wealth gap

WaPo and the Wealth Gap

Mark Huelsman — Mon, 23 Mar 2009 15:42:00 -0400

In a plug for this week's Color of Wealth Policy Summit, the Washington Post features an op-ed by Meizhu Lui of the Insight Center for Community Economic Development in Oakland, CA on the shockingly-expansive racial wealth gap in the U.S. This subject is Asset Building 101: A broad income gap means many families cannot get by, while others are plenty comfortable. The even-broader wealth gap means that many families cannot get ahead, while others are reaping the benefits of tax breaks and other policies that can only be accessed by those who do not want.

Consider data from the most recent Survey of Consumer Finances on average family income (before taxes):

White non-Hispanic families: $51,800.
Non-white or Hispanic families: $36,800.

Pretty Troubling.

Now consider the following: "According to the Fed, for every dollar of wealth held by the typical white family, the African American family has only one dime."

Pretty Terrifying.

While Lui justifiably concentrates on the racial wealth gap, asset building policy presents a great framework for lifting all vulnerable demographics out of poverty. In addition, asset building policy attempts to reward work, saving, and innovation among at-risk populations much like current policy attempts to do for those who are fortunate enough to not be at risk. Perhaps this is why asset building policy often achieves bi-partisan support.

As for Lui's policy prescriptions: Good, but dream bigger. Capping and making refundable the mortgage interest deduction, creating a Financial Products Safety Commission, and keeping an eye out for racially-inclusive zoning are all useful ideas. But I'm not sure this is the policy cocktail that will most directly and largely address the "deepening canyon" that Lui rightfully describes.

How about making it easy to save at tax time (friendly reminder to readers: three weeks away!)?
How about tax-free universal savings accounts?
How about accounts at birth?
How about allowing employers to leverage the payroll system to help employees save for lean times?
How about promoting responsible homeownership?

And my personal favorite: How about rewarding and incentivizing saving for college, a policy track that, if pursued aggressively, could be the wealth-building silver bullet?

Nonetheless, extremely heartening to see the asset building frame in primetime.

America Saves Week: A Glance at the Survey of Consumer Finances

Mark Huelsman — Tue, 24 Feb 2009 19:38:00 -0500

This month, the Federal Reserve published its triennial Survey of Consumer Finances, an invaluable resource in gauging America's saving habits and shifts in net worth (especially for low-income populations). Some of the highlights:

Overall, the proportion of families that reported that they had saved in the preceding year was stable relative to the 2004 survey at 56.5 percent.
However, only 33.7 percent of families in the bottom quintile of income reported saving, down about a half-a-percent from 2004.
The wealth gap is growing. While median net worth increased for most groups across the income spectrum, in the lowest quintile, "the median fell from $1,900 to $1,200; the mean fell from negative $1,600 in 2004 to negative $2,300 in 2007. For the rest of the distribution of net worth, the median and mean over the recent three-year period rose substantially for all other groups except the 75th-to-90th percentile group, which had seen relatively large gains over the preceding three years."

Finally, this paragraph stood out:

"Across demographic groups, the pattern of changes in the recent three-year period is mostly one of small increases or decreases. Noticeable exceptions are declines for the following groups: the lowest quintile of the income distribution (2.4 percentage points); single families with children (1.2 percentage points); younger single families without children (1.7 percentage points); families headed by a person whose work status was retired (1.6 percentage points) or who was in the related retired-or-other-not-working category (1.2 percentage points); families headed by a person aged 75 or older (1.5 percent); and families living in the Northeast (3.3 percentage points)."

and

"Across net worth groups, the percentage changes in median assets and net worth were most similar for families in the top quartile of the distribution of net worth; for all except the lowest quartile of that distribution, the changes were more roughly similar; and for the lowest quartile of the distribution, the percentage decline in assets was much larger than that for net worth."(emphasis added)

There is obviously a lot more to explore in the data, especially concerning financial services, retirement accounts, investment and homeownership, so I urge you to dive right in.

Mike Gerson to President-elect Obama: How about KIDS Accounts?

Mark Huelsman — Wed, 12 Nov 2008 16:09:00 -0500

In a pseudo-memo to President-elect Obama today, Michael Gerson (former speechwriter/policy advisor to President Bush and current Washington Post columnist) has this interesting hypothetical:

"Political indifference to durable poverty in our midst has long been a scandal; from Obama it would be a tragedy. America does need to ‘spread the wealth' -- but not in the simply redistributionist sense. The racial divide in our country is widest when it comes to assets. The median net worth of white and Asian Americans in 2004 was $142,700. The median net worth of African Americans was $20,400. There are many reasons for this massive disparity, including what Lincoln called centuries of ‘unrequited toil.' Reparations are a politically self-destructive dead end. But what if President Obama, for example, proposed to set up tax-free savings accounts for every poor child at birth and seeded those accounts with a few thousand dollars? Addressing the wealth gap through the miracle of compound interest would be a lasting contribution to the justice of our country."

Here in the Asset Building Program, we couldn't agree more.

Gerson's proposal is generally compatible with the ASPIRE Act, which currently sits in both the House and Senate. Interestingly, Gerson calls for tax-free savings accounts for every poor child at birth, while the ASPIRE Act would set up an account for every child born in the United States. On the other hand, he throws out "a few thousand dollars" as an initial deposit for the accounts. Current legislation would also seed the accounts, but at a lower initial sum of $500 (while children in households earning below the national median would be eligible for an additional contribution of up to $500).

Minor differences aside, it is incredibly heartening to see opinion leaders on both sides of the aisle come to the same conclusion about the burgeoning wealth gap in this country, as well as see the asset-building opportunity that child savings accounts could create.