The Ladder

Breaking news -- Asset limits to be reformed in the Food Stamp Program!

The conference committee formed to work out differences in the House and Senate versions of the 2007 Farm Bill has included provisions to reform asset limits in the food stamp program-- an issue championed by Chairman Harkin (D-IA) and Ranking Member Chambliss (R-GA).

The Farm Bill, if passed unchanged by the full House and Senate, will officially exclude savings in IRAs and 529 college savings accounts from consideration in determining eligibility for food stamp assistance.  

What's more, the existing asset limit, which is set at 2,000 for most families and has only been increased once since the late 1970's, will be indexed to inflation to prevent further erosion.

This is a tremendous victory for the entire assets community.  I'd especially like to recognize the Corporation for Enterprise Development, the Center on Budget and Policy Priorities, and the Retirement Security Project, who we've worked closely with to educate policymakers and push for change.

A key goal of New America's Asset Building Program is to encourage governments and other entities to offer each child born in the United States - and around the world - a savings account at birth. We believe doing this is the first step toward ensuring that all children have a stock of financial assets at the start of their adult lives.

With this in mind, we see the "529" college savings account in the United States as potentially an excellent platform for enabling parents to save for their children's education. This type of investment account - established by Congress in 2001 and named after a section of the tax code - allows parents to save money and withdraw the funds tax-free when their children head off to college. Every state, as well as the District of Columbia, offers 529s. Yet, right now, it is primarily mid-to-high-income parents who are taking advantage of them. We believe that making 529s "progressive" (i.e. having the government offer incentives such "seed" funding and/or matches to the accounts of less well-off families) is an excellent way to put these savings vehicles to work for children who come from families of more modest means.

As such, I was intrigued by a new college savings plan in South Africa I came across earlier this week. The Association of Collective Investments, an industry association for investment funds in South Africa, recently launched the Fundisa Fund as a three-year pilot project. The gist of the plan is that family and friends of a learner (or others) make contributions to an investment account opened by the parents at a bank.

FDIC Chairman Sheila Bair has struck again-with yet another creative response to the ongoing mortgage crisis. Chairman Bair has a history of being ahead of just about everyone else in Washington with proposals to respond to the crisis in a manner that is doable and fair. This time it's the Home Ownership Preservation or HOP loan, and the FDIC estimates about one million loans-make that one million homeowners in trouble-might be eligible.

I consider my cell phone an asset. With all those hi-tech capabilities packed into a little handset, it keeps me simultaneously connected, productive, on-time, en route, entertained and informed. And I'm not alone - more than 3 billion people around the world (almost half of the global population) have a cell phone. But what if this gadget that seems capable of reaching almost anybody and doing almost anything could also provide a mechanism for savings and asset building for individuals around the world? Despite seemingly limitless potential and enthusiasm for such an innovation, it will unfortunately be some time before this is a reality.

The rise of an assets perspective is a relatively recent phenomenon. And like any phenomenon, to understand what it is you need to describe where it came from. Researchers and scientists often go to great lengths to find the baseline.

So, what's the assets baseline? There are two ways to look at this question. One is to survey the landscape of social policy and another is to describe the current role assets play in people's lives.

Last Monday I attended "Financial Literacy Day on Capital Hill", an awareness-raising event convened by the Jump$tart Coalition for Personal Financial Literacy, JA Worldwide and the National Council on Economic Education. In addition to a hall of exhibits by government, not-for-profit and corporate organizations that promote financial literacy across the country, Rep. Rubén Hinojosa (D-TX), Sen. Daniel Akaka (D-HI), and Sen. Wayne Allard (R-CO) offered moving remarks to the audience of practitioners and hill staff. I was wholly impressed and heartened by the passion and sincere commitment to financial education shown by these leaders, and enjoyed seeing the variety of curricula and methods on display. Yet, I left perplexed about the absence of policy that could systemize and enforce the delivery of these valuable efforts.

Credit is a critical element to asset building, but credit that is badly structured, difficult to understand, or abusive generally results in the destruction of assets, not their creation. Credit cards and overdraft protection programs have often shared these characteristics-and the asset stripping results.

On Friday, bank regulators will release proposed regulations under Section 18 of the Federal Trade Commission Act concerning unfair and deceptive acts and practices (UDAP). The proposal will apparently be a joint release by the three agencies that have jurisdiction to write rules under the Act, the Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration. This will be a rare instance of the agencies exercising rule-making, in contrast to enforcement, authority under the statute.

The proposal, which is expected to cover both credit cards and bounce protection, would require major improvements in practices, including generally limiting credit card interest rate increases to new balances, requiring opportunities to opt out of bounce protection, and prohibiting overdraft and overlimit fees that arise because of holds on debit or credit card purchases. While there will be objections from both the industry-asserting the proposed rules stifle competition-and consumer advocates-arguing that they do not go far enough-this is an extremely welcome development, one long overdue. The agencies have said they intend to make the rules final by the end of the year.

The 75-day comment period will coincide with both Congressional and electoral activity. And of course, year end will be a time of transition no matter who wins the election. It has taken a very long time to get this far; it's important that the regulators finish the job, and finish it strongly.

A bill recently introduced in Sacramento, and supported by Governor Schwarzenegger, has the potential to cover almost every California worker. No longer will those unlucky enough to work for an employer who doesn't provide coverage be left vulnerable. No longer will those who seek to buy coverage on their own be priced out of the market. And best of all, it will cost virtually nothing. Interested? Good. But we aren't talking healthcare-we're talking retirement.

Today, more than one-third of today's seniors subsist almost entirely on income from social security - an average payment of just over $1,000. For those workers (most of us) who aren't fortunate enough to be covered by a defined benefit, employer-sponsored pension plan, i.e. checks for life, the only way to prevent retirement of destitution is to start saving now. But unfortunately, many workers lack access to the products and services necessary to begin planning for retirement

Each year the U.S. Treasury Department issues over one-hundred million refunds worth billions of dollars to individual tax filers.

Almost half of all refunds are issued via a paper check, with the majority of those checks being mailed to lower-income households. This presents a scaleable opportunity to provide these households with a low-cost transaction and savings account on the tax form.

IRS data show that of the 60 million federal tax refunds that were issued via a paper check in 2005, almost half were mailed to households earning $30,000 or less. These are the very households who typically lack access to reasonably-priced financial services and who are most likely to pay a disproportionate amount of their income to conduct routine financial transactions. They are also less likely to have adequate savings to cover emergency expenses like car repairs or unexpected medical bills, which often leads to payday lenders and other expensive sources of credit.

These households do, however, receive on average about $1,700 in federal tax refunds. And when examined in the aggregate, almost $50 billion is annually refunded to households with AGIs of $30,000 or less, via paper check.

The potential of those refunds as deposits creates a powerful case for financial institutions to make a low-cost transaction and savings product available to lower-income consumers.

Many experts have predicted that our economy is moving into a recession and as the economy declines, it will become even more important for college students to graduate with as little credit card debt as possible to enable them weather tough times. A recent article in the Washington Post stated that college students can least afford to graduate with debt these days with an unstable job market. Many college students are crippled with debt. They graduate with credit card debt as well as student loan debt and in today's economy they may not be able to find a job immediately upon graduation. In spite of these facts, research shows that college students continue to accumulate credit card debt.

A recent study by the US PIRG Education Fund showed that nearly two thirds of students reported that they had at least one credit card. Seniors reported carrying more than $2,500 of credit card debt. This debt was incurred to pay for college expenses as well as living expenses. Students reported using credit cards for "day-to-day" expenses (55%) and books (55%). The next highest categories reported were "weekends and pizza" and emergencies.

As college costs continue to soar, college students are increasingly turning to credit cards to cover costs.