This piece is part of our Trump’s Beautiful Disaster series about the consequences of the mammoth budget law, one year later. You can see all stories in this piece here.
Children in the U.S. receive far less governmental assistance compared to other wealthy nations. This is particularly true for youth from disenfranchised backgrounds, with research showing that systemic racism perpetuates national poverty rates. As a result, experts have long called for government-sponsored programs that target the root causes of poverty by building wealth from infancy, which in turn will ideally set the stage for financial stability later in life.
A version of this made it into the One Big Beautiful Bill Act (OBBBA) last year. Called “Trump Accounts,” the initiative, which launched on July 4, creates investment accounts for kids born between 2025 and 2028, which essentially function as traditional individual retirement accounts (IRAs).
Once a child is born, parents or guardians can sign them up, which is supposedly straightforward but requires several steps. (Less than 10 percent of eligible children are currently enrolled; the Social Security Administration is trying to remedy this by making sign-up available for newborns at the hospital.) After sign-up, the federal government will chip in a one-time donation of $1,000. Parents and employers can chip in pre-tax money every year, with limits of $5,000 for parents and $2,500 for employers. A growing list of companies have announced that they will match their employees’ contributions, including BlackRock, Nvidia, and even Turning Point USA. Charities and local and state governments can also contribute tax-free; Philanthropists Michael and Susan Dell pledged to commit up to $6.25 billion to lower-income children.
These funds will automatically be invested in an index fund that follows the S&P 500. The Treasury has identified the State Street SPDR Portfolio S&P 500 ETF, which is an exchange-traded fund, as the default. Other options are expected to become available in the coming months.
Once 18, the child can decide how to proceed. They can keep the account, convert it to a Roth IRA, or use the funds, which are subject to income tax and a 10 percent early withdrawal penalty if taken before the age of 59½ and no exemption applies. According to the White House, by the time they turn 18, a beneficiary could see as little as $6,000 dollars accumulated, or as much as over $300,000, based on historical S&P 500 averages. This is dependent on how much is contributed to the account each year.
The problems with the program are inherent in this explanation. Children from low-income, economically vulnerable backgrounds stand to benefit much less than those who are wealthy enough to supplement the accounts with their own savings. Trump Accounts therefore may broaden systemic inequalities. “Overall, it seems like the instrument of the Trump account seems like a really good vehicle for people and families that are already well-positioned to save but will do very little to change the material reality of those families that are economically vulnerable,” says Ismael Cid-Martinez, an economist at the Economic Policy Institute. “In fact, because of the structure, it doesn’t really target these families that are in need, and it doesn’t reach them.”
When you factor in that OBBBA also contained billions of dollars in cuts to funding programs including Medicaid and the Supplemental Nutrition Assistance Program (SNAP), the Trump Accounts barely even look like a nice gesture. What’s more, the fact that wealthy people like the Dells are contributing to the program reflects a troublesome indicator that impoverished Americans may have to increasingly rely on assistance from the private sector.
“It leaves your basic guarantees in the hands of the charitable contributions of individual actors, which is not how we have structured programs like Social Security programs, like Medicaid,” says Martinez. “Our social safety net system is not based on whether or not you’re moved by my predicament to contribute to my well-being.”
Read: GOP food stamp work requirements hit just as jobs dry up
These inequities in the system are only exacerbated through the lens of race.
In 2024, the U.S. Census recorded 18.4 percent of African Americans as impoverished, and non-Hispanic whites as 7.6 percent. Although having less wealth is not an indicator of lacking “financial literacy,” or the knowledge that assists one in making financially sound decisions, it directly affects a person’s ability to actually save. Families may prioritize more pressing decisions such as paying rent or buying groceries over contributing to investment accounts that cannot immediately be used to assist the family.
“If we’re speaking specifically about racial wealth inequality, the Trump accounts only can make things worse,” says William Darity, visiting Professor of Economics at Howard University and Emeritus Professor at Duke University. “That’s because of the differences in wealth that exist in the present moment between Black and white households, which creates a different degree of capabilities, functionings, and capacity to actually help build these accounts for children.”
The program treats all children as equally able to see robust benefits from Trump accounts later in life. But Black families have 13 cents of wealth compared to every dollar that white families have. In this sense, Trump accounts reflect the idea that lacking chances to build wealth is a personal problem, and not a consequence of systemic oppression.
Simply communicating methods for signing up and investing in Trump Accounts, or any investment accounts for that matter, does not remedy this systemic problem. Financial literacy isn’t the problem in the case of Trump Accounts—or access to any other investment accounts, for that matter.
“I would argue that what Black people lack is financial wealth, and that trying to give people greater knowledge about financial management isn’t going to do them much good if they don’t have any resources to build,” says Darity. “It’s like giving somebody a recipe without any ingredients, and I think people acquire the recipe when they do have the resources.”
Trump accounts reflect the idea that lacking chances to build wealth is a personal problem, and not a consequence of systemic oppression.
Despite Trump’s insistence that his accounts are a recent innovation, past legislation and policy recommendations indicate the opposite. Darity and Darrick Hamilton, a professor and founding director of the Institute on Race, Power and Political Economy at The New School, proposed the concept of “baby bonds” in 2010 as a framework to eliminate economic inequalities. Trump Accounts look like a flashy and malapportioned version of that proposal’s method for supporting impoverished children and closing the racial wealth gap.
Under Darity and Hamilton’s baby bonds plan, babies whose families have the lowest net family wealth would receive a starting value between $50,000 and $60,000, with less available for those with more family means. The government would manage the accounts, with the amount allocated proportional to their family’s financial position, while allowing federal, state, and local governments to contribute a fixed amount for each child each year until they turn 18. Between the ages of 18 and 30, those born into poverty could access the returns of the baby bonds investment and use them to engage in activities like buying a home or paying for college.
The concept is better positioned to provide children from economically vulnerable backgrounds the wealth needed to participate in asset-building behavior. In comparison, Trump Accounts seem like a half-baked initiative that is already off to a rocky start: some families have claimed that they still haven’t seen the $1,000 deposit from the federal government, and have been told that it may take several weeks.
“If not for baby bonds, we probably wouldn’t even have Trump accounts,” says Hamilton. “In a lot of ways, Trump accounts piggybacked, or even co-opted, or strategically benefited from, some of the momentum that baby bonds had been gaining in both discourse and policy.”
Baby bonds rest on the belief that the wealth gap is not produced by the poor financial decisions of marginalized people, but instead an unjust and intergenerational distribution of wealth (especially with respect to race). Unlike Trump Accounts, they consider the wealth of a child’s household, and use that understanding to appropriate an amount that allows for better access to future wealth-building pursuits, instead of investing the same across the board. And people would be able to access that wealth without penalties at an earlier time than with Trump accounts.
“Baby bonds are an eloquent way to provide a birthright to capital, so that wealth-building is no longer the exclusive domain of the wealthy,” says Hamilton. “It ensures that all young adults have some capability of getting to access the benefits of what wealth does. Wealth iterates upon itself, and it grows and often excludes. So it’s a mechanism to better democratize wealth.”
In 2019, Sen. Cory Booker (D-NJ) and Rep. Ayanna Pressley (D-MA) first introduced the American Opportunity Accounts Act. It outlined a plan inspired by baby bonds, in which every child would be given a savings account of $1,000 at birth, and over the years would be the beneficiary of additional deposits based on the family’s income. Pressley and Booker estimated that the program would cost $60 billion annually, a fraction of the nearly trillion dollars that the U.S. is spending this year on its defense budget.
Some states have proposed similar policy initiatives, and in 2021, Connecticut became the first to implement a baby bond program. Every child whose birth was covered by Connecticut’s Medicaid program is automatically enrolled, and the state then invests $3,200 into each account, an amount which is expected to grow to as much as $24,000 by the time they turn 18. They can use the funds to assist activities outlined in the original baby bonds plan.
Baby bonds alone are not enough to address historical wrongs that have created the racial wealth gap, something its architects acknowledge. The accounts enable wealth building amongst all people, regardless of race, and therefore do not specifically remedy the outputs of systemic racism. Without reparations for slavery, the systemic inequalities that Black Americans face will never be completely eliminated.
“If you have baby bonds without reparations, you’ll never get to truth and reconciliation. If you have reparations without baby bonds, we’ll have structures of inequality that will emerge tomorrow without some form to automatically redress and ensure that we don’t end up with birth rights to poverty versus birth rights to capabilities of building wealth. Both are necessary, but for different reasons,” says Hamilton.
