Who Will Pay for Baby Bonds and How?

October 2, 2007

One of the best tips for building financial assets is to start early. Some people are fortunate enough to have family give us some seed money when we’re born.  Others of us are lucky to have money savvy parents that start saving for us when we’re young and pass that money sense on.

Of course, there are many people that don’t get that head start.  What can be done to help them? Hillary Clinton is proposing a “Baby Bond” program that would give every child born in the U.S. $5,000.  The idea is that they could use it to pay for expenses later in life such as college, a first home, or a business venture.

I think it’s an interesting proposal, putting the power of compound growth to work from the moment a person is born.  Letting people see the benefit of saving early and watching it grow. Of course there are many questions such as who would oversee and distribute the funds and what criteria would exist for cashing them in.  But before we answer any of these questions, I think we should first ask how we’re going to pay for it. An ABC news article makes the following cost estimate:

“Presuming that approximately 4 million children are born in the United States each year, a $500 “baby bond” would only cost roughly $2 billion per year. A $5,000 “baby bond” would cost the government $20 billion per year.”

Thanks to a variety of reasons the Federal government is already in massive debt.  Are we willing to commit to spending another twenty billion dollars a year when we don’t know how we’re going to pay for it?  I think after hammering out all the details to account for fraud, oversight, etc. it could really help give people a leg up but where will the money come from?  Is the government going to cut spending somewhere else, raise the money somehow, or just go deeper into debt?


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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9 Responses to Who Will Pay for Baby Bonds and How?

  • Ben

    Sounds like baby bonds won’t get a lot of support from this crowd : )

    I checked out your response Patrick, I agree that there are many questions that would have to be answered about the details of this one. Your point about the kids paying for the “free” money later is a good one. If the money they get is paid for by the government going into more debt, those same kids will inherit a bigger national debt.

    nickel, I see what you’re saying about the “flat family rate”, it doesn’t seem fair to everyone else in the plan. I wonder if someone with 8 kids would be able to afford anything other than a flat rate. Of course, they did choose to have 8 kids….

  • The Financial Blogger

    I guess the only way you are going to finance this program is to imitate your northern neighbor; The Canadians 😉

    The US gov could raise your taxes and give it away to those who are in needs. In a few years, you will end-up with a tons of social programs and 50% tax rate…hum… maybe it’s not the best idea of all after all!

  • Patrick

    I don’t like the idea at all. I started writing a response, then realized it was too long. I posted it today on my site. I just think it is her way of attemoting to attract voters, but I don’t think most people will go for it.

    Thanks for sharing this article.

  • fivecentnickel.com

    I think this is a stupid idea, and guess what? I have four kids. I’m also not a big fan of the child tax credit, as I don’t think we should be paying people to have kids. If it’s on the books, I’ll take it, but I’m not a big fan of these sorts of things. As an aside, I also think that people with more dependents should pay more for insurance, rather than the flat “family” rate that most employers use — such a rate structure means that people with 1 kid are subsidizing my family’s insurance.

  • Akhtar

    I agree with nokids & plonkee that they’ll raise taxes elesewhere and that the parents will buy what they want (new shoes etc) UNLESS the cash is placed in an high interest account whereby the baby will have access to it when it grows up and reaches the age of say 20.

  • plonkee

    I imagine that they will pay for it by raising tax elsewhere. That’s how the British (stingier) version was paid for, I’m sure.

  • nokids

    Well, they already give money to parents who have children in the form of tax deductions. And most likely that realized money is not spent on the kid’s education but rather on a new hummer or on TVs. Maybe instead give the money to the kid itself?

  • bill

    Just another vote-buying scheme. Must be an election around the corner.

  • KMC

    A lot of people are going to think ‘baby bonds’ are a crackpot, liberal idea, but I remember reading about the idea some time ago. The author was a fiscal conservative, but I can’t for the life of me remember who it was.

    The author (and you) pointed out that time and compounding is really the key to saving a lot of money.