Giving Compass' Take:

• Senator Cory Booker is introducing a bill promoting baby bonds, or American Opportunity Accounts, to reduce America's racial wealth gap and provide more opportunities for young people of color. 

•  As it stands, Black and Hispanic families are five times less likely to receive substantial gifts or inheritances compared to their white counterparts. These baby bonds would help to narrow the gap sufficiently if it can be tested for scale. How can donors help invest in the research to make this a potential option? 

•  The Ford Foundation shares some lessons in addressing the racial wealth gap. 

US Senator Cory Booker (D-NJ), whose presidential campaign ended last week, introduced a bill to create American Opportunity Accounts, or “baby bonds,” as a bold solution for closing the racial wealth gap. But this proposal has yet to be fully tested at a large scale. It is time to invest in a demonstration and evaluation of this idea.

The racial wealth gap has become a widely-discussed issue not only by scholars, but also by the media, advocates of economic security, and 2020 presidential candidates.

The racial wealth gap is the disparity in net worth held by white families and net worth held by families of color. The Urban Institute’s research shows that at the median, white families have 10 times more wealth than African American families and 8 times the wealth of Latino families. Similarly, young white adults ages 18 to 24 have 15 times the median wealth of African American young adults.

Wealth is used to pay college tuition, start a small business, and for down payment on a home – investments that can provide a stepping stone to the middle class. Part of the racial wealth gap is explained by disparities in the receipt of gifts and inheritances. Black and Hispanic families are five times less likely to receive a large gifts and inheritances and receive smaller amounts when they do.

Booker’s proposal is based on a concept developed by Darrick Hamilton, executive director of the Kirwan Institute for the Study of Race and Ethnicity, to provide a publicly funded endowment to every newborn, with babies born into low-wealth families receiving tens of thousands of dollars more than babies born into affluent families.

Under Senator Booker’s bill, every newborn would receive an initial endowment of $1,000. Then, each family’s annual income would be used—given the lack of data collected by the government on family wealth—as the basis for the sliding scale to determine the amount of each annual contribution to the child’s endowment.

Read the full article about baby bonds by Kilolo Kijakazi and Alexander Carther at Urban Institute.