Asset Building

Leila Seradj - 

As the Program Associate for both the larger Asset Building Program at the New America Foundation, and the Global Assets Project, which is a joint New America-Center for Social Development venture, I sometimes feel like I have a foot in two worlds.

I'll give you an example.  In a widely-circulated column last week, The Next Culture War, the New York Times' David Brooks asserts, in a nutshell, that it's time for a culture shift in America- a shift in the way we think about consumption.  He reviews the thrift-oriented nature of America's past, and laments the materialism that characterizes U.S. society today.  Brooks further highlights the misdirected nature of today's debate around morality and values- one that focuses too much on, say, prayer in school and theories of evolution, rather than taking on the economic values of a society that encourages excessive consumption.

Shweta Banerjee - 

This week's Economist has an interesting article on the recent trend of mixing philanthropy with innovative "impact investing".

 The Clinton Global Initiative launched the Global Impact Investing Network (GIIN), comprising of twenty members representing big banks (including Citigroup and Deutsche Bank), donors (Gates, Rockefeller), the Acumen Fund and Generation Investment Management (which is Al Gore's green company). If this group succeeds in agreeing on a common language for social investing and lobbying for helpful laws and regulations, impact investing could grow to $500 billion, which accounts for around 1% of the world's total assets under management in 2008.

 Social investment is not new in itself. But the success of ideas like microfinance, which combines do-good with profit, has inspired mainstream financial institutions and investors to become interested.

 For example, Social Finance, a social investment firm in Britain, has introduced the "social impact bond," where funds raised by bond purchases contribute toward organizations with social missions.  Social Finance plans to try out this bond for several public services like rehabilitating released prisoners and improving community health services.

Reid Cramer - 

I agree with today’s New York Times editorial which cautions against excessive celebration of the recently announced changes in overdraft policies at two of the nation’s largest banks. Yes, these policy changes, which among other things allow customers to turn off the ability to overdraw their accounts on debit cards, certainly moves things in the right direction. But there are miles to go.

It has always seemed to me that these fees were designed to create a new profit center for banks. Small overdrafts are be met with larger fees. Essentially, the bank is charging its customers for making a loan, but at really outrageous terms. Worse still, the terms of the loan are not disclosed until well after the ATM or point-of-sale transaction has occurred. An FDIC study found that someone who overdraws their account by $20 is charged a median overdraft fee of $27. This would incur an annual APR of 3250 percent if they repaid the loan in two weeks. Like I said, this is outrageous and there ought to be a law.

Mark Huelsman - 

This week, Sallie Mae and Gallup released "How America Saves for College", an annual report on higher education savings behaviors. The whole survey deserves a read, but here are a few highlights:

• Only 32% of low-income families (those making under $35,000 a year) have saved for college. By contrast, 62% of all families have saved for higher education.
• The current economy is impacting college savings behaviors.  For example, 36% of low-income families are saving less for college than before. Only 5% are saving more.
• Families making under $50,000 who are currently saving for college put away, on average, larger amounts than those making between $50,000 and $150,000.
• Families making under $50,000 annually save 7.5% of their income for college, on average. By comparison, the average college savings rate among all income levels is 3.6%.
• In order to reach estimated "savings goals," low-income families need to save nearly 10% of annual income until a child reaches college. On the other hand, families of all income levels only need to save 5.7% of annual income to reach their savings goals.
• 529 college savings plans are the third most popular savings vehicle for college - with one-third of all families using them.
• Only 4% of low-income families consider themselves "very familiar" with 529 college savings plans. A whopping 75% were "not at all familiar."

What are the key takeaways from this survey? And how can we apply these findings towards enlightened federal policy?

Leila Seradj - 

I subscribe to Charles Klingman's Unbanked News listserve, and, since I work with the Global Assets Project, one of today's emails naturally caught my eye.

It was about Monday's launch in Nairobi of the Alliance for Financial Inclusion, a coalition of financial policymakers and central banks from over 60 developing countries.

Its press release emphasizes that savings, investments, and building assets are a crucial instrument to raising national income and increasing financial stability.  Yet an estimated 2.5 billion people don't have access to savings accounts and other financial services.

Justin King - 

President Obama made a push for his proposed financial reforms today, giving a speech on Wall Street. The President didn't offer many new specifics today, but it's clear that the Consumer Financial Protection Agency will be a hot topic in weeks to come. In addition to last year's meltdown more than 100 million individuals in the U.S. are underbanked -- they can not access or choose not to use traditional bank accounts and financial services. Instead, they use alternative financial services, such as check cashing services, small dollar loans, and other nonbank services to meet their everyday financial needs. 

We expect Congress to debate this overhaul in the coming weeks, and we are hosting an event this Friday which will center on the CFPA and the challenges faced by those 100 million underbanked Americans. Peggy Twohig, the Director for Consumer Protection at the U.S. Treasury Department, will keynote the event with an address discussing the Obama Administration's proposed Consumer Financial Protection Agency. Bill Zavarello, from House Financial Services Committee Chairman Barney Frank's office, will also give us a bit of the Chairman's perspective.

The event is this Friday, September 18th, from 9:30 AM until 12:30 PM. To learn more and to RSVP, please click here.

David Newville - 

Earlier this week my colleague Rourke O'Brien and I had an op-ed on improving 529 college savings plans published in the Oregonian. In it, we argue that 529s are a promising saving vehicle for helping families of all incomes pay for college and get ahead, but they need to be reformed in order to work better particularly for low- and moderate-income families. The excerpt below describes some of the reforms we suggest: 

"Some of the changes they should recommend include the federal government or states providing direct incentives for low- and middle-income families to invest in college savings plans by matching a portion of annual deposits. Thirteen states already do this or something similar to it. The federal government could also provide tax incentives for employers to encourage them to enroll their employees in 529s for their children and match contributions, similar to what many do for retirement today with 401(k) plans."

The Treasury Department also released a report this week with additional recommendations for reforming 529s and an emphasis on making sure more low- and moderate-income families are able to benefit from this important savings vehicle. For more information on improving and expanding 529s or the College Savings Initiative, please go to www.collegesavingsinitiative.org. 

Hosai Ehsan - 

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.

Mark Huelsman - 

Yesterday, Vice President Biden took his Middle Class Task Force world tour to Syracuse University to discuss college access and affordability. The forum's all-star lineup also included Treasury Secretary Tim Geithner and Education Secretary Arne Duncan.

The event coincided with a report from the Treasury Department on the effectiveness of 529 college savings plans (full disclosure: New America, through the College Savings Initiative, is mentioned as a resource multiple times). You can read Treasury's observations and recommendations here.

More interesting however, was Secretary Geithner's full-throated support of saving broadly -- and saving for higher education in particular -- as a means to close achievement gaps and regain America's footing as a global education leader.

Alejandra Lopez... - 

 

In his Labor day radio address, President Obama announced that beginning in 2010, taxpayers will have the option to purchase a U.S. Savings Bond when filing their federal taxes. The decision to increase access to what is possibly the most secure and low-cost, savings product sends important signals.

The Administration is showing a commitment to promoting economic recovery and household stability through common-sense means and is willing to act on implementation-ready, low-cost, practical, and scale-able proposals. You can find the full text of the White House press release here.

Why this is good news - especially for small savers

Returning the U.S. Savings Bond purchase option to the tax form will make it easier for more than 100 million tax filers to purchase this U.S. security with funds from their federal tax refund when they file their taxes. This maximizes simplicity and minimizes the hassle for the taxpayer who wishes to save a portion of their refund.