Under the bill, awaiting signature
from Governor Lamont, $50 million a year will be directed toward providing
accounts of $3,200 for about 15,600 children whose mothers are receiving
insurance through HUSKY A, the state’s Medicaid program.
Connecticut is the first state in the nation to pass such a program.
While Connecticut has the highest
annual income per capita in the country, it also has one of the highest rates
of income inequality in the nation. The U.S. Census Bureau ranked Connecticut
in 2018 as having the third-highest level of income inequality in the country,
behind New York and Washington D.C, according to a report from Connecticut Voices for Children.
Once the qualifying children reach adulthood, they have until age 30 to decide
what to do with the money.
The state gives recipient four options:
1. Pay for higher education.
2. Purchase a house within the state.
3. Start a business within the state
4. Put the money into a retirement account.
According to the legislation, beneficiaries
must be CT state residents and must complete a basic financial literacy course (curriculum
and passing grade still TBD) in order to access to the funds between the ages
of 18 and 30. Allowable expenses include education, purchasing a home in the
state, investing in a Connecticut-based business or “investing in financial
assets or personal capital that provides long-term wage or wealth gains.”
There aren’t many
other stipulations on the young adult beneficiaries.
It appears a recipient could use the money to flip houses rather than stay in
the neighborhood and contribute to the community. Yes, they could start a risky venture without
having mentorship, a business plan or good banking relationships. They could
trust unscrupulous partners, financial advisors or jealous spouses with the
money. They could also invest in crypto or other “alternative assets” on the premise
of generating outsize returns for their retirement.
Some will argue that doling out the
money without sufficient oversight is too much for young adults to handle—young
adults who haven’t received much in the way of financial literacy training from
their schools or families. But you could also argue that they may earn valuable
life lessons from financial mistakes made with the Baby Bond money—the same as
trust fund kids do.
Then of course there’s the question
of how to pay for the Baby Bond program.
CT State Representative Geoff Luxenberg—a leading proponent
of the program-- said a likely scenario is a “slightly higher tax on the wealthiest
people.” No surprise there since CT is already one of the highest-taxed states
in the nation. Shawn Woodson, Connecticut State Treasurer, said the state would
also issue debt, since interest rates are at “historic lows”—but what if rates
keep rising, as the Fed has hinted, down the road?
Not
only could the state’s highest earning residents resent the program, but so might
middle class and working-class families—who could narrowly miss out on the
program while potentially strapped with student loans and other debt. Also, what
happens if a family’s fortunes change for the better and a Baby Bond recipient is
no longer in poverty at 18? On the flip side, suppose a family not born into
poverty at the child’s birth falls into poverty a few years later and stays there?
“One of the most effective ways to narrow the racial wealth gap and
break the cycle of poverty is for the State to establish saving accounts that
directly invest in children born into poverty,” said Wooden in a press release.
“By taking bold action now, we can change the life trajectories of thousands of
Connecticut residents while also enhancing the economic trajectory of our State.”
Conclusion
We salute the bold thinking by the Nutmeg
State to close the wealth gap. But why not take it a step further? Phase
in the program gradually so you can make midcourse correction and set up
smaller bonds for children who are born just above the poverty line. That way a
child’s future is not so heavily dependent on their family’s financial footing (or
healthcare choices) exactly on the arbitrary day they are born.
The Full Version of today’s post
has more.
What’s your take? I’d like to hear from you.
#wealthgap,
#financialliteracy, #babybonds, #inequality