Policy insights
September 11, 2023
Policymakers across a number of states and at the federal level are creating Baby Bonds programs that aim to ensure children reach adulthood with financial resources that can be used to pay for higher education, buy a home, start a business, or save for retirement.
These programs can help children across the income spectrum begin building assets at birth and accumulate sufficient wealth to help pay for important financial needs.
Using proprietary 529 data, capital market projections, and record-keeping experience, Vanguard has developed four principles that might help policymakers consider tradeoffs when designing these programs.
Provide broad access—open accounts for all at birth. Children across the income spectrum can gain from Baby Bonds programs that begin asset accumulation at birth.
Target larger funding to lower-income families. Tailoring program contributions can help maximize the impact of limited resources.
Use multi-asset portfolios to offer better long-term returns. A portfolio made up of stocks and bonds, rather than Treasury securities exclusively, could enhance the value of Baby Bonds accounts, reduce program costs, or both.
Aim for low administrative costs and promote lifelong engagement. Operating the program at scale can minimize costs. Engaging family members and the beneficiary digitally, allowing private contributions, and facilitating auto-portability can strengthen involvement.
For more insights on this topic, check out Baby Bonds: Design principles for inclusive wealth building.
Notes: All investing is subject to risk, including the possible loss of the money you invest.