Democratic presidential candidate Cory Booker wants to help Americans with their personal finance.
Black Americans, in particular.
Booker’s so-called baby bonds proposal, which has quickly become a centerpiece of the New Jersey senator’s campaign, would provide every child born in the U.S. with a $1,000 savings account. Each year, the government would automatically deposit up to another $2,000 into that account, depending on family income.
People would not be able to dig into the funds until they hit 18, and the uses of the money would generally be limited to paying for college, buying a house and saving for retirement. The U.S. Treasury Department would manage the accounts and the annual rate of return would be around 3%.
Booker lags in the polls behind presidential hopefuls Bernie Sanders and Joe Biden, yet his call to give every American a savings account has been praised for its specificity and potential effectiveness at narrowing racial wealth inequality in the U.S.
The median wealth for young white Americans is $46,000, compared to $2,900 for young black Americans.
And that gap has only been getting worse.
In 1983, the median wealth of white families overall was $105,369, compared with $13,324 for black families. By 2016, the divide had widened to $171,000 for white families and $17,409 for black families.
Today, the average white family has $157,884 saved for retirement, while the average black family has just $25,212.
Many advocates and academics say black Americans have so little wealth because they’ve historically been excluded from the country’s asset-building programs, including F.H.A. home loans and the G.I. Bill.
Debt is another problem. Researchers describe that while black Americans have benefited from increased access to homeownership and college, they have done so on terms called “predatory inclusion.”
For example, more black students than white students attend for-profit colleges, many of which fail to adequately prepare their students for employment and charge high tuition rates. Black students also borrow more private loans, which often come with fewer consumer protections and higher interest rates than federal loans. As a result, black young adults take on 85% more student debt than their white counterparts.
Booker calls his proposal, “the most ambitious ever Congressional effort to combat wealth inequality.” The average payment to black children under his plan would be $1,193 a year, compared with $628 for white children.