, but others aren’t. The Baby Bonds proposal solves the “luck” problem by providing the same resource advantage to everyone when they turn 18.

Many critics of the Baby Bonds proposal are skeptical that giving a lump sum of cash to young adults is the best way to meet people’s needs, but research on similar “no strings attached” investments like basic income looks promising. "People have needs," says Caroline Teti, field director for the charity GiveDirectly, in an interview with Business Insider. "In poor communities […] if they get a basic income, it goes directly into those needs." Baby Bonds could be invested, put towards an education, or used to finance a small business.

Can The Baby Bonds Proposal Actually Work?

For now, the Baby Bonds proposal remains just an idea, and there are a lot of hurdles to overcome before it can be implemented. The biggest hurdle with the Baby Bonds proposal is, unsurprisingly, the cost.

Despite the radical nature of the Baby Bonds proposal, the world’s leading financial experts are taking notice: Torsten Slok, Deutsche Bank's chief international economist, called Baby Bonds an “intriguing” idea.

Final Thoughts

The Baby Bonds proposal is a thought-provoking idea, but it’s not clear whether it could actually make the jump into U.S. law. In the meantime, investing in your child’s future is still one of the best ways to ensure they aren’t held back by a lack of resources when they reach adulthood.

Even a small amount of cash can grow to match a Baby Bonds lump sum if it’s properly invested. Consider talking with a broker to break the cycle of inequality in your family.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Baby Bonds contributorNews Bonds Economics Markets Personal Finance General

 

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