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In this episode, Messellech “Selley” Abebe sits down with Madeline Brown to explore what it would mean if every child began life with a financial head start. Brown is a senior policy researcher at the Urban Institute and an expert on economic mobility, poverty reduction, and the racial and generational wealth gaps. Together, Abebe and Brown unpack the concept of baby bonds and child savings accounts, why policy design matters, and how these tools could help disrupt generational poverty. This conversation examines the realities families face when saving for their children’s futures, the growing wealth divide in the U.S., and what it would take to ensure every child enters adulthood with real opportunity — not just aspiration.

To learn more about Madeline Brown and her work, you can visit the Urban Institute website, and connect with her on LinkedIn.

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Transcript

Madeline Brown  0:02  

It’s really not a partisan issue that people want the best for their children, and nor is it, by the way, a partisan issue that access to financial products that work well for families is a good thing.

Selly Abebe  0:18  

What if every child started life with money in the bank sounds good, right? Well, I have some good news and bad news. Hey, ambassadors, welcome back to Speaking of Kids. It’s Selley. Today we’re talking about wealth, fairness and what the world looks like for kids who get a financial head start at birth. As a single mom of three small children, one of the biggest areas of focus has been to establish a sense of financial security for myself and for my children and their futures. I believe most parents really want this for their families, for their children, the aspiration to leave a small cushion for your child and those you love so they can build their dreams and explore the world without stress. In today’s episode, we learn the role baby bonds can play in disrupting generational poverty, fostering financial independence and providing access to opportunities that have historically been out of reach for so many parents, if speaking of kids helps you make sense of the world we’re raising children in today, help us grow leave a rating, a review and share the show with a friend. Today’s guest is Madeline Brown from the Urban Institute. She’s an expert on economic mobility and poverty reduction, and she’s studied the racial and generational wealth gaps up close. She’s here to help us understand baby bonds and child savings accounts and why the design of these policies can either widen or close the gap for families. Thank you so much for being on the show today.

Madeline Brown  1:59  

Madeline, thank you for having me. Yeah, so exciting. 

Selly Abebe  2:03  

So let’s jump right in. You know, for someone hearing the term for the first time, what exactly is a baby bond?

Madeline Brown  2:11  

Yeah, appreciate that question. So baby bonds are universal, publicly funded child trust accounts, and when recipients reach adulthood, they are supposed to be able to use the funds for wealth, building activities like purchasing a home, going to college, buying a business. So I think happy to kind of dive into the details of what sort of differentiates these different accounts. But you know, for for the purposes of sort of simplicity, it’s a publicly held trust on behalf of a child that’s invested at birth.

Selly Abebe  2:44  

What would such kind of a policy done in a meaningful way mean for families like for parents?

Madeline Brown  2:50  

I think it’s really important to ground these conversations about all of these various savings accounts in the realities of today, right in we think about how many families are actually able to save for their child’s education? Depending on which survey you use, that number is between 3% and the sort of mid 15 ish range, the highest have it at 30, right? So you could think of like, no matter which survey you use, more than 60% of American families are not able to save for their children’s college future because they simply have too many other competing priorities to take care of in the immediate term, and that really makes a difference when kids turn 18. It’s the difference between having the ability to fund even a couple semesters of community college without having to go into student debt. I think it’s just important to sort of ground some of these savings accounts in some of these numbers around what parents are sort of already able to do. And by the way, most parents, when they answer these kinds of questions, would save if they could. They just have other competing priorities that happen to be more immediate, the other numbers that I think are really relevant in this conversation, two thirds of families have the ability to have more than $2,000 in a savings account, right? So that means at any point in time, a full third of us families do not have $2,000 in a savings account, so that’s your tire blows. You get an unexpected medical bill, you get a speeding ticket. That’s $200 right? We can all think of any miscellaneous expenses that come up in our lives if families don’t even have the ability to pay for those, how can we expect them to have the ability to set aside money every month, you know, in a meaningful way for their children? So when we talk about these kinds of accounts, it’s really just important to think about sort of where families are right now and the kind of ability they have to meet their basic needs, let alone plan ahead for their kids futures.

Selly Abebe  4:59  

Yeah. I mean, as a mom of three, I resonated with everything you just said, because it’s a lot to think about, you know, planning for the future while meeting the day to day needs of activities and things of that nature. You know, you’ve studied the racial and generational wealth gaps closely. Was there a particular statistic or a story behind those numbers that made the urgency of baby ponds crystal clear for you?

Madeline Brown  5:26  

Yes, I think for me, the biggest statistic that sort of drives me in this work is that our wealth disparity right just from top to bottom. And it’s worse, by the way, if you cut it by race or gender or both. But even if you just take top 10% bottom 10% right, is getting worse. It’s actively getting worse. And so even though earnings are going up and even wealth is increasing for the average family, the difference between that average family and the top is growing. And that, I think, is something that not everybody fully grasps, because we often look at like, what’s the median wealth compared to last year or 10 years ago? And it often is increasing, right? That’s what the numbers show. But in 1963 the wealthiest families had 36 times the wealth of families in the middle. So at the 50th percentile, 36 times. That’s a lot. 2022 they had 71 times the wealth of families in the middle. So this isn’t even your lowest wealth family. This is your median, your middle of the road American family, the wealthiest ones have 71 times the wealth of those families. And so I think for me, it just really goes to show the ways that wealth compounds over time, that wealth is passed intergenerationally, often within the same families, and that if we don’t do anything about it, that disparity is always going to grow. And so as somebody who works in the field of economic mobility, of poverty reduction, it always sort of feels like this elephant in the room to me, because we can have all of the workforce programs we want, all of the wage programs we want, but if we’re not addressing the fact that every day that goes by, the gap between the middle and the top and the bottom and the top is growing in terms of wealth, which is sort of ultimately your financial resilience. We’re just not going to see everybody having the same kind of experience financially in this country.

Selly Abebe  7:28  

You know. And to that point, you know, baby bonds have long been thought of as a progressive idea rooted closely in kind of what you just talked about, right, like closing the wealth gap. But this concept of baby bonds as we’ve understood it over the last decade or so is not what was just passed Correct, correct. I think we’re all kind of in alignment there. And so can you break down for our listeners how they’re different?

Madeline Brown  7:58  

I think the easiest way to distinguish these two things is that a baby bond is a trust. It is not a savings account. There is no expectation that the families are going to contribute or really engage with it at all until that child is 18. So they may know about it. They should know about it. They’ll know that the money exists. They’ll be able to track the sum and the account, but they won’t be making any contributions, versus a child savings account, which is the sort of ultimate structure of the Trump accounts program that was just passed, which is really designed for family engagement. And you might sort of think like, well, that’s not necessarily a bad thing, right? It’s good for families to be able to save except for that, when we think about child savings accounts or any of these programs, regardless of whether or not you allow family contributions, if the goal is really to support people who are not currently able to build wealth for their children, then we have to think about the sum of money coming from another source besides the family, right? We’ve already talked about the numbers of the kinds of dollars that families do and don’t have to save. And so with this Trump accounts program, essentially what they’ve set up is a new kind of an IRA, the modified Ira structure, where you can open one for a child, because there is no earned income requirement, which is true of a sort of traditional IRA. And what they’re saying is, for children born in essentially the Trump Administration, the second between 2025 and the end of 2028 those children will receive $1,000 in this modified IRA. And that’s it. The government is sort of stepping back at that point and saying, after that, it’s up to the families to contribute and grow the account, whereas a baby bonds model is really saying, let’s make a federal investment that starts with everybody. We give everybody $1,000 at birth, but then every year after that. We are going to invest additional dollars based on income for children, such that when kids are 18, the kids from our lowest income families have a sizable sum that’s been invested on their behalf with no necessary contributions from their parents. And that is really designed to reflect, again, this reality that a lot of families just don’t have the ability to save, but that we, as a country and as an economy want our young adults to enter adulthood with some capital with which they can participate in the economy. So I think when you think about a sort of traditional baby bond, the idea is really everybody turning 18 should have some amount of money, and I’m a meaningful sum, to go to school, invest in a business, purchase a home, invest in a retirement account that helps them build long term wealth, whereas this Trump accounts design really is saying we want to open up a savings account for every child, but after that, we’re not really, as the federal government, going to do anything else. We’re going to let families sort of handle these accounts on their own. And I should say the whole piece about every child even getting the $1,000 is still very much up for debate within Treasury’s rules, it was not actually required. So it could just be that only families who are aware of this program and have the means to save will actually benefit, which I would expect would actually make those wealth disparities worse, as opposed to better.

Selly Abebe  11:41  

And so what I’m hearing you really talk about is the intentionality behind policy. And I think oftentimes what we try to help, even myself, but like our listeners, also understand too, is policy matters, right? And it’s like sometimes it’s thought of as something that happens just at their state house or in DC, but the intentionality behind things matter. When you were talking about the average family not even having, you know, a few $1,000 for a savings account in the current program, can you talk about some of the penalties around, you know, emergency withdrawals? Because I think that’s also a slight variation in what was outlined. And then also, you know, there was a successful bipartisan effort in 2022 right, like around access and especially in the case of emergencies.

Madeline Brown  12:30  

That’s right. So a couple other design features of what was passed. We talked about it being a modified Ira structure. We talked about, sort of that automatic enrollment and universality Is is possible. It’s allowed for, but it’s not required. So that’s a big piece that I think is still up for debate within the Treasury team, families can make after tax contributions which cannot exceed $5,000 annually per account. And then employers can make an additional 2500 and that can be doubled if you have two working parents. So sort of the maximum contribution any child could have in a year is $10,000 from their parents and their employers. What I think is important about the design, and to your point, about sort of the design mattering is that for any early life wealth building program. So we think of in the field, we talk about sort of baby bonds and child development accounts and college savings accounts as all kind of this umbrella of early life wealth building. And again, the whole point is, start at birth, take advantage of the market. Use the 18 years of that child’s life to help build some money for that. There are lots of different account vehicles that you can actually use to get there. And I think, you know some, sometimes it sounds a little wonky, but, but it matters which one you choose. And so the baby bond sort of model, it’s not a savings account, it’s a trust, so it’s just held by the government. A lot of the other child savings account program utilize a five to nine, which is a college savings account, and that is mostly because it has really generous tax benefits. It’s essentially not taxed at all. So families often contribute pre tax dollars, or they can deduct depending on what state they live in, and then they withdraw tax free, as long as it’s used for higher education. So you’re essentially just getting market returns with no tax penalty in choosing an IRA structure for this program. There are rules around what IRAs allow that then apply to this program that, as designed, make it a sort of less appealing financial product then maybe a five to nine would be for example. And I say that because the way that IRAs work is that, essentially, when that child turns 18, they can use up to $10,000 of it for a down payment. One. They can use unlimited amounts for education. They can use up to $5,000 of it, I believe, for the birth of a first child. But any of those uses incur an income tax rate, essentially. And so if I’m a parent and I’m saving for my child, and I’m pretty sure that the first thing my child is going to want to use it for is education. I’m better off, from a tax perspective, using something like a five to nine account. And I should say I’m not a financial advisor. But in the field, you know, these things matter, because it gets to sort of what was the goal in designing this right like, what was the intention? And as you noted, there’s no emergency withdrawal, there’s no real even tax advantage for using it for these qualified purposes. There is a penalty if you have to use it for something else. So let’s just pick a scenario you’re saving for your child. You put money into this account, and actually, when your child turns 12, they have a bike accident, and you incur $10,000 in medical bills from that accident. You get penalized if you pull money out for that emergency in other structures, like an IRA, like an auto IRA retirement program, that’s sort of more standard, you can pull up to $1,000 a year out for emergency expenses. So there are just other pieces of designs that have sort of already been handled in a bipartisan way that are sort of, you know, common sense, like, if we’re going to encourage money people to save money and put it in the markets, we also have to be realistic about their need to pull it out for emergency expenses, and we can put rules around the timelines that they have to pay it back and all these things. But, you know, ultimately, when you’re trying to make the case to somebody to put their money away, you do have to think about again, people’s real life, lived experience, and the needs that they have.

Selly Abebe  17:11  

All right, let’s pause right here when we come back what baby bonds actually look like in the real world and how states are already experimenting with them. Welcome back, ambassadors. We’re here with Madeline Brown from the Urban Institute, digging into baby bonds and what these policies mean for families. Madeline, you’ve been walking us through how design choices really matter, but where are baby bonds already working, and what can we learn from the states that have already tried them. Yeah.

Madeline Brown  17:43  

So baby bonds legislation has been passed in Washington, DC, although since sort of come under fire given current budget constraints here. But the state of Connecticut has a statewide baby bonds program. California has a program called Hope accounts that targets long term foster care youth and children who lost a parent or primary caregiver to covid. And then there’s a handful of local pilots. So Colorado has a pilot, and Georgia has a pilot. We’ve also seen 12 additional states that have introduced baby bonds legislation, three more who have introduced study bills, is what we call them when they basically say, like they build a task force to study the potential impact of this policy. There’s also a pilot in Maryland, in montgomery county, and then in New Mexico. So they all have varying designs, but the general purpose is a large wealth transfer to either babies for 18 years, or, in a lot of cases, with the pilots, there’s directly to young adults. So they’ll actually just raise whatever the target sum is. So if it’s 20 grand per kid, and they have 100 kids, you can do the math, and then they just distribute those dollars. So a little distinct from the sort of we’re going to use 18 years of market returns, but the same sort of ends, which is, we want to hand young adults a meaningful sum of money to start their lives.

Selly Abebe  19:08  

In your opinion, what’s the kitchen table impact? Parents should understand, yeah,

Madeline Brown  19:13  

So I think about this in a couple ways. I have a niece who just turned one in July, and I talked to my brother a lot about what he wants for his daughter, and he is somebody who has the means to think about her going to college, who has opened up a college savings account for her, and in large part because he had that done for him. And so when I talk about what I do with my brother, I sort of say, you know, I love that we are able to think about her future. I love that we have these conversations, and I love that you have the ability to actually put money in these accounts. What I do is work on the policies that help make sure that every baby has that opportunity right that I don’t believe that there’s any family sitting at their kitchen table. People in this country looking at a baby thinking, man, I don’t want this kid to have a good future, right? That’s not happening. They’re looking at their baby and thinking, wow, look at that plate of food I just put in front of them. Awesome. Let’s do tomorrow now, right? And so I think that’s it.

Selly Abebe  20:18  

Let’s do the next meal, like not even do the soccer practice, right?

Madeline Brown  20:25  

Let’s do the field trip that we have to pay for, right? I just think it’s really not a partisan issue that people want the best for their children, and nor is it, by the way, a partisan issue that access to financial products that work well for families is a good thing. And I think what is exciting about this moment is that I think that kitchen table conversation can sort of come to focus right and sort of say, like at the end of the day, let’s make either this federal program work or a different one, to reach every family so that they’re at all kitchen tables. They’re looking and they can pull up the account and they can say, look at this balance for our kid. That’s all this, I think policy field is interested in is making sure that that opportunity is available to everybody.

Selly Abebe  21:17  

You know. And to that point in America, we often treat kids futures as something they really have to earn. And our president, Bruce Lesley, has talked about this a lot, and I’d love to get your take on why is deservedness such a barrier when we talk about investing in kids? 

Madeline Brown  21:39  

Yeah you know, I think the thing that I like to talk about in the conversation around deservedness is grounding, maybe not surprisingly, in sort of the numbers around what things cost, right? I think it’s one thing to have a sort of abstract conversation of, well, I earned my way through college in the 1960s and so you too should earn your way through college. College doesn’t cost the same and it hasn’t been indexed to inflation. Housing doesn’t cost the same and it hasn’t tracked to earnings and inflation. And so it’s all well and fine to have a conversation around what’s the value of having to work for the things that you get right? But I think it’s fruitless if we don’t ground that conversation in a reality check of the accessibility of some of these things. If we think that going to college is a good thing, if we think that home ownership is a good thing, if we think that, you know, having the ability to take advantage of the market is a good thing. Why wouldn’t we make those things easier for more people, unless we’re actually not interested in everybody being able to really benefit from this economy. So I think the general conversation around deservedness can go lots of different ways. My only point, from a policy perspective, is I live in in Washington, you could have purchased the home that I live in for less than $100,000 and my parents moved and started their family. It’s now worth much, much more than that. I cannot afford it, right? 

Selly Abebe  23:21  

You should throw the number out. Though, Madeline, I’m not too far from DC, you should throw the number out. What? What is Zillow?

Speaker 1  23:26  

Rent it, but last time I checked on Zillow, right?

Madeline Brown  23:30  

$850,000 yeah, and there’s no chance that I can buy that house, so I like to use my own personal story, but I feel like this resonates with a lot of people, right? It’s just we know that these numbers are not the same as they were for our parents, and that that’s not just because everything gets more expensive over time. It is sort of out of range of inflation, out of range of of, you know, earnings increases and all of those things.

Selly Abebe  23:57  

Madeline before we wrap up, you know, I just want to go back, because I do think that there’s a lot of people listening that are excited about some of the legislation that just passed, or have questions about it. And so is there anything else that our listeners should be aware of in terms of the current legislation that just passed?

Madeline Brown  24:15  

So the Trump accounts that just passed right now are essentially being regulated within treasury. And so there are a couple things that didn’t actually get fully legislated with the congressional bill that are now sort of being decided. And I think the big one is that best practice in this space, no matter what kind of account you use, is that these things are universal and automatic, right, that every child within a given, whether it’s your city or your school or the country, that everybody gets one and that the parents don’t have to do anything to open them up. And that is based in not just the research, but also just administrative best practice. It is much. Much easier to facilitate a program publicly, if you’re just opening it up for everybody, rather than having to spend the time and staff hours trying to decide on your target population. Enroll just those kids. Have messaging for just those families. But it also will vastly improve the participation rates, because what we’ve seen in things like retirement, in things like snap and EBT, is that when you automate enrollment, you just get much higher rates, not just of participation, obviously, because you’ve opened up the accounts for these families, but in actual participation, in the sense that they actually start saving.

Selly Abebe  25:38  

And Madeline, just to go back, because I just want our listeners to fully understand, yeah, Congress passed this piece of legislation. It was something that that was passed that now has to go to the proper agency for execution, correct? That’s correct. Once this such kind of a program passes, it’s not just miraculously set up like there’s then all of the technicalities around, okay, well, what does this mean? What are the rules, you know, what’s the processes for all that? And that’s what you’re outlining in terms of treasury now, is the entity that would own at least a piece of this legislation to execute this piece of what was passed, and so they’re now evaluating or taking into account, okay, well, what does this mean now? Okay, now that the ball’s in my court, what next?

Madeline Brown  26:27  

That’s right, there are certain things that were legislated, right? This fact that, like babies born in the Trump administration, are eligible for $1,000 in their account. What wasn’t legislated is how that actually happens. So now that goes to Treasury, who in this case is the implementing agency. That’s obviously not always true, but Treasury is in this case, so they now have the responsibility to write the regulations that will actually dictate how this thing gets off the ground. And so things that they have to decide are a is it going to be a universal and automatic program for these four years, which, again, was sort of written in as a possibility, but not a requirement. And so we would expect to see a huge difference in terms of the number of these accounts that actually exist if they decide to make it universal. And I’m talking about in the millions, in the 10s of millions, of accounts difference. So that is one big thing that’s sort of like on the table right now, is, are they going to figure out a way to enroll everybody? It’s not that hard to do. You can do it via tax returns, and then just start to find kids that you miss who maybe, for whatever reason, don’t show up in tax returns. But it’s not that many families that that’s true for. So there are plenty of ways that the federal government has to do automatic enrollment. They just have to decide to do it. And then I think the other, you know, big question mark here is that these accounts are supposed to be managed and held privately. So they’re supposed to be, sort of that initial $1,000 is invested by the government, but financial institutions in the US are ultimately supposed to be the sort of holders of these accounts. But there’s no financial institution that’s sort of written in and so I think the other big piece that we should expect to see in the sort of coming weeks is the large financial institutions start to sort of come up to the surface in terms of who’s going to be the ultimate sort of manager of these accounts where families can actually go to make deposits on behalf of their children in these accounts.

Selly Abebe  28:37  

Thank you so much for that insight. I think that was really helpful for me and also for our listeners. And, you know, one last question we ask all of our guests this but on a personal level, when the policy debates get messy and progress feels slow, do you have a song that keeps you going, or an album that that you turn to?

Madeline Brown  28:55  

You know, I do have a song. It’s called we’re all right. And it has this lyric in it that says there are no new enemies under the sun. And I just think that in the world of policy and in the world that we’re living in now, I find it sort of grounding sometimes to think about like, you know what? There’s no There’s no new enemy, right? For better or for worse, you’ve seen it before, aliens that have come down with some horrific new problem. We just have to be smart enough to use history and address the issues in front of us with the tools that we have. So that song does keep me going.

Selly Abebe  29:37  

I love that. And on that note, thank you so much for your time.

Madeline Brown  29:41  

Absolutely, absolutely. Thank you guys, so much for having me. If you want more information, like I said, there’s a lot of states that have baby bonds programs that have child savings accounts, and so I would encourage folks to just look up their local program, especially because there might be money set aside for your child if you have a baby who was born. After January 120, 25 they will be eligible. And so, you know, I would encourage folks to stay tuned, even if this version, this Trump accounts version, isn’t necessarily what the research would have suggested in terms of design, there’s still going to be a lot of families who stand to benefit. And I think absolutely we should be leaning into that and learning what we can from this program.

Selly Abebe  30:21  

I love that you ended on a public service announcement. I have to thank you so much. This was great. Thank you guys. Here’s what I’m taking from this conversation. Most parents want the same thing, to know that their kids can step into adulthood with opportunity, and sometimes the difference isn’t willpower or hard work, it’s whether the system gives families a fair shot. So here’s your takeaway. Think about what policies like this could mean for your own community. Ask your state leaders what they’re doing to set kids up with a financial Head Start. And if this episode made you think differently about kids and money, oh, man, please share. Send it to a friend your PTA group, or even that family member who always wants to debate about deservedness. You know, there’s always one out there. These are the conversations that can shift the future for kids. Speaking of Kids, is a podcast by First Focus on Children. It’s produced by wind Haven productions and blue jay Atlantic. Elizabeth Windom is the supervising producer. Julia Windom is the editor. Jay Woodward is the Senior Producer. For more about this episode, visit first focus.org.