Transcript Slide 1

Building Assets,
Building Financial Security
Ida Rademacher
Vice President, Policy & Research, CFED
Presentation to State CSBG Directors
August 11, 2011
About CFED
 CFED (Corporation for Enterprise Development) has
worked for over 30 years to expand economic
opportunity by helping people save and invest, own
homes, succeed as entrepreneurs, contribute to and
benefit from the economy
 CFED’s special expertise is to connect public policy,
private markets and community practice to bring
effective approaches for building wealth and financial
security to scale at the local, state and national levels
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Overview
 Why Assets?
 Asset ownership – distribution & trends
 Assets & Financial Security – New Research
 Evidence-Based Strategies – What Works?
Why Assets?
 Income alone is insufficient to create financial stability –
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Over half (56%) of black children whose parents were solidly
middle income fall into the bottom third of the income distribution
as adults, compared to 30% of whites (DeLeire, 2010, Pew
Economic Mobility Project).
 Building assets – in addition to income – is essential to
achieving long-term economic stability & mobility
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Assets change thinking and behavior
Improve economic household stability
Create long-term thinking and planning
Are linked to reduced marital dissolution and domestic violence
Enhance the well-being and life chances of children
Asset distribution & trends: Upside-down
subsidies
FY2009 Distribution of Asset Building Subsidies,
Average Benefit by Income Bracket
$100,000
$90,000
Annual Subsidy
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
Annual Income
Source: CFED. 2010. Upside Down: The $400 Billion Federal Asset Budget
Asset Distribution & Trends
Median Income & Median Net Worth by Race, 2007
200000
170400
160000
120000
White
80000
70835
Black
42874
40000
17100
0
Income
Net Worth
Source: American Community Survey (Income), Survey of Consumer Finances (Net Worth)
Asset Distribution & Trends
Median Wealth by Race, Household Structure
Source: Chang, M. and Lui, M. 2010. Lifting as We Climb:
Women of Color, Wealth and America’s Future
Asset Distribution & Trends
 Asset Poverty: % of households that lack a financial
buffer to allow for 3 months consumption at poverty
threshold in absence of income.
 22% of households are asset poor.
 27% of households with children.
 37% of minority households
 49% of minority households with children
Source: CFED 2009-2010 Assets & Opportunity Scorecard
Assets & Financial Security
Assets create a financial buffer to weather emergencies
 Savings and assets correlate with low-income families’ ability to weather
unexpected employment gaps and hardships with health care, housing
payments, food security, utility and phone bills, and basic consumptions.
(McKernan and Caroline Ratcliffe. 2008. The Urban Institute)
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Households with $2,000 or more in liquid assets are better able to avoid
subsequent hardships such as forgone doctor visits and missed utility
payments, compared to those with smaller (or no) asset holdings. (Mills
and Zhang. 2011. The Urban Institute).
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A family’s ability to borrow $500 in the event of an emergency (i.e.,
having good credit), may do as much to reduce hardship as tripling
family income. (Mayer and Jencks. 1989. “Poverty and the Distribution of
Material Hardship.” The Journal of Human Resources).
Assets & Financial Security
 Family structure improves chances for economic mobility for children
of all races.
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50% of low-income kids growing up in married households move up income
ladder, compared to:
42% of low-income kids growing up single-parent households
26% of low-income kids growing up in divorced-households
Source: DeLiere 2010, Pew Economic Mobility Project
 Wealth plays an important role in predicting first marriage, especially
for men but also for women.
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Vehicle ownership increases odds of first marriage by 57%.
Financial assets increase odds of first marriage by 36%
Asset ownership reduced race differential in rates of first marriage by 13%, a
larger % than was explained by other factors like income or employment.
Source: Schneider, 2010 (Doctoral thesis, Princeton University)
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Financial assets are also positively associated with the economic well-being of
women one year after marital disruption. (Cho.1999. Center for Social Development)
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What Works: IDAs
 American Dream Demonstration—the first large-scale
test of individual development accounts—
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Participants saved an average of $19 per month.
Average annual accumulation of approximately $700.
Median household income of these participants was $16,296.
(Mills, et al.. 2004. Abt Associates).
10 year findings on Tulsa experimental site now being
published (Grunstein-Weis et. al)
 Key Findings from recent study on homeownership
outcomes
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IDAs disproportionately helped minorities and women
purchase homes
IDA homebuyers overwhelmingly accessed prime, FHA &
fixed rate lending
IDA homebuyers 3 times less likely to experience foreclosure
(Rademacher , McKernan et. al. 2010. CFED/Urban Institute)
What Works: $aveNYC
 Pilot @ tax prep sites to increase savings among lowincome individuals.
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Open account @ VITA w/ $200.
50% match if participants save for 1 year (up to $500 over 2
years)
 Key Findings:
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Avg. income of savers $16,200
78% women, 82% w/ children, 9% married
80% saved full year, and 59% continued
Average savings of $627
Source: NYC Office of Financial Empowerment
Tax time = unique opportunity
Matched Savings can induce very low income to save
What Works: CSAs
SEED Initiative—the first large-scale test of matched children’s savings accounts
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Participants saved $30 per quarter (avg), resulting in an average
accumulation of $1,500 over three years, including incentives. About half of
SEED participants were from families with incomes below the federal poverty
line.
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Children in families with as little as $3,000 in savings have been found to
have greater odds of graduating from high school than children in families
without savings. (Zhan & Sherraden. 2003. Social Service Review)
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Children with savings dedicated for college education are four times more
likely to attend college. Among youth who expect to attend college, those
with a savings account in their names are about seven times more likely to
actually attend. (Elliott & Beverly. 2010. Center for Social Development)
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Savings and other financial assets are a consistent predictor of college
graduation, even after controlling for variables such as income. (Zhan &
Sherraden. 2009. Center for Social Development)
Local policy and program strategies
LEARN
 Create financial education/counseling networks and referral structures
 Open neighborhood-based financial one-stop/empowerment centers
 Incorporate financial education into social service and workforce programs
 Standardize and certify financial education services and providers
EARN
SAVE
INVEST
 Use technology to simplify
benefits screening
 Partner with banks to offer
appropriate products
 Home purchase subsidies,
counseling
 Benefits screening in highneed communities
 Create alternative,
affordable loan products
 Create shared-equity
homeownership programs
 Fund EITC awareness
campaigns
 Encourage direct deposit
 Expand access to small biz
capital and training
 Fund free tax prep
 Incent asset-specific
savings (IDAs, college
savings)
 Enact local EITC
 Incent short-term savings
 Connect small biz to free
tax help
PROTECT
 Curb high-cost financial service providers through licensing and zoning
 Enact and enforce consumer lending disclosure laws
 Provide foreclosure counseling, forgivable emergency loans, assistance to renters
Contact
Ida Rademacher
Vice President, Policy & Research
CFED
[email protected]
202.408.9788
www.cfed.org
Using the Scorecard