baby bonds

Baby Bonds (Definition, Examples) | How Does Baby Bonds work?

baby bonds

Baby Bonds are defined as debt instruments issued in the small denomination (usually $25 face value against the normal $1000 face value of bonds) and mostly unsecured and tradable on exchanges.

  These fixed-income securities attract the fancy of Retail Investors who were not able to invest much in larger denomination bonds. Baby bonds are issued by a wide array of issuers, including corporate, state governments, municipalities, etc.

to fund projects with long gestation periods and heavy capital expenditure requirements.

Baby Bonds are normally issued as zero-coupon bonds, which means they are issued at a discount to their par value, and usually, companies with small issue sizes come up with such issues to ensure enough liquidity due to the small ticket size of these bonds.

In short, Baby Bonds are unsecured bond offerings that enable small retail investors to invest a small sum of money and reap the benefits of investing in bonds without the need for investing big sums of money, which are normally required for normal bonds.

Example of how Baby Bonds Work

Let’s understand Baby Bonds with the help of a few hypothetical examples:

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Jason is interested in diversifying his portfolio by investing a portion of his investments in bonds; however, he wants to keep his investment limited up to $1000. He has two options:

  • Option 1: Invest in a single bond of the face value of $1000.
  • Option 2: Invest in baby bonds of a utility company that offers baby bonds in a small denomination of $50 and offers a high yield and invest in the municipal bond of face value $500, thereby obtain diversification benefits as well.

Thus Baby Bonds offer Jason to enjoy diversification, high yield even with less investment. However, it is pertinent to note that these benefits come with an additional risk in the form of Unsecured Nature, less liquidity compared to traditional bonds that come along with Baby Bonds.

Baby Bonds in the US

These bonds have their origin in the US. The first Baby Bonds started in the US in 1935 when the then President Franklin D.

Roosevelt created the Baby Bond Program to encourage the habit of saving among the American Population and channelizing of those savings for financing government development programs which are long term in nature.

However, now they are issued by Municipalities, Corporations to finance their long term projects.  These Bonds are tax-exempt in the United Kingdom.

It recently got a lot of attention when Democratic Presidential Candidate for the next year Presidential Elections in the USA, Cory Booker, put up the Baby Bond Proposal under which government would provide every child born in the USA with a $1000 initial contribution and  $2000 additional contribution year on year till the child attains adulthood the family Income and as per estimates due to this Baby Fund contribution kids belonging to the richest families will get a contribution to the tune of $1700 while those belonging to the poorest families can gain up to $46000 which can be used for their higher studies and retirement needs.

Advantages of Baby Bonds

  • They are traded on stock exchanges, which provides liquidity and efficiency in the purchase and sale of such bonds.
  • They are mostly tax efficient and offer a higher yield in comparison to the normal bonds due to the callable feature inbuilt in them.
  • Baby bonds holders have a preference over the assets of the company than equity shareholders in the unly event of liquidation of the business.

Disadvantages of Baby Bonds

Just a Financial Instrument, Baby Bonds also have a lot of Disadvantages, few of them are enumerated below:

  • Most of the baby bonds are issued by companies with a callable feature, which means that these bonds can be called back by the issuing company after a particular period, which can lead to investors of these bonds losing out the interest rates and makes them susceptible to reinvestment risk into lower-yielding bonds.
  • Due to the small issue size of these bonds, it becomes really difficult to sell such bonds into a market downturn due to limited liquidity arising on account of the small issue size. The Bid-Ask spread can be high in the case of baby bonds, and the economic downturn it aggravates further making them illiquid.
  • These bonds are largely unsecured, and as such carries, a higher amount of Default risk with limited or no collateral for recovery as Secured Creditors have first right over the assets of the company in the case of Default.
  • The cost of administration, including redemption cost, is higher in the case of Baby Bonds due to the larger number of bond certificates due to small Face Value.
  • These bonds are usually issued by those Issuers who are unable to attract large institutional investors due to lack of access or Issue Size.

Important Points

  • These bonds are normally issued with the face value of $25 to $500, however mostly in the denomination of $25.
  • The maturity of this bond varies from a minimum of 5 years and can extend up to 84 years ( as per the listed baby bonds available in the market).
  • These bonds are mostly callable at the option of the issuer, which in any case, will not be less than five years from the date of issue.
  • Baby bonds are always unsecured and offer a high yield compared to normal bonds due to the additional risk and callable feature that is advantageous to the issuer.


Baby Bonds are exchange-traded debt that enables small investors to reap the benefits of investing in bond instruments with a face value as low as $25 and also allow companies with small issue size to easily float there bond issue and at the same time, ensure sufficient liquidity. Baby Bonds, just any other financial instruments, has its pros and cons, an investor should keep these points in mind before making their investments.

This has been a guide to what are baby bonds and its definition. Here we discuss an example to understand how baby bonds work with its advantages and disadvantages. You can learn more about financing from the following articles –


Study: Cory Booker’s baby bonds nearly close the racial wealth gap for young adults

baby bonds
Sen. Cory Booker (D-NJ) visits Masterpiece Barber College in October.

Ethan Miller/Getty Images

Baby bonds, a proposal embraced by newly announced presidential candidate Cory Booker, would give newborns savings accounts that would be worth tens of thousands of dollars by age 18.

It’s an ambitious plan — and, according to a new study, it would almost entirely close the wealth gap between black and white young people.

Booker’s plan would offer all newborns $1,000, and then add up to $2,000 annually for children in low-income households. By age 18, that could add up to serious money; Booker’s team estimates that for kids from lowest-income families, the nest egg would average some $46,000.

The new analysis by Columbia postdoctoral researcher Naomi Zewde looks at what kind of effect such a nest egg would have on our racial wealth gap.

It’s a pretty stark divide: Zewde estimates that in 2015, the median white person aged 18 to 25 had a net worth of $46,000. The median black person, by contrast, had a median net worth of $2,900. That’s a ratio of 15.

9: White young people were nearly 16 times richer than their black counterparts.

Zewde looked back and estimated what those 18- to 25-year-olds would have as net worth had a baby bonds policy been law at their birth.

In part because her research began before Booker unveiled his specific proposal, the proposal she models is not identical to Booker’s, but both arrive at similar bond values for children depending on their economic background.

Because the bond values are similar, the results are a good approximation of what Booker’s bill would do.

The baby bonds’ effect is striking. In a baby bonds scenario, the median white young person would have had a net worth of $79,159. The median black young person would have had a net worth of $57,845. A gap remains, but the ratio has been reduced to 1.4.

In other words, Booker’s proposal comes close to eliminating the racial wealth gap entirely for young adults.

How Booker’s bill works

To understand why baby bonds — a proposal that is facially race-neutral — has this dramatic an effect on the racial wealth gap, you have to know a bit more about how it’s formally structured.

As Vox’s Sarah Kliff explained in October when Booker unveiled the proposal, every newborn would start out with $1,000 in a low-risk savings account managed by the Treasury Department. Booker’s team assumes in their analysis (as does Zewde) a 3 percent rate of return.

Vox / Javier Zarracina

But depending on parental income, kids would get up to $2,000 added to their account every year. A kid in a family of four earning over $126,000 would get nothing, but everyone under that would get an annual contribution of up to $2,000 (with the highest amount reserved for families below the poverty line).

Vox / Javier Zarracina

Due to the massive income disparity between black and white Americans (and between Latinx and white Americans, too), this kind of means-testing effectively means that kids from black and Latino families get substantially more the program than kids from white families. Poor white young adults get exactly the same amount as poor black young adults do — but when the poor are disproportionately nonwhite, a program designed to build wealth for poor families inevitably winds up reducing the white-black wealth gap.

Booker’s team anticipated this in designing the proposal. When they unveiled the bill, they provided estimates to Kliff showing that the average white child would wind up with an account worth $15,790 upon reaching 18. But the average black child would end up with $29,038, and the average Latinx child would end up with $27,337.

Vox / Javier Zarracina

Baby bonds as a kind of reparations

The baby bonds idea isn’t new.

British Prime Minister Tony Blair made the proposal a centerpiece of the Labour Party’s 2001 campaign, and his Chancellor Gordon Brown began implementing the plan in 2003, only to have the Conservatives cancel the accounts upon taking power in 2010. Hillary Clinton proposed a $5,000-at-birth baby bond in fall 2007 as part of her 2008 presidential bid, before abandoning the plan as the primaries dragged on.

But it’s been revived in recent years by economists Darrick Hamilton and Sandy Darity, who have argued for baby bonds explicitly as a race-neutral way to close the racial wealth gap.

Their proposal differed from Booker’s in important ways (it would base eligibility on parental wealth, not parental income, for one thing) but they have been extremely vocal backers of the Booker plan, with Hamilton telling Slate’s Jordan Weissmann, “The most parsimonious way to address racial wealth inequality is a system of reparations. But if we’re not at the political moment for reparations, then baby bonds are a very good mechanism.”

Zewde’s estimates — which use the Panel Study of Income Dynamics, a survey that has tracked a representative set of American families and their economic outcomes for over 50 years — show that for young adults, a baby bonds plan would nearly achieve a key goal of many reparations proposals: closing the racial wealth gap.

That, on its own, will not eliminate economic inequalities grounded in race.

While a good share of the wealth gap can be explained by white people having richer parents and bigger inheritances, the gap also tends to increase as people age — that is, the wealth gap between white and black elderly people is greater than between the young adults Booker’s plan targets.

Black families experience more downward mobility when it comes to wealth over their lifespan, whereas white families are lier to experience upward mobility. So while baby bonds nearly close the young adult wealth gap, they probably won’t do as much to close the overall wealth gap.

The wealth gap also grows due to the persistent gaps in earnings and educational attainment between black and white Americans. A significant fraction of your wealth, after all, comes from portions of your income that you’ve saved in the form of home equity, pension and investment account contributions, Social Security taxes, etc.

And when black incomes are systematically lower (in part because black people get access to fewer years of education), that income differential eventually accumulates into a wealth gap. Once you control for income (as poorer people can’t save as much), there’s no difference in black and white savings rates — but when income isn’t equal, that means black people wind up with less savings.

But nearly closing the black-white wealth gap for young adults is a tremendous achievement for a policy, and could, if passed, help remedy gaps in income by giving black families resources to invest more in education, to start businesses, earn investment income, etc. That in turn could reduce the growth in the gap we currently see as people age.

And the proposal does all this at a quite low cost: Zewde estimates it as costing roughly $82 billion a year. “It would cost less than the tax expenditure on excluding pension contributions from taxable incomes,” she writes, “or the tax expenditure on the preferential tax rates given to income from capital gains and dividends.”

Given that those are savings programs that primarily help higher-income people, there would be a certain poetry in using them to finance a proposal that finally closes the black-white income gap for young people.

UPDATE: Matt Bruenig has a useful piece arguing against using medians and median-to-median ratios for evaluating the effects of proposals meant to mitigate the wealth gap; it’s a worthwhile complement to Zewde’s analysis, if you’re interested in this topic.

CORRECTION: A previous version of this article stated that no one would benefit until 18 years after the bill was passed, but Booker’s legislation is written to ensure that current children who were born before the bill’s enactment would also get accounts. We regret the error.

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Newborn Bonding — Tips on How to Bond With Your Baby

baby bonds

Last Updated on November 17, 2020

Some of us have been blessed with children and the joy that comes from raising a child is unparalleled. When you hold that bundle of joy for the first time, it is common to feel a wave of emotions. It is just as common to feel nothing.

We want nothing more, at that moment, than for our baby to be healthy and safe while also promising the best parents we can possibly be.

As the days and weeks go by, a bond will be created between you and your baby, one that will remain through the test of time.

Bonding with your child is crucial to your relationship with your child as well as the development of the child. Studies have shown that children who have a healthy bond with their parents feel more safe and secure.

These children also, invariably, have higher self-esteem. Some parents bond with their baby within a few seconds of seeing their baby, and others take a bit longer.

You should not be too worried if you do not feel the bond immediately as most parents develop this bond as they start to care for their baby.

The time after your baby’s birth is the time that you must remember to go easy on yourself. Most parents do not immediately feel a bond with their baby and it takes them more time than just a few days.

As long as your baby’s basic needs are being met and you cuddle with them, your baby will be fine.

New mothers are often surprised at how tired they are and you must not feel guilty if you don’t feel a bond with your baby.

Some mothers might even be suffering from post-partum depression caused by low thyroid levels which makes it understandably harder to bond with the baby. If you are feeling depressed, irrationally irritable, or are having difficulty sleeping, then you must talk to your doctor about these symptoms.

Bonding between parents and their baby happens in a number of small ways. Looking at your new born, touching their skin, feeding them, all contribute to the bonding process.

You can cuddle with them, give them an oil massage, and rock them to sleep. These are all ways to help bond with your baby.

It is the several small ways with which you interact and care for your baby that all add up to the bonding experience.

Bonding is a very individual process and no one parent bonds similarly to another. It can take a few days, weeks, or even months before that special bond is established with your baby.

The important thing to remember here is that you must not put yourself under pressure if you are taking time to develop the bond. A delay in bonding is seen when there is a hard labour or a difficult pregnancy as it can leave you exhausted.

This is also observed with parents who have babies with health issues that require constant care.

Best Ways To Bond With Your Baby

Bonding with your baby can seem a high-pressure situation with everyone telling you how important it is to bond immediately. It, also, doesn’t help if you are talking to other mothers who have not had any delay in bonding with their babies. There are a few baby bonding tips that you can follow in order to bring yourself closer to your baby.

The act of breastfeeding involves a lot of skin-to-skin contact with your baby. Your child will also be able to hear your heartbeat and smell you which all adds to the bonding process.

2. Eye Contact

One of the ways in which you can promote bonding is to gaze into your baby’s eye. You should do it during times that make your baby happy when you are bottle feeding them or when giving them an oil massage.

This activity will bring huge smiles and giggles from your little one while it brings you closer to your baby. More so, it provides your baby the numerous benefits of the oils used for massage.

4. Relax

Stay away from your phone and the laptop. This way you will have more free time and you will be able to spend more quality time with your little one.

Listening to your baby’s heartbeat can be quite the bonding experience which is why you will be made to listen to your baby’s heartbeat during the ultrasound check-ups when you are pregnant.

6. Sleep

Getting sleep during the first few months is crucial for your health. You should sleep when your baby sleeps so that you get an adequate amount of sleep.

Spend time cuddling with your baby. Studies have shown that contact with the skin releases endorphins, and these strengthen the bond between the parent and the baby.

8. Journal

Maintain a journal with all important milestones of your baby. The first time they smiled to their first solid meal to their first steps, you can record them all.

One of the best ways to bond with your baby is to read to them. It is never too early to start this practice and you are bound to find age-appropriate material with which you can have fun. Make funny faces and voices for each character and see your baby’s eyes light up in joy.

10. Sing

You don’t have to be a great singer in order to sing to your baby. Pick a few tunes and sing to your baby especially when putting them to sleep. These songs will remain your special song.

The simple answer is no. Many parents find it hard to establish a bond with their baby for a number of reasons. You must keep in mind that with time this will resolve on its own. A great resource is to join new parents’ forums or groups where you can swap stories and find support. Listening to other parents deal with bonding with their infant, will make you feel less alone.

There are many issues that could cause a delay in bonding with your baby. Women who have had a C-section with a difficult recovery period, premature labour and even postpartum depression make bonding a difficult prospect. Do not feel guilty and allow yourself time to recover and bond with your baby.

You should feel at least a slight shift in the attachment you feel for your baby after the first couple of weeks. If you don’t then you should talk to your primary healthcare provider as well as your baby’s doctor.

One of the main causes of difficulty bonding with your baby is post-partum depression. This condition is quite common and is observed in around 10% of all births. You must seek help if you face at least five of the following symptoms:

  • Hopelessness or extreme sadness
  • Incontrollable crying
  • A lack of interest in activities that you usually enjoy
  • Change in appetite
  • Extreme weight loss or gain
  • Sluggishness or restlessness
  • Difficulty falling asleep
  • Difficulty concentrating or making decisions
  • Feelings of guilt or worthlessness

Post-partum depression, if not treated adequately, can have serious problems later on. You must seek help as it is the best course for both you and your baby.

Bonding with your baby is not an exact science and no two parents bond with their baby in the same exact way. Each parent has their own personal journey with establishing a bond with their baby. Don’t blame yourself if you do not feel an immediate sense of bond with your baby and give yourself time for it to grow naturally.


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