How could we close the gap between the average wealth of a Black person in Portland and the average wealth of a white person in Portland within one generation? One component of the answer is baby bonds — investment accounts provided to a person at birth that grow over time and that they have access to when they are adults.

Oregon state Rep. Elizabeth Steiner (D-NW Portland/Beaverton) recently celebrated the idea. Lawmakers implemented it in Connecticut and Washington, D.C. in 2021.

How to address the racial wealth gap is a big question. We’re concerned about wealth because wealth is an important indicator of economic power. It helps a person navigate an expensive rental market or buy a home, gives the opportunity of education, and the protection against gaps in income that accompany periods of job loss, illness or the typical economic challenges of going through life.

What is the racial wealth gap?

The racial wealth gap is the difference in how much money and assets white people have compared to people of color, and the gap is pretty wide. According to a recent review by the Brookings Institute, for every $100 in wealth held by white households, Black households hold only $15.

A study from the Portland-based Coalition for Communities of Color, aptly titled “Addressing The Racial Wealth Gap,” highlighted three reasons why this gap exists in Portland.

The first is about making money (wealth building). This means gathering things that are worth money, like owning a house, investing in stocks, saving for retirement, running a business and saving cash. These can increase in value over time. For example, a study commissioned by the Oregon Legislature recently found racism plays a major role in racial differences in homeownership in Oregon. Additionally, recent upswings in the stock market did not benefit all racial groups equally, according to the Pew Research Center.

The second part is about having enough money to live (economic stability). This is about earning enough to take care of your bills, being able to access fair banking and credit, and finding affordable housing and schooling. Racism increases burdens on people of color pursuing economic stability in each of these areas in Oregon. The poverty rate for Black Oregon households is nearly double the poverty rate of white Oregon households, and the socioeconomic status of Black students in Oregon schools is far below their peers in other states.

The third aspect of the racial wealth gap is about losing money (wealth stripping). People of color often face unfair situations that make them lose money or go into debt. This can happen through risky loan offers, high fees and tax problems. The criminal justice system often subjects communities with many Black residents to disproportionate court fees and fines, and Black college graduates tend to have more student loan debt, showing deeper financial inequities.

What are baby bonds?

There are a lot of ideas about how to address the racial wealth gap, and one of them is baby bonds. Baby bonds are like a special savings account automatically opened for a baby at birth. This money is invested in public funds and can't be used until the child is older. While they grow up, the account grows from investment. When they can finally use the money, they can spend it on important things that help build wealth, like going to college, buying their first home or starting their own business.

How could baby bonds be used to address the racial wealth gap in Portland?

A baby bond program could be started by a dominant institution like a local charity using its endowment, a state agency like the Oregon Treasurer, (which already manages state investments such as the Public Employee Retirement System, or PERS), or by a local government such as Multnomah County or the city of Portland working with a nonprofit partner.

Three studies reviewed by the Washington, D.C. think tank The Urban Institute agree baby bonds could shrink the wealth gap. One study suggests that the gap could significantly narrow, making the wealth difference between Black and white people much smaller than it is now. Another study predicts a smaller but still meaningful reduction by 2060. A third study estimates that for young adults, the gap could become smaller, leaving a noticeable difference in wealth.

A few places have taken steps past studying potential outcomes. Connecticut, for example, passed legislation in 2021 that seeds accounts at $3,200 each, with expectations the accounts will grow to somewhere between $5,000-$10,000 by the time they mature. California also recently passed legislation that puts up to $8,000 in each account with hopes the accounts will grow to $12,000. Washington, D.C. also passed legislation which seeds accounts with $500 and pledges to add $1,000 per year.

How much would a baby bond program cost?

To answer this question, I made my own model, using data from the Oregon Health Authority, which counts all Oregon births and has information about parent race and ethnicity, if the birth was paid for with public insurance, and if the parents are recipients of programs for people with low incomes, such as WIC. There are a lot of ways to design the program to focus it on groups that need it, and each one of those program models would produce a different starting cost.

When I counted all the babies born in Multnomah County over a one-year period that were paid for with insurance other than market-based insurance, like publicly subsidized insurance, I found there were just under 5,800 births.

To make the model, I assumed the savings accounts would make the same amount of money as the PERS pension accounts used by the state of Oregon, that the accounts would mature in 18 years, and that the racial wealth gap would grow over this period at a rate similar to the last 20 years.

If I calibrated the investment amount at the beginning to reach the estimated equivalent of the racial wealth gap in 18 years, and also assumed every birth paid for with public insurance was also paired with a baby bond account, the total cost was $167 million.

If I assumed that the program focused on babies with a Black parent, for example, then the total cost changed to around $14 million.

You might be experiencing sticker shock right now. This program can be very expensive. Its expense tells us something important. This is the attributable gain that the average white person already experiences in the current economy. The reason for that gain is associated with slavery, land theft, Jim Crow, and racism in all aspects of systemic and institutional economic growth. In a sense, the price has already been paid. Programs like baby bonds imagine how to repay that amount to those excluded from its gains.

What would the benefits of a baby bond program be?

Overall, a likely outcome would be a more racially just and equitable economy, wherein people of color enjoy the same economic benefits afforded to people with the typical white experience.

The program would likely result in greater rates of homeownership, new businesses, and educational attainment for people whose parents could not afford the supports that typically lead to these outcomes. Another potential benefit could be recipients’ improved idea of the future — hope.

The likelihood that such an intervention could break common intergenerational cycles of poverty would likely be felt — a feeling of growing up with a real and reasonable sense that the future could be good.

Steve van Eck is a community development professional living in Portland.

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