Asset Building

President Obama used his Labor Day weekly address to herald the important role that savings plays in people's economic well-being and explain what his Administration is proposing to do about it.

Specifically, he focused on four "common sense" and low-cost proposals that will be pursued by the Department of Treasury and the IRS right now administratively and will augment some of his other savings policies already out forth in his budget proposals submitted to Congress. We previously described these proposals, such as the AutoIRA and improved Saver's Credit, here in our Assets Report 2009.

While I usually leave it over to our friends at Higher Ed Watch to discuss the latest hullabaloo in the world of student loans, something in today's Wall Street Journal stopped me on a dime. From WSJ:

New numbers from the U.S. Education Department show that federal student-loan disbursements-the total amount borrowed by students and received by schools-in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion.

Gulp. For many families, financing higher education without piling on too much debt was already a steep proposition. Like everything else post-financial crisis, it's gotten even more difficult. Job losses, home equity losses, market swings, stagnation in federal aid, state budget strains, and tuition increases have resulted in increasing uncertainty and hopelessness over household budgets, and a dramatic spike in the amount of money students are borrowing for college. Much can be blamed on the economic mire in which we find ourselves. But the point remains: many students and families are taking on unsustainable levels of debt, and it's affecting important life decisions. And in turn, it's affecting our ability to jumpstart the economy.

Before a long Labor Day weekend of despair sets in, however, this author offers hope to drink in: There are ways for Congress, the Obama Administration, States, and the financial industry to collaborate and give families a way to escape crushing levels of debt. The tonic? Targeted and meaningful savings incentives.

A quick note on an interesting article in this week's Time: Barbara Kiviat writes about the emergence in the field of microfinance for the need for a safe place to save and deposit money, which is something that we at the Global Assets Project have been talking about for a while.

While microcredit was at the root of the microfinance movement's beginnings, what's becoming clear is that those who take out small loans also desire a place to deposit and save their money.  Indonesia's Bank Rakyat, she notes, has ten savers for every one borrower, and their borrowers use the loans for household needs about 30% of the time.  And they save in the form of assets (such as livestock and jewelry), requiring them to pay a fee to pawn those assets in times of need.

When the official poverty numbers are released on September 10th, it is possible that more Americans will be counted as poor than at any time since the early 1960s. The Census Bureau will certainly report that poverty is on the rise. But these figures will not tell the whole story. The economic crisis has increasingly made poverty a realistic worry for many of those who thought they were safely outside its grasp. Many more families will be confronting the combination of job loss, rising debt, and economic insecurity.
 
One of the challenges of the fight against poverty is to identify a set of effective policies suitable for both good times and bad. Now more than ever we need access to resources that help people move up the economic ladder and into the financial mainstream. From a policy standpoint, we may be in better shape than it seems. Even as poverty has been largely off the political agenda in recent years, it has been a time of quiet experimentation and fresh thinking.
 
The September issue of The American Prospect features a Special Report on Poverty. The Asset Building Program is pleased to host a discussion of this report, featuring Mark Schmitt, Editor of TAP. Please join us on September 8th for a discussion of this Special Report. To learn more, and to RSVP, please click here.

By Jackie Williams, College Savings Initiative

The state of Illinois recently passed a bill, SB 77, creating a state income tax credit for employers making matching contributions to their employees' 529 college prepaid and savings accounts.  The credit is a 25% match of the employee contribution, not to exceed $500 per employee. The provision is effective for the current tax year and runs through December of 2020.

This is an important step forward to involve employers in helping employees save for their children's or even their own higher education expenses.  Most of us don't learn about saving and investing until we begin fulltime employment.  This is typically when we begin contributing to 401K accounts.  So why not encourage greater savings discipline for college at the same time employees are investing for retirement?

Employers have the capacity to encourage better academic participation by making it easier for employees to contribute to savings plans.  Offering payroll deduction and providing financial support in the form of matching contributions are two important ways that employers can support their workers. The workplace is often an important classroom for learning about saving and investing.

Last week the New York Times' City Room Blog posted a piece on the $aveNYC matched savings program. This was in response to a report on the program that was recently released by New York City's Office of Financial Empowerment, which runs $aveNYC. The program encourages low-income New Yorkers to save part of their tax refunds. Every dollar that they save in a $aveNYC account is matched at 50 percent up to a total of $250 in matching funds. The account is a certificate of deposit through a participating financial institution and participants receive the match money after one year if they do not withdraw any of the initial deposit.

The purpose of the program is to help low-income households build some savings for short-term goals or emergencies. These households are more likely to experience unanticipated expenses or drops in income and need some emergency funding to draw on. However, many of these households now rely on high cost alternatives to savings for this funding, such as credit cards and payday loans. That's where $aveNYC comes in.

Michael Gerson and Peter Wehner, former advisors to President George W. Bush, have penned an article for Commentary Magazine entitled "The Path to Republican Revival." The piece, currently available online as a special preview of September's print edition, describes the recent political troubles of the GOP and offers up principles for the revitalization of the GOP electoral brand--including an endorsement of an ASPIRE Act-like proposal.

Gerson and Wehner believe that the first step back towards a GOP majority is a series of missteps by President Obama and the Democrats:

Obama's overreach has created a measure of opportunity for Republicans. The question is whether that opportunity will be grasped. Can Republicans overcome their manifest problems and succeed in preparing themselves for a restoration of public trust, and can they do so not only by appealing to new groups but also by offering compelling answers to pressing public needs?

Their GOP platform includes strong national defense, and a host of areas in need of reform--tax structure, budget, financial regulatory and tort systems, as well as continuing education reforms. Gerson and Wehner single out economic growth and asset building efforts for special consideration:

Oh no, another bubble. With apologies to Daniel Gross, I'm not very excited about this one. We've been paying a lot of attention to the personal saving rate (PSR) lately as the measure has rebounded from historic lows.  It's an important measure, widely available and frequently reported. It also has told a story that has fit well within a lot of narrative structures that we're prone to embrace--stories about a return to thrift, and a growing awareness of the benefits of living sensibly within your means and making productive investments in the future for both the individual and society.

Now along come Amanda Logan and Christian Weller from the Center for American Progress with a timely piece about recent trends in the PSR. Here's the upshot: 

The most recent data available from the Bureau of Economic Analysis show that the personal saving rate has climbed by 3.7 percentage points since the recession began, from 1.5 percent in fourth quarter of 2007 to 5.2 percent in the second quarter of 2009-a relative increase of almost 350 percent (see Table 1).

The recipients for this year Medal of Freedom have been announced and include Nobel prize winner, Muhammed Yunus. When Yunus (then the chair of the rural economics program at the University of Chittagong) launched the Grameen Bank as a pilot research project in 1976 in a post-war Bangladesh, his motive was to extend credit and foster micro-entrepreneurship amongst the poorest that were largely ignored by the formal Banking sector. Since then, Grameen has become synonymous with micro-credit and has inspired, along with other pioneers such as SEWA and ACCION, many other lenders to mushroom across the world. However, its own evolution as an organization reflects advancements in the microfinance field as a whole, which is increasingly shifting its focus from credit to savings.

Yesterday’s New York Times ran an op-ed by NYU Sociologist Dalton Conley which focused on ideas to repair the housing market. He argues against the notion put forth by some that it was low-income borrowers that triggered the crisis by getting loans they could not afford. But this claim is both wrong-headed and objectionable, especially considering that the entire economy was over-leveraged and we learn more everyday how these families were steered into inferior and costlier mortgage products. Beyond the pointlessness in assigning blame to the most powerless group, Conley argues that this may be precisely the right time to set lower-income families on the path toward responsible homeownership. Home prices are down which means affordability is up.