Asset Building: Now More Than Ever
It is impossible these days to ignore the steady drumbeat of evidence of the nation’s grim economic prospects. Public opinion surveys report that most Americans no longer believe that their children will have better lives than they did. And recent, widely cited economic analyses document that what was once unthinkable is now true: Several European nations have higher rates of economic mobility than the United States.
Other measures are less well known but certainly no less striking. In January, the Corporation for Enterprise Development (CFED) released the 2012 edition of the Assets & Opportunity Scorecard, the most comprehensive benchmarking tool available for evaluating how well states build and protect the assets of their residents. For the first time, the scorecard included a new measure called Liquid Asset Poverty, which assessed the ability of households to exist at the poverty level if their main source of income was disrupted and they couldn’t rely on the equity of their house, car, or business to pay their bills. The result: Fully 43 percent of American households live in liquid asset poverty. This means almost half the nation currently exists in a state of serious financial insecurity.
The creation of the social safety net is one of the crowning achievements of the twentieth century. Our system of social insurance and support improved the economic situation of the elderly, created unprecedented access to health care, and established a floor under which most Americans could not fall. It was designed to complement an economy based on industrial capitalism, and many credit it with saving capitalism during the Depression. Most traditional anti-poverty approaches were predicated on a consumption-based theory of welfare that focused primarily on addressing immediate needs. But a growing body of evidence suggests that such efforts have been insufficient in helping families stabilize their financial lives and escape the cycle of poverty in our globalized economy.
A new vision, backed by research, holds that while income subsidies and emergency services are vital to financial security, a household also needs knowledge of and access to affordable financial products and services to build the savings and economic cushion that enable upward mobility. Policies that protect consumers in the financial marketplace and encourage savings and investment among low-income households can work in conjunction with traditional anti-poverty programs to help families get ahead.
The economic crisis of the past three years, coupled with the growing alarm over the staggering wealth gap between the richest and poorest (and between whites and minorities), has opened the door to innovative new collaborations, programs, and policies that aim for economic mobility while supporting the delivery of critical human and social services. The business of advancing financial security and opportunity isn’t just a topic for the anti-poverty community; rather, it is at the heart of our nation’s promise and capacity for economic growth.
For the past 20 years, CFED has been a leader in promoting asset-based approaches to poverty alleviation. We are working with a rapidly growing field of community-based organizations to develop and test products and policies that support the asset-building efforts of low- and moderate-income households. This approach holds that most individuals—even low- and moderate-income workers—will save, invest, and embrace opportunities to develop assets and skills that will help them create a better life for themselves and their families. In short, financial security and opportunity is not just a matter of what you earn, but is also determined by what you own.
But this vision of economic security and mobility needs to be supported by policy and system changes aimed at improving the financial lives of low- and moderate-income populations in a more sustainable way. While the recession has certainly exacerbated economic inequality, the widening wealth gap also reflects the impact of years of government policy decisions, largely administered through the tax code. Current policies perversely subsidize wealth building for high-income earners while providing few or no incentives to save for low-income Americans. The time is ripe to directly address this unfair “upside down” budget policy through a campaign dedicated to providing savings incentives to the majority of the nation who can use them to build productive assets.
The national discussion on deficit reduction and tax reform that looms at year’s end offers a compelling opportunity to raise awareness about the ways that tax reform done right could reduce wealth inequality, promote mobility, shrink the deficit, and spur economic growth. While our polarized politics appear to diminish the odds of any serious policy change, we should still aim to leverage concern about the deficit, the election cycle, and the wavering recovery to advocate for meaningful reforms that support real wealth-building opportunities for low- and moderate-income people.
These lessons are the central assumptions driving the five essays in this symposium. The ideas discussed in each of these essays capture the essence of the broader conversation that will take place at CFED’s 2012 Assets Learning Conference this fall in Washington, a gathering of more than 1,000 practitioners, policy-makers, and thought leaders dedicated to creating pathways to financial security and opportunity. The authors highlight innovations occurring at the local level that may be the solutions of the future. They underscore the imperative for collaboration across all sectors—public, private, nonprofit, and philanthropic—to address the economic hardship faced by millions. And they outline policy recommendations, both large and small, that can provide sustainable and scalable platforms to mobilize savings and economic growth.
The symposium begins with Ray Boshara’s analysis of the current state of the asset-building field and the directions in which it should go. He provides a concise history of the origins of the movement, and explains how focusing on savings and assets, rather than income and consumption, flip our most fundamental assumptions on how to address poverty. Reflecting on the wealth loss caused by the Great Recession, Boshara challenges the asset-building movement to expand our strategy and consider the entire household balance sheet—savings, debt, and equity—in constructing a pathway to economic mobility and growth.
James H. Carr’s essay picks up where Boshara leaves off and explores the causes and consequences of the bursting of the housing bubble. His indictment of the “wealth-stripping” practices of both mainstream and alternative financial service providers not only tie them directly to our ongoing foreclosure crisis, but also to the perils faced by the 30 million American households (many of them minority) considered un- or underbanked. Carr heralds the launch of the Consumer Financial Protection Bureau, but cautions that more needs to be done to protect Americans from wealth stripping.
The second essay devoted to housing is authored by Paul Bradley and George McCarthy, who explore the potential of manufactured homes as a source of accessible homeownership. Now the largest unsubsidized source of affordable housing in the nation, the housing stock—and the people who own it—are too often socially stigmatized and legally excluded from basic consumer protections and routes to wealth creation due to outdated laws and financing schemes. Bradley and McCarthy illustrate how advances in housing design and energy efficiency, coupled with cooperative ownership and access to capital, have transformed the state of manufactured housing. Their story presents a compelling case study for how we can refine the role of homeownership to fit the twenty-first century realities of the American Dream.
Of course, housing isn’t the only way we build wealth. Saving is the most essential way to build assets over a lifetime and can determine access to education, the capacity to start a business, or the chances of having a secure retirement. Yet, as Bob Friedman, Ying Shi, and Sarah Rosen Wartell discuss in their essay, the vision of saving stands opposed to the emphasis that our culture places on consumption. This cultural bias is compounded by the barriers erected by policies that either actively punish low-income people who save with the loss of public benefits, or exclude them by allocating the lion’s share of tax incentives for wealth creation to the richest among us. But the authors offer powerful evidence that low-income people can and do save, while also documenting how savings can change aspirations for the future—for both children and adults—and create an indispensable personal safety net. They offer a broad array of creative and practical policy solutions with the potential to build an inclusive ownership society that benefits everyone.
The symposium ends with a concrete example of how we build assets for millions of Americans. Bob Annibale and Wade Henderson propose expanding access to the earned-income tax credit and shifting taxpayers’ behavior, so that they see the refund not as a windfall but as savings to be put away. The authors advocate for a powerful tax-policy change that would deliver a savings match to those who need it most, with the promise of not only expanding household financial security but also spurring economic mobility and growth—building the future that Boshara outlines at the start of this symposium.
We must seize the opportunity to take the lessons learned from the Great Recession and translate them into a new American economy. We believe that a future defined by a reduction of economic mobility is unacceptable. Our mission in the years ahead is to extend savings matches and asset-building opportunities beyond the hundreds of thousands of low-income and poor Americans for whom they have already proven so effective to the millions more who need and deserve them—and, in the process, to reignite economic growth and job creation the old-fashioned way, through savings and investment.
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