Baby bonds don’t help enough lower-income families save for college
When Treasurer Deb Goldberg launched a statewide baby bonds program in 2020, it was touted as a way to help every family, regardless of income, plan and save for their child’s future educational costs. The state would give $50 to every baby born or adopted in the past year in Massachusetts when their family opened a 529 plan, a tax-advantaged college savings account.
Higher-income families are far more likely than their lower-income counterparts to have 529 plans, so BabySteps and similar efforts in other states are intended to encourage middle- and lower-income families to save, while setting the expectation that their child will attend higher education.
“The work we’re doing is part of a larger movement that tries to move the needle for families who are low-income or of color and are not utilizing financial investments to build their wealth and move toward education,” said Daphna Gluck, director of program evaluation for the treasurer’s Office of Economic Empowerment.
Since the program started, BabySteps has increased ownership of 529 plans by 17 percent, according to an evaluation by Brandeis University researchers last revised in January 2023. According to the treasurer’s office, $1.41 million has been spent seeding 28,255 accounts.
And while the program has increased savings in lowincome communities, the disparities remain enormous, with residents of higher-income communities far more likely to take advantage of BabySteps. Similar disparities exist by race, with communities with higher proportions of Black and Latino residents having lower uptake of
529 accounts.
The Brandeis evaluation found that 25 percent of children of families who reside in Newton — a majority white city with a median household income over $154,000 — had an account opened, compared to 1 percent of children of Lawrence residents, where the median household income is $45,000 and 86 percent of residents are Black or Latino. Since the program started, there have been 495 accounts opened by Newton residents and 29 by Lawrence residents, although the cities have similarly sized populations.
Data from the treasurer’s office show that between 2020 and 2022, the cities where more than 20 percent of births or adoptions each year resulted in an account being opened were Newton, Cambridge, Medford, and Somerville, all cities with a median household income over $100,000. Other cities with high rates of opened accounts were Boston, Quincy, Weymouth, Framingham, and Waltham.
Poorer urban areas had the lowest rates. Fewer than 2 percent of babies born to or adopted by families in Lawrence or Springfield, where the median household income is less than $50,000, had accounts opened.
There were low uptake rates in Lynn, New Bedford, Brockton, Lowell, Chicopee, Fall River, and Fitchburg.
The Brandeis study found that in the last six months of 2021, uptake of BabySteps accounts was 2.3 percent in low-income ZIP codes compared to 9.2 percent in high-income ZIP codes. (Both figures were higher than a comparable period before BabySteps started, when 1.6 percent of low-income babies and 7.3 percent of high-income babies had 529 accounts opened.)
The Brandeis evaluation, based on interviews with families and partner organizations, flagged several reasons why uptake is lower in low-income communities. People might not be tech savvy enough to fill out an online application or may think they will not be able to save money. Enrolling in a 529 plan takes some understanding of investment accounts, which many lower-income families lack. Several parents told researchers they found the website for Fidelity, which manages the accounts, confusing. The first item in the application asks whether the applicant wants to open an individual or custodial account, which some parents did not know how to answer. Others were stymied when asked about investment options. While a Spanish application exists, it is harder to access than the online English application, and applications are unavailable in other languages.
“I felt like, ‘This is complicated. This is more for somebody that has money,’ ” one unenrolled woman told researchers.
(Fidelity has made changes in response to the Brandeis report, adding more digital support channels, creating an easy-to-find FAQ, and making it easier to find Spanish materials on the website.)
The Office of Economic Empowerment, which oversees the program, is starting to address the disparities. The Legislature allocated $300,000 in the fiscal 2023 budget for expanded outreach, which was matched by a $300,000 donation from the Hildreth Stewart Charitable Foundation run by philanthropist Bob Hildreth.
Over the last year, the Office of Economic Empowerment established eight enrollment hubs, where local community services organizations help individuals sign up for accounts.
The Office of Economic Empowerment, Massachusetts Educational Financing Authority, and the Hildreth Institute, a research and policy institute founded by Hildreth, just launched a program in Lynn making funding available to community organizations that develop and implement strategies to enroll eligible children in BabySteps. The goal is to empower local organizations to test strategies and see what works, then those strategies can be replicated elsewhere.
This September, the Office of Economic Empowerment is rolling out a one-year initiative in which every child whose family benefits from the Supplemental Nutrition Assistance Program and who has a BabySteps account will get an additional $120 deposited over 12 months. The intent is to give the most needy families additional money and an added incentive to open an account, while demonstrating the impact of making small deposits over time.
The Brandeis report suggested other changes, including translating application materials into other languages and developing a guidance document to help families understand the application’s technical terms and their investment options.
Each of these initiatives is worth trying and should be given a chance to succeed with financial support and marketing. If successful, they can be models for other states and for efforts nationally to use baby bonds to begin addressing poverty.
Julie Shields-Rutyna, senior director of college planning, education, and training at MEFA, said BabySteps is “a little bit of a long game,” and it will take time for word to spread about it and families to feel comfortable enrolling. But, she predicted, “Once it starts to grow and people feel successful, it will expand.”
However, if these initiatives do not move the needle and the state continues to spend taxpayer money to help mainly wealthy families open savings accounts, the treasurer and Legislature should reconsider whether this is a worthwhile expense.