Trust fund babies tend to get a bad rap. But Rhode Island General Treasurer James Diossa wants more of them — 4,600 a year more, to be exact.

That number is based on estimates included in Diossa’s 2024 legislative packageat the State House on Jan. 24.

These would not be your stereotypical, spoiled young people whose family fortune affords them seemingly unearned privileges. Instead, Diossa’s baby bond proposal aims to carve out a path to wealth for low-income Rhode Islanders whose circumstances make it difficult to pay for college, a house, or even a car.

“There is a long history of inequities in Rhode Island and in this country, and a proposal like this could change that dynamic,” Paige Clausius-Parks, executive director of Rhode Island KIDS COUNT said in an interview.

“If we want our employment rate to be good, if we want our school systems to be good, if we want to be able to live in safe communities, everyone needs to be able to meet their basic needs.”

A 2021 report by KIDS COUNT laid bare the divide between Rhode Island’s wealthiest and lowest income children, the latter of whom are disproportionately children of color. Black and Hispanic children are seven times more likely to grow up in poverty as their white peers and half as many come from families that own homes, according to the report.

Diossa’s Rhode Island Baby Bond Trust Act aims to narrow that chasm, creating a $3,000 trust for each baby born into a family on public health insurance. The money would be managed and invested into stocks and bonds by Diossa’s office for the first 18 years of a child’s life, with the intent to grow the deposit into a $12,000-$15,000 nest egg over an 18-year period, according to Diossa’s office. Once the child turns 18, they would be able to tap into the money to cover costs associated with higher education or vocational training; buying a home; starting a Rhode Island-based business; or buying a vehicle.

Big return on investment

It’s a visionary idea that requires a long-term view to understand the payout – not only for the beneficiaries of the bonds, but for the economy as a whole through home sales, business growth and a more educated workforce. Diossa’s office estimated the $13.9 million cost to cover an initial, 4,600 group of Medicaid babies with $3,000 apiece investments would generate $50 million in economic output.

“In the short-term, we’re not going to see any gains or make a difference,” Diossa said. “I won’t be treasurer in 18 years, but I know there will be a cohort of kids who qualify for this program who will be able to put a down payment on a home, or start a business, or continue an education.”

Helping his case: pressure to keep up with surrounding states where a wonky policy idea proposed in a by a pair of economists is quickly gaining traction.

Connecticut became the first state in the nation to implement a baby bond program that passed the state legislature in 2021, though political headwinds delayed its implementation until A dozen other states have since introduced legislation or created task forces to study the idea, including Massachusetts, where a task force released a report of broad-brush recommendations for. Vermont legislators introduced a baby bond bill

In Rhode Island, the Rhode Island Baby Bond Trust Act is awaiting a legislative sponsor, along with the not-so-small detail of a funding source. Diossa said his office was reviewing several internal opportunities to pay for the program, but declined to share which options were under consideration. A funding source will be identified once the legislation is introduced within the next two weeks, he said.

Gov. Dan McKee remained noncommittal, with Olivia DaRocha, a spokesperson for his office, responding via email that the governor would review the legislation when it is introduced.

A by the Urban Institute stressed the importance of carving out a sustainable, long-term funding source not subject to the changing whims of a political body. Just ask DC, where the City Council approved a four-year funding plan for a baby bond program, only to have Mayor Muriel Bowser remove the funding in her fiscal 2024 budget (though it was then restored amid protests from officials and community members).

Connecticut’s baby bond program originally intended to rely on bonding to fund the initial 12 years, but the funding source was later shifted to draw from a reserve fund set aside during a prior restructuring of teacher pension debt. The $390 million allocation intends to cover 12 years of $3,200-apiece bonds for babies born into Connecticut families on the state Medicaid program. By the time the children turn 18, the deposit is expected to hit anywhere from $11,000 to $24,000.

Connecticut launch delayed two years

Connecticut Gov. Ned Lamont and Treasurer Erick Russell gave the first update on the newly launched program sharing that 7,800 babies born across the state since July 1, 2023, were automatically enrolled. Demographic data on the trust beneficiaries to-date is also not available, according to Russell.

While Russell described the initial rollout as fairly smooth, the path to implementation was paved with obstacles. Even after former Connecticut Treasurer Shawn Wooden won support from lawmakers on his baby bond program in 2021, opposition from Lamont’s office forced a two-year delay, according to news reports.

Russell, who was elected in 2022 after the legislation passed, acknowledged the political tensions hovering over the program.

“It’s really difficult and takes a lot of political courage to look at making a long-term investment like this,” Russell said in an interview. “I won’t be in office, and most of the people who supported it likely won’t be in their positions by the time the benefit is paid out.”

Also a long way on the horizon – the research analyzing whether baby bonds programs in Connecticut, or maybe Rhode Island, achieve their intended goals.

simulating the effects of a national baby bond program found that it could improve average net worth while substantially reducing the racial wealth gap. Where White Americans held 16 times as much wealth as their Black counterparts in 2015 (based on data referenced in the paper), the gap would shrink to just 1.4 times under a baby bond program.

How baby bonds could close the racial wealth gap

There’s no real-world data yet to prove the effects. While the Connecticut treasurer’s office is having initial conversations with philanthropic and research groups about how to track and measure outcomes for its initial crop of trust fund babies, that’s not the immediate focus given the 18 years before any data can even be collected.

More immediately, Russell’s office is focused on partnering with hospitals and community groups to make sure Medicaid families know about the trusts being set up for their babies, and monitoring the return on investment of the initial investment.

There are signs of progress that can be tracked even before the 18-year wait when  trustees can dip into the money is up, according to Darrick Hamilton, an economist who co-authored the 2010 paper that popularized the idea of baby bonds. Hamilton is also a professor and founding director of the Institute on Race, Power and Political Economy at The New School in New York.

“Black and Latino communities are used to a punitive relationship with the government,” Hamilton said. ‘If you start with this foundation, you build trust between the state and the people. It’s an opportunity to engage with families from the cradle all the way through adulthood.”

Diossa envisions coupling the program with financial literacy for the families and children who will benefit from the trusts, along with other wraparound services.

And while an untouchable investment won’t pay their monthly heating bills or grocery costs, the nest egg can offer both emotional and tangible benefits before the money actually becomes available.

“Just imagine if you’re in a family who doesn’t have the wealth or the income levels to really provide a comfortable lifestyle, and are receiving annual statements showing a fund growing year-to-year, and know in 18 years you will have a wealth-building mechanism,” Diossa said. “That changes the whole dynamic, the way you look at the future.”

Other state programs don’t allow car purchases

One distinction separating Rhode Island from other states that have studied, or started, baby bond programs: letting trustees use the money to buy a car. While home ownership, higher education or business investment are popular options heralded as appreciating assets, cars are just the opposite, losing value over time.

However, in a transit-limited state like Rhode Island, lack of transportation in turn inhibits pursuit of education, or work, Clausius-Parks said.

“We have a lot of great scholarship programs like Rhode Island Promise and the Hope Scholarship, but it doesn’t cover certain things like transportation to getting to class,” she said.

Hamilton also stressed the importance of tailoring state-based programs to their environments, as well as budget constraints. His initial policy imagined a federal baby bond program in which all families, regardless of income, would have trusts, though the amount depended on their wealth. State-level restrictions on balancing a budget make the cost of universal baby bonds unrealistic at the state level, although a federal child savings account program remains on the table based onintroduced last year by Rep. Ayanna Pressley of Massachusetts and Sen. Cory Booker of New Jersey.

Despite the funding difficulties and political battles required, Hamilton expects to see more states take up or advance the baby bond program this year as calls to close the wealth gap grows to a battle cry.

“The American Dream has been rhetorical, for the most part, for many families,” Hamilton said. “If we want to make it authentic, we need to see capital.”

is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Rhode Island Current maintains editorial independence. Contact Editor Janine L. Weisman for questions: info@rhodeislandcurrent.com. Follow Rhode Island Current on and .

“This is one of my favorite bills this year,” said Elizabeth Fraser, policy director at the Connecticut Association for Human Services. “It really begins to address the wealth inequality in Connecticut.”

Connecticut may be known for being home to lavish golf clubs and wealthy finance workers. But it of the nation for its level of income inequality. “We have some of the wealthiest families in the country, and we also have some of the poorest,” Fraser said. “The wealth gap has just been widening.”

This is the very problem baby bonds are meant to address by giving low-income children more of a head start. “The lack of net worth and liquid assets leaves families unable to make ends meet, let alone have the ability to pass some measure of wealth down to the next generation,” Fraser said. And therefore the wealth gap becomes self-perpetuating. But with the baby bond money saved up and ready to be tapped at age 18, it will allow the recipients “to make decisions that they would like to make for themselves,” Fraser said.

“Connecticut is ground zero for wealth and income inequality. For us to be the first in the nation to tackle generational poverty and advance racial equity with the enactment of CT Baby Bonds is powerful and a testament to our values and our shared belief that everyone should have the opportunity to experience the American Dream,” Connecticut Treasurer Shawn Wooden said in a statement after Governor Ned Lamont signed the legislation into law. “I hope that the federal government and other states follow our lead.”

The legislation creating the state’s baby bonds was introduced and passed at record speed, all in the same year, due to the collision of a variety of factors. This legislative session was “unique,” said Merrill Gay, executive director of the CT Early Childhood Alliance. Because the capitol building was closed due to the pandemic, most of the legislative deal making was done “behind the scenes,” he said. Advocates credit Treasurer Wooden for sponsoring the legislation and putting the idea on the agenda, then pushing it through. There was no public campaign around it on the outside. “We love the idea of baby bonds, but we were frankly surprised that it happened the first year it was introduced,” Gay said. Fraser agreed. “It sort of came out of the blue for advocates,” she said. “But when it did we were really excited.”

Wooden has he was inspired by efforts to create baby bonds at the federal level. In 2018, economists Darrick Hamilton and William Darity that would create these accounts for all American families, with the poorest receiving $50,000 and the richest getting $500. Senator Cory Booker took the idea and based on it, which would give every American child $1,000 in a trust at birth, and the government would deposit up to $2,000 each year depending on household income.

Booker’s plan has yet to move forward. But the timing in Connecticut was, in many ways, perfect for such a policy. The pandemic helped to push the issue along. Many wealthy state residents saw their fortunes increase with a rising stock market even as so many lost jobs and income — its 14 billionaires accumulated an extra in wealth. That led to a budget surplus thanks to increased tax revenue on their holdings, while it also highlighted the inequality baby bonds is meant to address. Then the state got federal rescue money from the American Rescue Plan. “It was this weird time, we sort of had money to spend,” Gay said.

The idea of baby bonds also got a boost from last summer’s mass racial justice protests in the wake of the murder of George Floyd, a black Minneapolis resident. In Connecticut, Black households make of what white ones make. That’s one part of the reason that of Latino families and over a third of Black families have zero or negative net worth, compared to just over 10 percent of white ones. A nationwide baby bond program, on the other hand, would the racial wealth gap.

The state took some other social justice measures this session, such as becoming the first to make prison phone calls free. This was part of that agenda. Wealth and white privilege begets more wealth and white privilege. Gay, who is white, can trace it in his own family. His ancestors in the United States “were never held in slavery, they never faced restrictive covenants to keep them from buying a house or loan discrimination,” he noted. “They didn’t face Jim Crow laws.” As far back as his great-grandparents, every generation has owned a house, a farm or a small business, and that meant that by the time Gay wanted to go to college or buy a house, there was family money to help him do it. “That intergenerational transfer of wealth [is] completely normal in white families,” he said. But Black families have been kept from stockpiling income through employment discrimination and held back from accumulating wealth.

“It was a moment in time that Treasurer Wooden jumped on,” Fraser said. “It was the right thing to do at the right moment.”

The money will have a big impact on children in Connecticut who are eligible — both when they are young and when they grow up and have children of their own. One analysis that child development accounts — savings or investment accounts opened for children by governments when they’re young — increase educational attainment by making those children more likely to think of themselves as one day going to college, as well as making their families more financially ready for tuition when the day comes. Indeed, a found that such accounts in Oklahoma made parents much more likely to start saving for college on their own and that they were more likely to think about sending their children to college. They “create more positive outlooks and actions in the family, while also enabling families to grow assets for children’s higher education,” one of the authors said.

The money from Connecticut’s baby bonds will give a parent “a sense of hope that there is a future for her child,” Gay said. That can help her raise her expectations for her child, helping foster the dream of going to college or starting a business without feeling like it’s an empty promise. “It gives them a little bit of optimism for their future,” Fraser said. “Optimism is a great thing.” And it could allow “the children to dream a little bit, too,” she said.

Baby bonds won’t radically solve major issues like racial wealth gaps and financial instability all on their own. Children won’t be able to access the money until they turn 18 and pass a financial literacy course, leaving their parents still scrambling to afford quality child care and education in the short term. “Those immediate needs are real,” Gay said, “but also doing something that addresses a big problem we never address is important.”

“It is one solution that we need to add to the toolkit of many,” Fraser agreed. She argued there is still a need to invest in housing, education and child care for parents. “We need to take care of the present as well,” she said. “But we also need to look to the future.”

And the cushion baby bonds create for children who receive them when they grow up, and potentially become parents of their own, may be meaningful. “Wealth is really security for families,” Fraser pointed out. It allows families to contribute to retirement, or save for college, buy homes or start businesses. That flows to the next generation. “If you have this wealth, it often transfers to the children and feeds their opportunity,” she said. “What this will start doing is seeding the next generation.”

“Maybe the next generation will be just that little bit better off, and we can start to turn the tide of generational poverty and economic instability for families in Connecticut,” she added.