Money Tools

Baby Bonds: A Guide To Saving For The Future

If you’ve read a few basic personal finance articles, you’ll soon come across the power of compound interest. Often, an article will show that contributing a little money consistently from ages 25 to 35 and stopping yields a bigger retirement net egg than contributing from ages 35 to 65. It doesn’t sound like contributing ten years should be worth more than 30 years, but that’s often how the math works.

Whenever I see graphs like that, I think, “If starting ten years earlier makes such a big difference, imagine what starting 25 years earlier would do!”

That’s the rough idea behind baby bonds.

What are Baby Bonds?

Baby Bonds are government-sponsored savings accounts for newborns. The idea is that each newborn would receive a seed deposit from the government, which would grow over time thanks to compound interest. The funds in the account would be available for the child to use when they reach a certain age, typically 18 years old, for expenses such as education, buying a home, or starting a business.

The purpose of baby bonds is to promote financial stability and security for families, particularly those with lower incomes. The hope is that by providing a financial foundation for children, they will be better equipped to pursue their goals and overcome financial challenges later in life.

Baby bond programs are starting to be developed now. Each program has different specific details, such as the amount of the seed deposit, the interest rate, and the conditions for withdrawing funds.

Which States Offer Baby Bonds?

Starting July 1, 2023, Connecticut will be the first state to offer baby bonds. There are a lot of little details, so if you live in Connecticut, I recommend reading the official baby bond documentation. For everyone else just trying to understand how it works, the state will deposit $3,200 at birth into a baby bond trust invested by the Office of the Treasurer.

At age 18, a young adult can withdraw money to start or invest in a Connecticut business, buy a home, pay for higher education, or save for retirement.

The participating young adult must complete a financial literacy course to be eligible for the money. If you are reading this website right now, you will likely have no problem with that.

Massachusetts may be next to offer baby bonds

How Much Will a Connecticut Baby Bond be Worth?

Typically the stock market returns 8% a year. Using the Rule of 72 (as explained here, the money should double every nine years. That means the $3,200 will likely double to $6,400 and then to $12,800 at age 18 – or $25,600 at age 27. In reality, it may turn less than that because I expect the Office of the Treasurer to invest in very low-risk investments. So I would put the target at between $10,000 and $20,000 depending on when they are withdrawn to be used.

What the Difference Between Baby Bonds and a 529 Plan?

Some states offer to give babies money for enrolling in a 529 Plan at birth. A 529 Plan helps save for college expenses. Typically states will provide a small incentive such as $50 or $100. Baby bonds are significantly more and can be used for much more than just college expenses.

How do Baby Bonds Help Fight Poverty?

Baby Bonds programs help fight poverty by giving young adults a head start. Having assets, such as savings accounts, can help families weather financial shocks and provide a safety net during times of need. Furthermore, by requiring financial literacy courses, young adults will have more tools to lead them to financial success.

It’s important to note that while baby bonds may be a valuable tool in addressing poverty, they are not a silver bullet solution. They must be combined with other initiatives and policies to reduce poverty.

Final Thoughts on Baby Bonds

People can’t depend on the government for baby bonds today. Even in the future, the money to fund the program will need to come from somewhere, which likely means higher taxes.

In the meantime, the only thing you can do is fund baby bonds yourself. Unfortunately, parents don’t typically have thousands of dollars to put aside when a baby is born. It’s often quite the opposite, with many baby expenses coming all at once. It should go without writing that it’s also useless to fight poverty if one has to have the wealth to save for them in the first place.

If you are fortunate enough to have the money, and your kid has some income (when they are older than babies), you may want to look into kid Roth IRAs as a way to do something similar to baby bonds.

Brian MacFarland has reached more than 10 million people on his personal finance journey to financial independence.  He’s been featured in the Washington Post, U.S. News and World Report, and Lifehacker.

Read more on the About page.

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FamZoo Review: Allowance and Kid Money Made Easy


FamZoo is a company/app that makes managing money for kids easy. I’ve heard about them for years at various financial conferences. I didn’t have kids, so I didn’t pay attention. I only thought that it had a funny name. FamZoo got a lot more interesting once my kids were old enough to learn how to manage their money.

When I started Kid Wealth earlier this year, I had planned to write about specific companies and apps. FamZoo was high on my list. I went to a personal finance conference, and the CEO of FamZoo, Bill Dwight, was at a booth promoting FamZoo. He gave me the complete backstory of the company. Here’s the short version. Dwight was a very successful Silicon Valley engineer who decided to start something new and different. He combined his passion for software engineering and children’s personal finance. The result was FamZoo.

What is FamZoo?

FamZoo is a completely family money management system. You can think of FamZoo as a combination of a bank and a prepaid debit card. It consists of a parent account and one or more child accounts. Each child account can be further subdivided into spending, saving, and charity. It makes giving allowances easy. I can also give kids money for doing odd jobs or extra chores.

Children can spend money using their FamZoo card. It’s better than a traditional bank because they don’t feel the money is locked up and inaccessible. It’s an excellent way to let kids make money mistakes.

There is no credit feature or way for kids to rack up overdraft fees. The accounts are FDIC-insured.

Why FamZoo?

The Power of Compound Interest

I’m a big believer in teaching kids about compound interest. Unfortunately, banks aren’t paying interest rates that kids will notice. That’s why we should steal an idea from Bank of Dad.

The Bank of Dad idea is that parents can pay better interest than banks. FamZoo is perfect for parent-paid interest. Parents can set up accounts that earn significant interest (paid by the parent, of course). I could give my child 2% interest a week if I wanted to. It may not sound like much, but it is 280% a year. I recommend that you read my Bank of Dad article for an idea of what may be appropriate.

My kids only earn interest in their savings accounts. They have a strong incentive to put money there instead of spending. However, when they want to make a purchase, the money has to be in their spending account. Parents need to approve transfers, but I don’t see myself rejecting too many of them.

We’ve only been using FamZoo a short time, but I think I’ll set it up so that the charity account will earn double interest.

Automating Your Child’s Allowance

I tried managing my kids’ allowance with cash. It was a miserable failure. I never had the exact number of one-dollar bills on hand. Many times, I simply forgot. My kids reminded me sometimes, but they often forgot as well.

Now, I set up a rule in the application, and the kids get money pushed from my parent account to their accounts.

There are good arguments to be made that kids should start with cash. However, the world has moved to digital payments and apps. They’ll eventually have to be comfortable with managing their money this way. It doesn’t hurt to start early.

Using the FamZoo Prepaid Card

When the kids want to purchase something, they simply bring their FamZoo debit card to the store. Most likely, they’ve watched adults swipe a credit card. They probably already know how it works. Kids can check their balances by using the FamZoo mobile app. It’s available for iOS on the Apple App Store and Android on Google Play.

Since my kids are only 8 and 10, they don’t have a mobile plan, but they have tablets and wifi-only phones. As they become teens, they’ll be able to manage their FamZoo accounts at a store.

One nice touch is that the FamZoo has the kids’ own name on them. Kids under thirteen also have the parent name on them.

Getting Started with FamZoo

It takes some time to get started with FamZoo. For me, it took three weeks. It can take two weeks to get the debit cards. After that, it took another few days to set up the external transfer from my bank (USAA). The banks must do their transfer stuff, which takes a few days.

While it’s a bit inconvenient, there are very good reasons why it takes so long. FamZoo purposely doesn’t allow itself to pull money from your bank accounts. Instead, you push money from your bank account to FamZoo. This is great for peace of mind. No one wants to worry that a company is going to drain their bank account by pulling too much money out.

How much does FamZoo cost?

I’ve always been against paying bank fees. I’ve always felt that if I’m giving the bank money to lend out at high rates, the bank shouldn’t charge me money too. However, FamZoo is an exception. It makes my life so much easier that I don’t mind paying a subscription fee.

If you pay month-to-month FamZoo costs $5.99. It may not seem like a lot, but it can be a large percentage of a child’s allowance. I opted for the two-year pay-in-advance plan, which is $59.99. That comes out to $2.50 a month. It also covers our whole family.

One competitor, Greenlight, has a Greenlight Core plan similar to the FamZoo program. That plan has a $4.99 monthly fee, but it doesn’t seem to have a bulk purchase plan to lower costs. Over the two-year plan, I’ll save 50% with FamZoo.

FamZoo Competitors

FamZoo isn’t alone in the kid debit card space. I mentioned Greenlight above. There are also a couple more: GoHenry and BusyKid. I’m looking into exploring these options more. Stay tuned for reviews on them.

FamZoo Negatives

I found two things with FamZoo that were below my expectations. One was the time to get started. There’s an option to put more money in to start, but I didn’t take it. If I did, I think I would have been able to get started faster.

The second negative is that the company was founded in 2006, and it seems like much of the design is still from around that time. I’m more interested in functionality than design, but others may feel differently.

FamZoo Final Thoughts

We’ve been thrilled with FamZoo. It’s made handling allowances and compound interest so much easier for me. The kids love that it’s made their money more accessible than a stodgy bank account.

If you want a free bonus month, sign up with this special link.

Brian MacFarland has reached more than 10 million people on his personal finance journey to financial independence.  He’s been featured in the Washington Post, U.S. News and World Report, and Lifehacker.

Read more on the About page.

If you enjoyed this article please Support Kid Wealth