Giving new babies a savings account can help curb wealth gaps and make college feasible. One Democrat wants to make it federal law.

• Sen. Bob Casey wants to set up automatic savings accounts for every baby in the US.
• His "401Kids" proposal is similar to the concept of baby bonds and would be given out when kids are born.
• Kids in lower-income families would also receive federal deposits every year.

Sen. Bob Casey wants to chip away at wealth inequality and set up kids to be able to build wealth. His proposal: A "401Kids" savings account established for every kid in the country.

Casey, a Democrat from Pennsylvania, is introducing legislation that would create Child Savings Accounts nationwide. Under Casey's legislation, savings accounts would be established for every kid in the country; they'd operate like 529 plans, which are state-run accounts used to save for educational costs. Like 529s, they'd be managed by state treasurers. When kids turn 18, they'd be able to use the money on post-secondary education, starting a small business, buying a home — or even sock it away for retirement.

"A lack of income means you can't get by, but a lack of wealth means you can't get ahead," Casey said in a statement to Business Insider. "As American families grapple with rising costs, they deserve a way to save not just for their future, but for their children's future. My 401Kids Savings Act would provide every child in this Nation with the cushion they need to take risks and pursue opportunities to create generational wealth."

Parents, nonprofits, and other family members — including the child — would be able to contribute up to $2,500 every year into the accounts.

Some kids would also be eligible for federal deposits. Children in families that make below $75,000 or $150,000 in combined married income, would receive an automatic deposit of $500 annually. In families that are eligible for the Earned Income Tax Credit, which is catered towards lower and middle-income taxpayers, kids would get an extra $250 annually — and the federal government would match up to $250 in individual contributions every year.

It's an idea that's caught on across the country and through policy; in Oklahoma, an experimental program gave some newborns an automatic 529 plan with $1,000 already deposited. Those accounts spurred parents to open additional savings accounts for their children, and, by 2019, the average account balance was $3,243. Notably, savings were much higher among families who had accounts automatically opened for them — a key aspect of Casey's plan.

Multiple studies on "baby bond" policies, automatic accounts with money deposited into them, find that they can help narrow racial wealth gaps. A report from the Joint Economic Committee previously found that baby bonds could help bolster economic security by helping more kids afford college, and boost their lifetime earnings. Buying a home at a younger age — something that's becoming increasingly out of reach, despite tempered optimism among younger workers — can also help boost lifetime wealth.

Some states, like Pennsylvania, have taken matters into their own hands and started putting $100 into accounts for every baby in the state as of 2019, as CNBC reported. On the federal level, Sen. Cory Booker and Rep. Ayanna Pressley have proposed legislation that would give out $1,000 baby bonds for newborns.

It's also a concept that has bipartisan support: A December 2022 ACLU/YouGov poll of 1,033 voters found that the majority of Independents and 42% of Republicans strongly or somewhat support a proposal that would give out bonds of around $4,00 at birth.