Editor's note - You can trust the integrity of our balanced, independent financial advice. We may, however, receive compensation from the issuers of some products mentioned in this article. Opinions are the author's alone, and this content has not been provided by, reviewed, approved or endorsed by any advertiser.
An analysis of the 'Baby Bond' proposal.
I’ve got an idea. Why doesn’t the U.S. government give $5,000 to every child born in the U.S.? The money can grow tax free, and the child can use the money for college when he or she finishes high school. Now I know what you’re thinking. That’s the dumbest idea you’ve ever heard. Well now just hold on there. Senator Clinton proposed this very idea last week at a forum hosted by the Congressional Black Caucus. While her aides were quick to point out that the idea was still under construction (also known as damage control), I think Clinton’s proposal deserves a thorough examination.

livebirths.pngOver 4 million children were born in the U.S. in 2003 according to the Center for Disease Control & Prevention. The CDC report can be downloaded here, but I’ll warn you that it is a massive pdf file (116 pages). At $5,000 per child, the total tab in year one comes to over $20 billion. What amazes me almost as much as Hillary Clinton actually proposing such an idea is that she’s not the first! The Ford Foundation has made a similar proposal which you can read in an article called the Children’s Savings Accounts: Time to Push the Envelope. In response to President Bush’s proposal for individual Social Security accounts, some Democrats proposed setting up personal accounts for newborns instead. And last month Time Magazine proposed a similar plan.

The Baby Bond plan raises many questions:

  • Will every baby receive $5,000, or just those from lower income families?
  • What about children born before the plan goes into effect? In other words, do my teenagers get any of the dough?
  • How will this money impact the cost of higher education?
  • How much will it cost the government to administer this plan?
  • How will the government fund the $20 billion annual cost of the plan?
  • Will the $5,000 payment be indexed for inflation?
  • Who will control the investment of the money?
  • What happens to the money if the child dies or doesn’t go to college?
  • Isn’t the U.S. a democracy?

So how have others reacted to Clinton’s Baby Bond proposal? Rudolph Giuliani said he thought the plan was “based on pandering to the point where I think they think the American people are stupid.” New York Conservative Party chief Mike Long said that “It’s a quick way of trying to buy votes, which is irresponsible when it comes to the economic future of the nation.” On the other side of the aisle, Rep. Stephanie Tubbs Jones, an Ohio Democrat, described the proposal as “a wonderful idea. … Every child born in the United States today owes $27,000 on the national debt – why not let them come get $5,000 to grow until they’re 18?” And Doug Muzzio, a political science professor at Baruch College, said the Baby Bonds plan is good politics “because it is a policy that has wide impact and addresses the concern and anxiety by Americans. It makes her an innovator.”

So what do you think? Do you give Baby Bonds a thumbs up or thumbs down? As for me, I’ll hold my opinion until we find out if the $5,000 also comes with a chicken in every pot.

Author Bio

Total Articles: 1083
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments

plonkee says:

$5K is a lot of money, but we do this in the UK. All babies get 250 and those from poorer families get 500. At the age of 7 they will get the same amount of money again.

It can be put into a limited range of accounts, some savings, some investments and it has tax advantages. The account is chosen by the parent/guardian. If they don’t pick an account the government will pick one at random from a list of extremely similar accounts. An additional 1200 can be added annually.

The money belongs to the child at the age of 18, I think it can be accessed early only if the child is terminally ill or dies.

I fail to see how this stops the UK being a democracy.

lremm says:

I think DR raised a lot of valid questions in regards to this issue. However, I think that government needs to start investing money into personal education accounts for children for the future. College tuition and loans are outrageous these days and aren’t encouraging for those who can’t afford to go to college. We need to start investing in the education of our children and society. I think that by investing money into personal education accounts this will help to encourage children to work harder in school and actually want to go to college.

Lazy Man says:

It sounds a little like my Lazy Man’s Trust Fund. Mine was geared a little more towards retirement and done independently though.

Matt says:

Another couple of points to think about with this plan are:

1) When college is free or cheap (as in some European countries) students spend much longer in school. It is not uncommon for someone to be in school until their late 20’s before going into the workforce. With more baby-boomers retiring can America afford to have young people putting off entering the work force?

2) What will the value of post-secondary education be in 20 years? Already we are seeing that because almost everyone can get a college degree, the value of a degree is diminished.

I’m not saying it’s not a good plan, but trying to solve a problem that exists now by putting in a solution that will come into effect in 20 years will probably not work. And by that time things will have changed so much that it will not work in a way that no one could foresee at this point in time.

Matt says:

I read the Ford Foundation article after posting my comment. I think it is a good idea for trying to help the poor.

I would say to put no restrictions on the use of the money other than age. For example, what if someone wants to start a business out of high school? He should be able to use those funds for that purpose.

Will some people blow their money? Yes definitely. But a system with no restrictions causes people to be completely responsible for their actions. It also causes the people who create the system to think “How can we set up an accountability system so people feel they’ve earned this money?” as people are generally more careful with money they’ve earned rather than money that has been given to them. The achievement matching mentioned in the article could be just one method.

Andy2 says:

I have a feeling it could end up like Social Security. Doesn’t it sound familiar? You pay in while you work and the government gives you back that money and more at retirement! Except the government just spends the money on other things instead of actually saving it for you. I’d say take the 20 billion to lower tuition costs or increase scholarships for students that need the money. Not everyone will need it, and it won’t always be used in the right way. So don’t just give it out, but give it to people who need it when they need it.

Toby says:

This is a stupid idea. Period. If every child starts showing up to university with an extra 10-20k in their pocket, guess how much tuition will increase? My guess is 10-20k. This won’t make a lick of difference between the haves and have-nots. The have-nots will *still* not be able to afford college.

Also, I agree with Andy2. The system will end up being abused by the government and the money will be spent, just like they’ve done with Social Security. The government cannot be trusted to “save” money for anyone, people need to do it for themselves.

DR says:

Toby, I couldn’t have said it better myself. What ever happened to “Ask not what you country can do for you, ask what you can do for your country”???

Patrick says:

I don’t think it is a good idea either. I didn’t hear about this until a couple days ago, but I thought it was such a bad idea I had to write my own post about why I thought that way.

Compounding says:

Well, here are some answers to some of your questions:

Q) Will every baby receive $5,000, or just those from lower income families?

A) At first, and then it will be turned into another class-warfare tool.

Q) What about children born before the plan goes into effect? In other words, do my teenagers get any of the dough?

A) They won’t get anything on round one… there will be another vote buying tool created in a few years for another election cycle.

Q) How will this money impact the cost of higher education?

A) Like any other thing that the government subsidizes, it will increase the overall costs.

Q) How much will it cost the government to administer this plan?

A) Too much, as always.

Q) How will the government fund the $20 billion annual cost of the plan?

A) The same as always, theft.

Q) Will the $5,000 payment be indexed for inflation?

A) Of course not, that would make too much sense. They need for inflation to kill the value of the $5,000 so they can campaign on it again in twelve years.

Q) Who will control the investment of the money?

A) They didn’t think that you were smart enough to afford the child in the first place, why would they think you are smart enough to invest? Besides, how else would they make people more dependent on the government?

Q) What happens to the money if the child dies or doesn’t go to college?

A) It’s gotta go back into the system, I would assume.

Q) Isn’t the U.S. a democracy?

A) Nope. We started out as a republic, but with the guise of “democracy,” we are becoming a autocratic socialist state. It’s quite sad, really.

Anca says:

As if the governments of the world are not already giving enough monetary incentives. How about instead of $5k we explain to people the full costs of raising a child, and the environmental impact of each new person on the planet. How about spending that $5k on family planning so that fewer people have kids before they feel emotionally and financially ready? I think *that* would most benefit the children of the world.

DR says:

Anca, I’m still baffled by the view that the government should act like a giant ATM. Of course, the baby bond proposal is just pandering; I don’t take Clinton’s proposal seriously, and I doubt she does either.

mysticaltyger says:


Ding, ding, ding!!!! This is definitely the correct answer. It will just throw more money at our cost-bloated universities and create more college tuition inflation than there already is. And the rich will just take their private savings in addition to whatever the government gives them and still be able to outspend the disadvantaged. Typical Democrat solution…..just throw more money at the problem. It doesn’t have to BE good, just as long as it sounds good.

DR says:

mysticaltyger, it still amazes me how many people think baby bonds are a good idea. What ever happened to “ask not what your country can do for you, ask what you can do for your country”?

Shokhsina Sadayeva says:

I have question to you ( goverment), I’m from Russian, but my baby, he born in USA Phoenix Arizona. Write know he’s 8 Months. So the question is: Do the goverment need to give my a many for my baby.Because he is American’s Citizen, and all very has USA pasport.
Please help me, cause i need many. THANKS!!!!

DR says:

Shokhsina, when you say ‘many’ I assume you mean ‘money.” And no, the U.S. Government doesn’t hand out money to folks who have babies.

Richard says:

Baby bonds are an interesting idea, but the devil is in the detail. Who’s eligible? How can they be invested? What’s the ultimate cost to the taxpayer?