Financial Services

In Monday's New York Times, Paul Krugman raises the question whether the United States has gone overboard in promoting home ownership. Krugman points out not only that the bursting of the subprime bubble has also burst the homeownership bubble, but also that homeownership brings risks of excessive leverage (if prices go down some, an equity stake can be totally lost); "stickiness" (making it hard to move when jobs dry up); and the high expense of commuting (when families chase low house prices well beyond where the jobs are).

Krugman got much right, but before we throw homeownership overboard, it's worth pausing a minute to consider both the benefits of homeownership done right and what we need to do to make rental housing a reasonable alternative, both as shelter and as a way to build assets.

I want to flag today's global launch of the Commission on Legal Empowerment of the Poor's timely and important report, "Making the Law Work for Everyone." Co-chairs Madeleine Albright and Hernando de Soto briefly discussed the Commission's findings and this report this morning at a press conference at the United Nations as well as in their recent Time op-ed. As eloquently as they both discussed the foundations and findings of the report in a few short minutes, the full report is brilliant, powerful and well worth the read for anyone in the asset-building community.

 I've recently been thinking about the similarities between our national epidemics of obesity and financial illiteracy. Both are socio-cultural phenomena created through generations of misinformation, misunderstanding and perverse incentives.  Factors like (but not limited to) easy credit and encouraged consumerism without proper consumer disclosure and easy access to abundant, cheap astonishingly unhealthy foods has created a culture of overindulgence on so many levels. Both problems tend to fall disproportionately on poor, low and even some moderate-income households, which lack easy access to alternative options (like banks red-lining disadvantaged neighborhoods; public school cafeterias serving french fries most everyday yet not offering physical education classes). And both are believed to have huge social and economic costs that are now reaching epic proportions.  If similar forces are causing and/or driving these problems, then shouldn't efforts to tackle both childhood obesity and financial illiteracy also be similar?  Only recently has this become apparent to those fighting the battle of such rhetorical bulges.

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.

In a number of developing countries such as China, many consumers rely on "pay-as-you-go" cellphone plans where they "top-up" their accounts with more minutes when running low. Here's how it works: a consumer buys a plastic card from a street-side vendor in a particular denomination (i.e. the equivalent of $10 or $25). Then they scratch off a number on the back of the card and enter it into their cellphone. After, they hear confirmation that the funds have been added. Pretty simple.

So why not do something similar with mutual funds here in the United States? Consumers could buy what could be called "Mutual Fund Top-up Cards," scratch off a number on the back, and "top-up" their accounts via cellphone or Internet. After topping up their accounts, they would hear/view a message letting them know their new balance. Also, they would be able to check the value of their holdings at any time on their cellphone.