For more than two centuries, wealthy Connecticut has been known as “the land of steady habits.” But this year it did something that neither it nor any other state has done before. To address wealth disparity, the state set aside public funds that will create thousands of new trust fund babies every year.
Under the new $600 million Connecticut Baby Bond Trust program, as of July 1, any child born to a mother who is on Medicaid insurance would receive $3,200 in a savings account. When they turn 18, they could tap the money — more than $10,000, according to the state’s estimates — for restricted purposes such as educational expenses, buying a home, investing in a business or saving for retirement. All they’d have to do to get the money is pass a financial literacy course.
One of Connecticut’s “steady habits” has been generations of striking income inequality. Thousands of its residents rake in huge amounts of money on nearby Wall Street, while many more people, especially Black and Latino families, can barely get by. According to the Economic Policy Institute, Connecticut has the third-highest income disparity between those who are among the highest 1% of earners and the remaining 99% of earners.
The $600 million for the program was included in a bond bill fueled by bipartisan confidence in a flush state budget fattened by taxes on wealthy investors who saw their incomes soar during the pandemic as well as by federal pandemic relief funds.
Although advocates acknowledge that the baby bonds won’t solve low-income families’ problems in the short term, such as paying for quality child care and keeping a roof over their heads, they expect the program will make a huge difference over time in reducing generational poverty.
“Those immediate needs are real, but also doing something that addresses a big problem we never address is important,” Merrill Gay, executive director of the Connecticut Early Childhood Alliance, told the nonprofit news magazine Early Learning Nation.
Crucially, backers say, the nest egg will inspire life-altering hope in both parent and child that the child has a fighting chance to get out of poverty. About 16,000 Connecticut babies will receive the bonds each year over the next 12 years.
According to Early Learning Nation, Connecticut is the first state to establish a baby bond program, but similar programs have sprung up in several localities, including New York City. A national effort to establish such a program has not moved, but experts say it would significantly narrow the nation’s growing racial wealth gap.