Assets

Now is the Time to Focus on Combating Growing Poverty

Hosai Ehsan — Thu, 10 Sep 2009 21:50:00 -0400

The much-anticipated official poverty rates for 2008 are out and they are not pleasant. According to the US Census Bureau, the percent of Americans living in poverty increased to 13.2. Nearly nine percent of Whites, 12% of Asians, 23% of Hispanics and 25% of Blacks make up the 40 million people who were living in poverty last year.

Almost one out of every five children living in this country fell into that category. Not only 19% of Americans 18 or younger but 12% of adults aged 18 to 64 and 10% of seniors aged 65 and over were identified as poor. The Brookings Institution expects poverty to rapidly rise through 2011 and 2012.

As depressing as these statistics are, this is not the time to lose hope. They lend timely perspective to current efforts to advance policies that provide low income Americans with the tools and incentives to build their personal savings.

We need to be forward-looking and focus on expanding economic opportunities to combat growing poverty. Asset building proposals at the national level and in California address retirement savings for all workers, college savings for all children, banking the unbanked, reforming TANF/CalWORKs asset limits, EITC awareness and other automatic savings opportunities. These are some of the ways America can ensure that people have the financial tools to be self-sufficient. With appropriate savings and better planning for the future, fewer Americans will suffer from poverty and more will move up the economic ladder.

Imagining a Post-Recession America: On 'Combating Poverty by Building Assets'

Shweta Banerjee — Tue, 07 Jul 2009 19:37:00 -0400

When I first came to the United States as a student in Chicago in 2004, I realized how little I knew of the contradictions within this country. From the outside, it is the wealthiest nation in the world, with the most powerful army on earth and often referred to as the land of excess and opportunity. But to many outside the US it is a little known fact that there are deep pockets of poverty, tucked away in patches of its urban and rural areas. More recently, while working on poverty reduction programs in South Asia at the World Bank, I found it ironic to see homeless persons sitting under the pristine cherry blossoms outside its shiny building in Washington DC. It made me think about the need to apply innovations and successes from ‘developing countries' right here.

Ray Boshara's recent article "Combating Poverty by Building Assets" in Pathways magazine sheds some light on this issue. Boshara calls for a ‘new era of thrift' to be ushered in a post recession America and he explicitly draws on experiences from other national contexts.

Savings, not credit, is the first step in building assets. Instead of extending toxic sub-prime mortgages and deceptive credit cards without appropriate financial knowledge, savings-led strategies should form the core of anti-poverty efforts. During each financial rite of passage - at birth, at the workplace, at tax time and while purchasing a home - people should be given a savings product. For example, every child born into a low-income household should be given a $1,000 savings account and the opportunity to earn $500 in annual matching funds until 18 years of age. Both Great Britain and Sri Lanka have successfully launched child saving accounts; every family that leaves the hospital has an account for the newborn.

Borrowing from Singapore's Central Provident Fund, an American Savings Plan should be created in which every worker in the United States would be provided with an American Stakeholder Account. This account would grow from mandatory savings of 1-2% from both employers and employees.

Income and consumption-based evaluations which then inform income-based poverty programs, do not take into account the growth of assets. As first proposed by Michael Sherraden in 1991, and now widely proven by research across the world, the key to moving out of poverty lies in sustainable asset creation. As the article points out, even prior to the economic meltdown, one in three American households had no more than $10,000 in net worth and one in six had negative net worth.

Given the challenges many confront in savings and building assets, we should be open to lessons learned from policy efforts and programs around the world. There is much to be learnt from the Peruvian woman who saves a portion of her conditional cash transfer to open a small business, or the woman from a small village in India who, with her self-help group, has moved out of poverty. Now is an opportune time to redouble our efforts to promote savings and asset building, and smooth-out some of the hard edges of wealth inequality.

Shweta Banerjee is a consultant with the Global Assets Project of the New America Foundation.

Retirement Savings for all California Workers

Hosai Ehsan — Wed, 24 Jun 2009 00:15:00 -0400

Imagine a California where every employee has the option to participate in a work based retirement savings plan.

Imagine a California where all workers retire with enough savings to sustain them through old age, so they do not have to depend on the government for assistance.

Well, this may not be too far-fetched of an idea, because California is taking strong steps in this direction.

Yesterday, the California State Senate Public Employment and Retirement Committee passed Assembly Bill 125, the California Employee Savings Program. Authored by Assemblyman De Leon, AB 125 aims to create a voluntary, universal, portable retirement account for California workers who do not have access to a retirement savings plan. Furthermore, AB 125 would enable thousands of small businesses to offer low-cost retirement savings to their employees.

The truth is that California's economy is built on its dedicated workforce, so it is important to nurture their enthusiasm and reward their hard work by giving them the tools to secure a financially stable future. Currently, 43% of California's workforce does not have the option to save through payroll deduction. That means that despite their years of hard work and economic contributions to the state, they will most likely end up depending on government aid when they retire. Also, 78% of today's seniors did not build sufficient assets to sustain their standard of living, reports the Institute on Assets and Social Policy.

In a recent AARP survey, 63% of respondents whose current employers do not offer a retirement plan said they would be likely to use it if their employers offered one. In other words, a majority of the employees are interested in building retirement savings if they are given the adequate tools to do so on the job.

At the national level, President Barack Obama has endorsed the idea of creating automatic workplace retirement savings plans. After all, a California where every worker has the option to secure retirement savings is not an imaginary scenario. It is a realistic possibility, favored by California workers and small businesses and supported by the California Legislature.

Policy Innovation toward Financial Inclusion: Colombian Government Links CCTs to Savings

Jamie Zimmerman — Mon, 20 Apr 2009 16:54:00 -0400

Just days before the New America Foundation released its Global Assets Project policy brief, "Savings-Linked Conditional Cash Transfers: A New Approach to Global Poverty Reduction," the Colombian announces a major effort to do just that - link the beneficiaries of its nationwide CCT program with savings accounts. This major policy development in Colombia has emerged in part as a result of the efforts of the policy brief's co-author Yves Moury (Executive Director of Fundación Capital), and his project, Proyecto Capital. Our brief, released today, advocates using the (typically) massive CCT infrastructure to formally bank the largely unbanked poor populations in developing countries. But we also advocate going one step further: use the power of CCTs to encourage saving and asset accumulation of the poor. This approach can be viewed as a two-pronged poverty reduction strategy of building income and assets while increasing the effective financial inclusion of an entire poor population.

Back in September 2008, the Proyecto Capital signed a cooperation agreement with the Government of Colombia to mobilize, in bank accounts, the savings of millions of beneficiary families of Familias en Acción (Families in Action), promoting their financial inclusion and facilitate their socioeconomic graduation from the program. Proyecto Capital's role in the agreement includes assessing possibilities (and possible bottlenecks) for these families to participate in a program that would encourage them to save part of the conditional cash transfers they receive from the CCT programs in a savings account.

Late last week, the administrators of the Familias en Accion, announced the official launch of this massive financial inclusion effort. The plan is to open no-minimum balance savings accounts for up to 3 million beneficiary families in a partnership with Colombia Bank, Banco Agrario. Beneficiaries will also receive debit cards for the accounts.

The administrators are calling it "the largest financial inclusion plan in the history of Colombia." Not only will all beneficiaries of the CCT program have access to savings accounts and debit cards, but those who comply with the requirement of the program (based on proper education and nutrition of poor families, in particular children), will receive their conditional nutrition and education subsidies on their debit cards, without the use of intermediaries. The Colombian government stated that it believes this effort will reduce the vulnerability of the poor to costly informal financial services, such as payday lenders and other informal loans to help them smoother consumption.

The Government of Colombia should be congratulated for their bold effort to provide their poorest and most vulnerable citizens with formal financial access, in particular access to savings account that will help them smooth consumption, prepare for their futures, invest in themselves and (hopefully) move out of poverty. I hope the financial inclusion field watches this effort with keen interest to observe if and how it achieves its ambitious goals.

*Please Note: We will discuss this innovation along with a number of other policy ideas for linking CCTs and Savings at an upcoming event at the New America Foundation on April 29^th. For more information, click here.*

Last Day to Vote: Building Assets into a 21st Century Foreign Assistance Framework

Jamie Zimmerman — Mon, 12 Jan 2009 19:48:00 -0500

Its last day of the Better World Campaign's On Day One project and there is still time to vote for the idea you think President-Elect Barak Obama should prioritize on the first day of the next administration for improving the United State's image in the world. When blogger Mark Goldberg of the UN Foundation came to New America in the spring of 2008 soliciting ideas for policy proposals, I thought it was little more than a fun experiment in the use of new media to express opinions. I had no idea the Campaign would face the ideas off against each other in November, narrowing 81 selected ideas down to 9 for '09 (9 big ideas for the incoming president to consider upon taking office). Or that my idea to reform foreign assistance (to focus the allocation of funds more squarely on the social and economic empowerment of poor people) would win the Global Poverty category. Or that there would be a Round 2 to the contest in which the 9 for '09 would face off yet again.

I don't expect to win the contest -- my idea is up against some even more lofty and innovative competitors. On the other hand, that this idea - that funds should be more smartly allocated to providing opportunities for asset building and wealth creating empowerment for the poor, rather than wasted and corrupted on ineffectual top-down projects - has resonated with voters in this first place (and making a fair showing at that), should be utterly encouraging for those of us working to elevate asset-building microfinance and social policies around the globe.

Even in a world of economic uncertainty, there is a still a belief that given the right tools, the poor and traditionally disenfranchised can stake their own claim it the dream of a better future. The microcredit movement has helped shape this confidence in the power of individuals to lift themselves out of poverty. Yet, the tools people need to take ownership of their lives extend well beyond microcredit, including (but certainly not limited to) an identity that will allow them access to the formal economy; property rights so that they can take ownership in their land, home, or business; access to an array of financial services such as savings accounts allow them to save for future investments in education, a business or old age and insurance to further protect them from the vulnerability of any number of shocks, and; access to policies and programs that facilitate this process, such as child development accounts, conditional cash transfers, or other microfinance-plus initiatives.

Reforming the foreign assistance framework to redirect resources toward bottom-up programs is a fairly specific policy idea, yet it finds itself competing with much grander goals. In this final day of the contest, I thank voters for their encouraging show of interest in telling President Obama to break the wasteful status quo in development assistance spending and, instead, concentrate on something with potentially a much greater return on investment - the empowerment of people.