It is wonderful to see the economics profession playing a bit of catch up to some of the other social sciences but I like how the rise of this perspective has opened up a large number of policy questions. We now know that "choice architecture" matters (it is explained in the npr peice). People can be nudged along in a direction where they want to go but won't get their on their own. Increasing savings is a case in point. What we need to learn more about is how to construct the choices to get to the best outcomes. This part is easier said than done.
Recently, 529 college savings plans have come under criticism. Like many stakeholders in the economy, 529 plan owners have not been isolated from financial pain, and many critics have used recent market volatility and plan underperformance to call for reform. Others, however, have gone further and called for policymakers to abandon 529s in particular, and savings overall, as a plausible conduit to help families afford college. As New America's recently launched College Savings Initiative is charged with examining and improving 529 plans, we feel that it is important to respond to some of these arguments.
To their credit, many critics of these plans share our general goal -- to increase postsecondary access and affordability for low- and middle-income students. We simply differ over whether or not 529 plans provide a promising tool for helping students attend and complete college who could not otherwise afford to go.
Consider this: A recent Gallup survey from Sallie Mae indicates that, while 62% of parents are saving for college, only 32% of those making less than $35,000 have put any money aside for this purpose. Furthermore, half of those low-income families are saving even less (or in some cases not at all) in light of the recession. This is, quite obviously, cause for concern. But is encouraging savings -- and college savings plans as vehicles to do so -- really the answer? We believe so.
In this week’s Newsweek, Melinda French Gates—co-chair of the Bill and Melinda Gates Foundation—makes the case for access to saving instruments as an oft-overlooked element of global poverty reduction. Citing the microcredit boom as opening doors for the poor, she cautions:
But loans are not enough. Savings accounts could help people in the developing world weather unexpected events, accumulate money to invest in education, increase their productivity and income, and build their financial security.
Today the city of Los Angeles made its second attempt to bring under-banked and unbanked Angelenos to the financial mainstream. Two months after Mayor Villaraigosa launched Bank on LA, City Councilmember Richard Alarcón launched the Banking Development Districts (BDDs) Initiative. Los Angeles has recognized the need for placing affordable financial services at the hands of its people and is taking major steps toward eliminating dependency on fringe financial institutions.
While 1.5 million households are unbanked state-wide, Los Angeles has the third highest percentage of unbanked households nation-wide. For the Angelenos who do not have a simple checking or savings account, BBDs are a promising way to gain access to the appropriate financial services and products necessary to get connected to savings and asset building. Research shows that a full time worker conducting business with non-traditional financial institutions can pay tens of thousands of dollars in fees in a life time. This is a chunk of money large enough to start a small business, send a child to college, build a retirement or put a down-payment on a house.
In an interview with The Boston Globe, Darryl Collins, co-author of the much anticipated Portfolios of the Poor: How the World’s Poor Live on $2 a Day, made an interesting comment that I found myself nodding along with:
"People who do fieldwork have two views. They either think these households desperately need our help and they are just hopeless without us, or they think they are just geniuses. I think what dawned on me during this study was that you don't lose your personality just because you go down the financial chain. Some people just couldn't keep track of their money and some people did a brilliant job of keeping track of their money. Just like our circle of friends, you have some people who are organized and some people who are not."
I should give you the context, of course. Collins, along with her co-authors (Jonathan Morduch of the Financial Access Initiative; Stuart Rutherford, author of The Poor and their Money; and Orlanda Ruthven) set out to answer the question: How do the financially poor—those who live on $2 a day or less-- manage their money?
The answer that emerged turned out to be a lot more sophisticated and complex than anyone had imagined.
The House just passed the Senate's "tougher" version of Credit Card Legislation. The House and Senate leadership have fulfilled their promise to get the bill to President Obama's desk by Memorial Day. There are lots of guides floating around out there which summarize what this means for you. What it means for your season-opening barbeque on Sunday remains to be seen...
The vote on the final bill was 361-64. Not close. However, there was one interesting procedural note. The House chose to split out the Coburn gun amendment (Section 512 of the Senate bill) for a separate vote. This allowed Democrats to showcase their opposition to the proposal, but was a move without any actual impact--as Section 512 passed on a vote of 279-147.
The vote breakdowns are actually pretty interesting in and of themselves. On the legislation itself, 64 Republicans and one Democrat voted against the bill. The one Democrat was Rep. Stephanie Herseth Sandlin (D-SD-AL). There's that South Dakota again. On the Coburn amendment 145 Democrats and two Republicans voted against--Rep. Mike Castle (R-DE-AL) and Rep. Mark Kirk (R-IL-10). All politics is local, as they say...
For folks who are interested (and truth be told, almost everyone has an interest in this) the Senate just passed their version of the new credit card regulations bill. The final vote on the Senate bill, widely perceived to be tougher than the House bill, was 90-5.
I'll generally leave the analysis to folks with more expertise on the issue, the NYT is out of the box with a "Consumer's Guide" to the new law and I know some of our folks have lots to say on this topic. However, there are a couple of interesting and noteworthy items here:
First, the Senate bill includes the Coburn amendment on carrying guns in the National Park System. The House leadership appears to have decided they're going to swallow that even if they don't like it. They want to get a bill to Obama as quickly as possible and it looks like they don't think they can win a fight on the amendment anyway.
Second, while the Senate bill is seen as being "tougher" and pushing farther than the House bill, the real credit for this measure goes to Congresswoman Carolyn Maloney (D-NY-14) who organized and advocated and twisted arms to get this bill moving over the past several years. Not to take anything away from Senator Dodd, but it's Maloney who has been the bulldog on this for a long time now.
The third, and final, installment in our "Talking Tax Time" series is here for your enjoyment. In this episode, our own David Newville sits down with Cathie Mahon, Director of the Office of Financial Empowerment (OFE) in the New York City Mayor's office.
OFE has created a unique program called "$ave NYC" which is a matched-savings program targeted to low-income tax filers at tax time. If those tax filers deposit some of their refund into a CD-style account, and keep the money in the account for 12 months, OFE will provide a 50% match on those funds. "$ave NYC" is a real-life, working version of the Saver's Bonus proposal put forward by the Asset Building team.
In the clip, Cathie and David discuss the genesis of "$ave NYC," it's scalability, and the results from the early runs of the program. Cathie believes the program shows that low-income tax filers can and will save given the opportunity to do so and discusses some of the motivating factors for the participants.
Ben Miller of New America's Education Policy Program steps in as guest blogger on The Ladder to share his thoughts on the credit card legislation currently under consideration in the Senate and its effects on college students.
Congress is poised to strictly limit a form of debt that is aggressively marketed to college students, often with the assistance of institutions they attend, and that contains confusing terms and conditions and dangerously high interest rates.
This debt doesn't come with a promissory note, it's plastic.
At the end of April, the U.S. House of Representatives easily passed a bill known as the Credit Cardholders' Bill of Rights. If enacted, that measure would limit some of the most egregious credit card company practices, including marketing their products to underage students. The Senate is considering its own version of the legislation this week, and in many ways it is harder on the credit card companies that the House bill.
While we applaud these measures, we would like to see Congress go further and provide more sunshine on the lucrative arrangements some colleges and universities have forged with credit card companies that have enabled them to profit off of their students' indebtedness.
The House and Senate bills primarily focus on restricting some of the most notorious credit card billing practices, such as double billing, a way of calculating finance charges that hurts borrowers with fluctuating balances. Both bills would also take noteworthy steps to tackle the growing credit card debt burden being taken on by students.
Just how bad a problem is it? A report recently released by Sallie Mae found that 84 percent of students sampled had at least one credit card and that their average balance was $3,173. Sallie Mae's numbers are slightly higher than, but consistent with, figures published in a study last year by the U.S. Public Interest Research Group Education Fund, which found that 64 percent of its students surveyed had at least one credit card, with average balances ranging from $1,301 for freshmen to $2,623 for seniors.
This is shaping up to be "New Media Week" here on The Ladder. Alejandra unveiled the first video from our "Talking Tax Time" series on Monday and Jamie Zimmerman posted her podcast on conditional cash transfers today. Continuing in that vein, here is the second installment of our "Talking Tax Time" series. This video features our own Melissa Koide interviewing David Marzahl of the Center for Economic Progress about their work to promote free tax preparation for low-income filers and the appetite they see for safe, effective savings products that meet the needs of those hard-working folks. David highlights some incremental but important progress that CEP has seen in recent years and sees the potential of matched savings programs like the Saver's Bonus.
The video, below the jump, runs between five and six minutes: