Watching President Biden’s State of the Union address last Tuesday, his focus on how unfair our economy is and the need to build one “where no one is left behind” resonated with me, as someone who works day in and day out on economic inequity. My thumbs started twitching, ready to tweet, the minute he said, “we have to reward work, not just wealth.” Politicians are always talking about how important work is, but what they often fail to point out is what the President said: our tax code, and indeed our whole economic system, rewards people who already have money over people who work to get their money. 

Clearly, as the President advocated, we need to change our tax system so that the wealthy pay their fair share. But that is only one, albeit critical, piece of addressing inequity in our economy, particularly the racial wealth divide. To get at the root of the problem, we need policies that give people who don’t have much wealth to start off with, the chance to begin building it. 

Despite persistent myths about people going from rags to riches, in the US today, if you’re not born into money, it’s incredibly hard to attain financial security and prosperity as an adult, no matter how hard you work. As the saying goes, “it takes money to make money.”  

Think about it. Two young adults, one from a wealthy family and one from a family with little or even negative wealth, are not starting out on a level playing field. The person from the wealthy household will mostly likely receive some initial money from their family to get their start in life, such as helping them buy their first home—allowing them to build equity at a young age. The young adult from the household without wealth—who is more likely to be Black, Latinx or Indigenous—doesn’t have family money to build from. No matter how hard they work, it’s nearly impossible for them to catch up. 

To see how this plays out, we need only look at the numbers on wealth by race and ethnicity. The 2019 Survey of Consumer Finances (SCF) shows that, at the median, Black (non-Latinx) households and Latinx households have only 12 cents and 21 cents respectively for every $1 of wealth held by White (non-Latinx) households. Even when different levels of education are taken into account, disparities persist, showing that it isn’t a matter of just getting more education—it’s a systemic issue. 

Since wealth is largely passed on from one generation to the next, these racial and ethnic differences in wealth will continue to persist and grow until we take action to change them. A national Baby Bonds program, like that proposed this week by Senator Cory Booker (D-NJ) and Representative Ayanna Pressley (D-MA-7) in the reintroduced American Opportunity Accounts Act, would help disrupt this cycle. Through Baby Bonds, the government would invest money for children, with the largest amount for kids from low-income households, so they could begin building financial security and wealth as adults. A 2019 study found that had a national Baby Bonds program been put in place during the mid-1990s, by the mid-2010s, the wealth gap among participating households would have decreased from White households having about 15.9 times the wealth of Black households to having only 1.4 times the wealth of Black households.  

While a national Baby Bonds program is the ultimate goal, states don’t need to wait for the federal government to act. In 2021, Connecticut and Washington, DC passed the nation’s first Baby Bonds legislation. This year, state treasurers are spearheading efforts to pass Baby Bonds legislation across the country, including Treasurers Mike Pellicciotti in Washington, Deb Goldberg in Massachusetts and Zach Conine in Nevada. 

As these state leaders are showing, it’s time for policymakers to go beyond simply espousing the value of hard work, as if it might magically address growing wealth gaps. People are already working hard, but that work is not getting them to financial stability and prosperity. What we need are a suite of policies that address financial instability in the here and now (e.g., Child Tax Credit expansion) AND make it possible for those born into low-income families to build long-term wealth, like Baby Bonds.  

With Baby Bonds, children have a fair shot at accumulating wealth over their lifetime and having something to pass down to the next generation. And that’s something worth working for!