Rourke O'Brien: All Publications, Events and Press

Advancing Economic Mobility Through Savings

Kirsten Gilbert — Thu, 19 Nov 2009 14:00:00 -0500

A New America Event
11/19/2009 - 1:00pm

"This is going to be a different recovery than the past, because Americans are going to have to save more." -Tim Geithner, US Secretary of the Treasury Saving is a key to economic mobility as well as economic recovery. Despite the critical importance of savings, most Americans, especially those with low incomes, are not saving enough. Federal policy encourages saving for the wealthy, but for low-income Americans saving is often discouraged and the path to self-sufficiency is made more difficult.

529s and Public Assistance

Asset Building — Tue, 10 Nov 2009 16:10:00 -0500

529s are tax-advantaged accounts designed to help families save for post-secondary education. In recent years, state policymakers and 529 administrators have worked to expand access to 529 plans and increase the participation of lower-income families through outreach, advertising, and targeted incentives such as matching deposits and reducing or eliminating fees.[1] Yet, as plan administrators and state and federal policymakers design new strategies for expanding the use of 529 plans

After Oppenheimer: Improving College Savings Plans

Erin Drankoski — Tue, 08 Sep 2009 11:19:00 -0400

After their children's college savings accounts lost 38 percent of their value last year, some Illinois parents might be seeing some justice soon. The Illinois Treasurer's office recently reached a tentative deal with Oppenheimer funds to recover $77 million of the $85 million in losses.

Self-Sufficiency Stalled

Cecille Isidro — Sat, 13 Jun 2009 07:57:00 -0400

Given the demonstrated link between transportation and employment, wouldn’t it be counterproductive to force families to surrender or downgrade their car in order to be eligible for assistance?

This recession marks the first time since welfare reform that policymakers are revisiting the social safety net.

Yet when thousands of families are struggling to find and keep employment, some on Beacon Hill threatened to cut the one tool proven effective in moving families from welfare to work: a car.

Five Low-Cost Federal Policy Ideas to Help Families Save for College

Asset Building — Wed, 29 Apr 2009 10:10:00 -0400

The Potential of 529 College Savings Plans

At a time when low-income students are underrepresented in higher education and the cost of attendance is becoming increasingly unaffordable, 529s have the potential to address issues of college readiness, access and completion. College savings can help make higher education more affordable, and have the potential to change aspirations and behaviors of both students and their parents. Research from the asset building field has shown that even a relatively

Dixieland Blues

Cecille Isidro — Wed, 15 Apr 2009 11:37:00 -0400

Governors across the country are clamoring for a piece of the stimulus, eager to avoid laying off state employees, hoping to put their unemployed citizens back to work and trying to avoid widespread furloughs as budgets bleed red ink. They know that their citizens want to keep libraries open, teachers in the classroom, cops on the beat and firefighters ready to protect people and property.

End the War on Savings

Cecille Isidro — Thu, 12 Feb 2009 09:58:00 -0500

Finland recently launched a war -- on household savings. The campaign warns Finns to lay off the piggy bank, pleading: "Don't feed the recession." The rhetoric there is quite similar to reports we've seen here from economists and Wall Street forecasters nervous at signs that U.S. consumers are starting to save.

In D.C., Opening Doors Even in Tough Times

Cecille Isidro — Sun, 11 Jan 2009 11:27:00 -0500

As foreclosure rates continue to reach record highs here in the Washington region and across the country and the global economy reels, many Americans have begun to question whether expanding homeownership is a wise strategy. While there is plenty of blame to go around for this mess, the goal of expanding homeownership is still an important one and should not be sacrificed.

Asset Building Report in the Washington Independent | 'Shop Till We Drop — or Save?'

Cecille Isidro — Fri, 17 Oct 2008 11:46:00 -0400

In a policy paper issued last month by the New America Foundation, researchers Reid Cramer, Rourke O’Brien and Alejandra Lopez-Fernandini summarize the trend: “Millions of low-income Americans,” they wrote, “are hearing two conflicting messages from their government: Save and Don’t Save.” LINK

How to Encourage Families to Save for College

Cecille Isidro — Thu, 25 Sep 2008 06:31:00 -0400

This month, as parents of college-age students sign promissory notes for student loans and watch tuition checks diminish their bank accounts, Congress is encouraging all parents to wake up and start planning. While National College Savings Month -- meant to spread awareness about the need to save for higher education -- has a laudable goal, promoting the importance of saving won't do much to help struggling families afford the cost of higher education.

The Assets Agenda

Asset Building — Wed, 03 Sep 2008 07:25:00 -0400

The current economic downturn, triggered in part by excessive household debt and deflating housing prices, underscores the central role asset ownership plays in the economic security of American families and the broader economy. Broad asset ownership, whether through savings or investment, has the potential to connect economic opportunity with economic security and ensure that every member of society is afforded a real stake in the commonwealth. Assets are important not only because they can be deployed productively or tapped to help individuals and families weather unexpected events, but because they have behavioral effects that can change the manner in which people think about and plan for the future.

Past efforts to democratize access to property, capital, and credit have had positive effects. Yet the most notable feature of our current policy paradigm is how many it excludes. Through targeted tax breaks, affluent families are given many options to acquire assets, while those with fewer resources are offered less attractive ways to build wealth. The poorest families among us are given limited access to income supports and social services. This approach misses the potential of assets to help chart a path out of poverty. If we are to successfully broaden savings and assets ownership, our policy efforts must be expanded, strengthened, and directed toward those with the greatest need.

The purpose of this report is to outline a federal public policy agenda to broaden savings and asset ownership opportunities for lower-income Americans who have limited resources at their disposal. In developing our thinking on the subject, we have drawn on the research and expert analysis of many others in the field. The agenda we present here includes calls for new structures and policies at the federal level, as well as changes to existing tax systems, government programs, and financial products. Some of these policies are well developed, others need more seasoning, but all of them have the potential to contribute to the economic well-being of millions of American families.

This edition of New America's Assets Agenda is the most comprehensive to date, with 84 innovative asset-building ideas. Following the introduction, it is organized in 13 sections, each beginning with a brief synopsis of a problem, followed by specific policy proposals.

Paying City Students Is a Wise Investment

Ron Tang — Fri, 27 Jun 2008 04:59:00 -0400

Summer has arrived in Baltimore, and so has summer school -- bringing with it a chance for students who improve on their High School Assessment exams to pocket something more than academic success. A few months ago, Baltimore schools CEO Andres Alonso unveiled a controversial proposal to improve city schools: Pay students to perform. It's a simple idea that has generated quite a bit of controversy from purists who cringe at the thought of paying students to learn and from realists who believe there simply must be a more effective way to spend $1 million in a failing school system.

Yet despite moral and practical objections, this approach does have a record of success abroad. What's more, there may be a way to tweak Mr. Alonso's plan so that it reinforces -- rather than undermines -- the value of learning and enables the city to earn a greater return on its investment.

Paying people to do what they should be doing, such as working hard in school, may seem like absurd policy, but this approach is proving to be an effective tool for fighting poverty in the developing world. "Conditional cash transfer" programs, as they are known in the international development community, have increased health and education outcomes for impoverished families around the globe, from Brazil and Argentina to Mozambique, Cambodia and Pakistan. Perhaps the best-known such program, Mexico's Progresa, pays parents cash in return for forfeiting the wages their child could earn and instead keeping him in school. Not surprisingly, children of families enrolled in Progresa are much more likely to stay in school and acquire the skills they need for the high-wage jobs that can lift an entire family out of poverty.

Progresa's success inspired New York Mayor Michael R. Bloomberg to implement the first conditional cash transfer program in this country. Launched last year, Mr. Bloomberg's Opportunity NYC is a privately funded demonstration project that offers cash payments to low-income workers who meet certain benchmarks, such as opening a bank account or meeting with teachers to discuss a report card. Early feedback from the program suggests that these transfers aren't simply a cash bonus; for many, they serve to replace the wages lost when a parent leaves work to meet with his or her child's teacher.

Mr. Alonso's proposal to pay students to perform draws ire from those who believe our instant-gratification culture has infiltrated every corner of society; no longer are students compelled to learn for learning's sake, or to achieve in the hope of securing a better future. The critique that these payments for passing send the wrong message to students is a fair one -- and potent enough for Baltimore to reconsider how it structures and frames this program.

To start, the city should split the payment: Hand one part directly to the student and deposit the rest into a restricted savings account that can be used only to pay for higher education or skills training. The straight payment would give the city the instant results it seeks, while directing the savings to an account in the child's name would reinforce the expectation that passing the state assessment test is just one step in the journey to achieving a postsecondary credential and, with it, a better life. As a bonus, this plan helps provide these students -- those who work hard to achieve -- the financial boost they need to continue their education.

The program is thus transformed from a bribe for kids to past tests to a vehicle for students to chart a path to higher education through building academic skills and earning their college scholarship.

What's more, this structure could be replicated well beyond Baltimore by utilizing a restricted account system that already exists. Maryland, like every state, offers 529 college savings plans, tax-advantaged accounts for families to save for higher education. Unfortunately, low- and moderate-income families are less likely to take advantage of these accounts than their wealthier peers, which has prompted many states to offer incentives such as matching contributions to attract more low-income savers. Maryland could take a slightly different approach: Instead of, or in addition to, matching contributions made by low-income families, the state could make a deposit into a student's 529 when the student successfully graduates from elementary school, after he or she maintains grade-level proficiency in middle school, and once the student passes state assessment tests in high school.

This conditional cash transfer model would meet three goals at once: setting an expectation for achievement, rewarding hard work and providing low-income families with a financial path to affording higher education.

Wheels Versus Welfare

Ron Tang — Thu, 19 Jun 2008 02:36:00 -0400

With falling home prices, rising food and fuel costs and an unemployment rate well above the national average, the current economic downturn may push already vulnerable California families to the brink of financial destitution. Thousands of people may turn to welfare for support in the coming months. That's OK -- that's the purpose of temporary assistance. It's not as if this is the money-for-nothing welfare of the early 1990s; these folks are required to start looking for work the second they land on the rolls. Yet to qualify for assistance, many families may be forced to give up the most effective tool they have in the fight against poverty and unemployment: their car.

To be eligible for temporary cash assistance -- known as CalWORKS in California -- families must prove that they are both income and asset poor. To qualify for assistance, a single parent with two children, for example, can't earn more than about $12,000 a year or have more than $2,000 in other resources. In addition, the total fair-market value of all vehicles owned by a household cannot exceed $4,650 -- a figure that hasn't changed in more than a decade. In real terms, that means even a 10-year-old Honda Civic with 100,000 miles could disqualify a family from public assistance.

California is one of three states with such a restrictive vehicle limit -- Texas and Idaho are the others. Nationally, 12 states exclude all household vehicles when determining a family's eligibility for cash assistance; another 15 exclude at least one vehicle. Most other states exclude about $10,000 of the net or equity value of the vehicle; California's $4,650 limit counts the car's fair market value. This means that families may be deemed ineligible even if they still owe $5,500 on their $6,000 car.

The connection between car ownership and employment is clear. It's not very surprising that having a reliable automobile reduces absences from work and helps give workers access to a wider range of jobs and better-paying ones. This is especially true in a region as spread out as Southern California. A 2000 report by the County of Los Angeles -- the most recent data available -- found that 64% of welfare-to-work job seekers who had unlimited access to a car were gainfully employed, compared with only 44% of those who relied on public transit or ride-sharing. Another study -- of welfare recipients in Tennessee -- found that having a car leads to better-paying jobs, more hours worked and an increased probability of leaving welfare.

With the relationship between car ownership and employment so clearly documented, California should be working hard to provide low-income families access to a reliable car. And, in some areas, they do get help. Sacramento County, for example, is authorized to purchase 50 vehicles a year for county welfare recipients who lack access to public transit. If we're helping some families buy a car, wouldn't it make sense, then, to let people who have cars keep them?

And instead of investigating someone who owns a 10-year-old Honda, shouldn't district attorneys and others be concentrating their time and resources going after more costly types of fraud, such as identity theft? And shouldn't caseworkers spend more time connecting a family to vital social services than verifying the worth of its 2002 Toyota Corolla?

The County Welfare Directors Assn. thinks so, and that's why it's supporting AB 2368, a bill championed by Assemblyman Felipe Fuentes (D-Sylmar) -- and sponsored by the New America Foundation -- that would exclude household vehicles from consideration when determining eligibility for CalWORKS. The Assembly passed the bill and has sent it to the state Senate.

The reasoning is sound: Individuals with cars will be more likely to find a job, stay employed and move to self-sufficiency, the goal of California's welfare program. This reform will also increase efficiency by reducing paperwork and staff hours spent tracking down the value of vehicles, which the Assembly Appropriations Committee estimates would save the state more than $3 million a year.

It's about time California's welfare system catches up to the common-sense policies of states such as Kentucky, Alabama and Louisiana.

Golden Dream Accounts

Asset Building — Wed, 14 May 2008 11:11:00 -0400

As the percentage of workers covered by traditional employer pension plans has plummeted in recent years, saving has become the only path to secure retirement income beyond social security. Although a significant proportion of employers now offer their workers a tax advantaged retirement savings product like the 401(k), tens of millions of workers nationwide simply do not have access to an employer sponsored retirement savings plan. In addition, individual retirement accounts (IRAs) and other retirement products offered by private financial institutions have failed to fill the gap in employer coverage, in part due to the high fees and complexity associated with these accounts. The time has come for government to play a role in expanding access to low-cost, high quality, retirement savings account.

This issue brief describes the conceptual framework for Golden Dream Accounts, a proposal to provide a voluntary, portable retirement account for California private sector workers who do not have access to a work-based retirement savings plan.

In summary, Golden Dream Accounts calls for the state of California, either on its own or in cooperation with one or more private financial institutions, to offer some combination of:

A low-cost Individual Retirement Account (IRA) that can be opened directly by workers;
A payroll deduction IRA, likely offered through employers, that allows employee contributions to be automatically deducted and deposited into the Golden Dream IRA; and
A SIMPLE IRA, offered through employers, with similar features to the account above, but offered as a SIMPLE IRA, enabling employers to contribute directly to the account.

For the full text of the issue brief, please see the PDF attached below.

The Assets Report 2008

Asset Building — Wed, 12 Mar 2008 01:03:00 -0400

The purpose of this annual report is to summarize and take stock of the current state of federal policy through an asset-building lens, especially as it affects the asset base of families with lower incomes and fewer resources, which is the focus of our work. The report is divided into three sections. The first is a review of policy developments from the past year related to asset building, highlighting administration action and significant legislation, including assets-related bills introduced in the first year of the 110th Congress; the second is an examination of the President’s budget proposals for Fiscal Year 2009 from an assets perspective; and the third is a forecast of the assets policy issues that may be considered in Congress during the year or two ahead. A companion report, The 2008 Assets Agenda, to be released in April will offer a detailed description of a range of policy proposals to broaden savings and asset ownership.

Below are the highlights of the report:

2007 Review

The Administration responded to the housing crisis by creating the HOPE NOW alliance to conduct aggressive outreach to homeowners at risk of delinquency and foreclosure.
FHASecure was launched as a refinancing option for homeowners with non-FHA adjustable rate mortgages in response to the housing crisis.
The IRS began allowing taxpayers to directly deposit their tax refunds among a maximum three accounts, a change expected to facilitate savings by simplifying the process of making deposits.
The Senate introduced the New Saver’s Act, a set of 14 low-cost proposals to increase savings, especially by lower-income Americans.
The House of Representatives reintroduced the ASPIRE Act, to establish universal children’s savings accounts, opened automatically at birth.
The Freedom to Save Act, the first sweeping proposal to reform asset limits in major public assistance programs was introduced by Representative John Conyers (D-MI).
Proposals to reform the asset limit in the Food Stamp Program were included in both the House and Senate versions of the Farm Bill.
The College Cost Reduction and Access Act was passed, changing the way some Section 529 accounts are treated in financial aid calculations.
Presidential candidates in both parties highlighted savings policies as part of their economic policy platforms.

President’s Budget Proposals FY 2009

The budget includes over $407 billion in tax expenditures related to asset building, which will overwhelmingly accrue to middle- and upper-income households, according to the Joint Committee on Taxation.
Consolidation of tax-preferred savings accounts is proposed which would create a system of Retirement Savings Accounts, Lifetime Savings Accounts, and Employer Retirement Savings Accounts.
The President makes his second consecutive proposal to extend “Saver’s Credit” eligibility to deposits made in Section 529 College Savings Plans.
The Community Development Financial Institutions (CDFI) is again slated for a drastic funding reduction, including the outright elimination of funding for Native Initiatives.

2008 Preview: What’s on the Agenda in Congress This Year

The stimulus package, passed by Congress in January and signed into law by the President, will deliver $110 billion in tax rebates beginning in May.
The potential onset of a recession may trigger additional calls for a policy response, which could include a focus on savings incentives and financial education. Though passage of specific savings legislation is unlikely, savings proposals are expected to generate interest and attention.
Further examination of issues that created the housing crisis may lead to legislative and regulatory changes in the mortgage market and more broadly to the provision of financial services.
Deteriorating economic conditions may lead to a second stimulus bill, creating opportunities to consider additional policies designed to encourage savings and financial stability.

For the full text of the assets report, please see the PDF attached below.

Saving Promises

Asset Building — Wed, 19 Dec 2007 10:14:00 -0500

For the first time since 1952, the absence of incumbents vying for the nomination of each major party has created a wide open race, one where the stakes are remarkably high. This has contributed to an extended campaign process that will last almost two years by the time the presidential election is held in November of 2008. While some lament the length of this campaign cycle, it has generated a great deal of activity in the policy arena as each candidate has sought to articulate their vision for America’s future and proposed policies that will help take us there.

In the field of savings and assets building, many insightful proposals have been made that are worth highlighting. Some of these proposals address issues of economic security, others focus directly on savings and access to financial services, and another set offer policies to promote homeownership and asset protection. This document represents our attempt to capture the major proposals and statements related to saving and asset building from the 2008 presidential campaign.

This paper will review and describe the set of proposals that have emerged from the candidates for president in both parties. These proposals have been presented by the candidates and campaigns in a variety of formats and in various degrees of detail. Some are included in detailed plans and policy briefs, others are outlined more generally on campaign websites, and others have been presented more rhetorically in speeches or on the campaign trail.

The full document can be downloaded below in PDF form.

Rourke O'Brien in the New York Post on Opportunity NYC

Communications — Tue, 18 Dec 2007 15:08:00 -0500

More than 1,400 families have collected $740,000 in the first payout from the city's daring two-year experiment that rewards the poor with hard cash for doing good, officials said yesterday.

Another 919 families who enrolled in the "conditional cash transfer" program did not qualify by the first cutoff date, Nov. 15.

But city officials called the initial results of Opportunity NYC a success, noting that the first-in-the-nation initiative had been launched within months of being proposed and is now fully operational. ...

Rourke O'Brien, an asset-building analyst at the New America Foundation, said the complexity of the undertaking made the city's achievement thus far "really impressive."

He said it was especially important that poor people now had access to regular financial services through mandated bank accounts rather than "walking to the check casher down the street." ...

For the complete article, please follow this link.

Technology is Helping Firms Reach Unbanked

Cecille Isidro — Fri, 16 Nov 2007 11:24:00 -0500

Over a dozen financial institutions have applied to be the issuer of the Treasury Department's Direct Express electronic bank accounts for depositing Social Security and other federal benefits.

The Treasury touts the product as a safer, easier, and more convenient way to receive and access monthly benefits. In part, this is a strategy by the federal government to lower expenses for taxpayers by saving on the issuance of benefit checks. Compared with the 89 cents for sending a check each month, electronic deposits cost a mere 9 cents a transaction — a savings of up to $125 million a year.

But beside the obvious administrative benefits, this strategy signals there is real government interest in delivering a low-cost, high-value financial product to the elderly and other Americans of modest means.

The federal government is not the only one interested in facilitating the delivery of reasonably priced financial products and services. Mayor Michael Bloomberg's campaign to fight poverty in New York has led to the design of new policy, programs, and even products for this population.

The inaugural step for participants in the mayor's program is establishing a formal connection with the mainstream financial services industry by opening a basic Opportunity New York account. This new product, the result of a unique public-private collaboration, is emblematic of a reinvigorated campaign to bank the unbanked.

It is telling that more than half of Opportunity New York families are unbanked or underbanked. For a myriad of reasons, families across the country are using alternative financial institutions to conduct routine transactions. And it's not cheap. Estimates suggest that as many as 40 million households nationwide are spending significant amounts of their income on things like cashing checks, making payments to others, and changing their paychecks and cash into money orders to pay rent and other bills.

Low-income households use alternative providers because their products and services meet their needs: access to cash; tools to pay bills and send money to friends and family; and small loans to cover emergency expenses. Moreover, depending on the product, the cost actually can be lower than conducting the same transaction at a bank.

A checking account may be advertised as "free," but with an average fee of $34 for bouncing a single check and New York check-cashing fees capped at 1.7%, using a check casher may well be a cheaper alternative than a bank.

However, with new technologies, product designs, and insights into underbanked consumers' demand, banks and credit unions can provide competitive products and services to this population at a lower cost and with more protections.

This demographic represents real profit potential for financial service providers who make an effort to design products these consumers need.

Across the country, city leaders have partnered with the industry to create initiatives such as Bank on San Francisco, an effort to bank the underbanked that couples targeted outreach with redesigned products.

Our research has provided the basis for bipartisan legislative proposals that would get people banked and spur new savings. The New Savers Act, which was introduced in August by Senators Hillary Rodham Clinton and Gordon Smith, would provide low-cost accounts to those without them. What's more, it would create an innovation fund for the industry to explore new products and strategies to meet the needs of lower-income families.

A growing number of bipartisan proposals call for the establishment of children's savings accounts to ensure the next generation is banked from birth. And getting individuals banked early can have a number of positive effects. Account ownership is one of the better ways to learn how to manage finances. Our newly released research shows that account ownership, when combined with financial education, leads to more frequent and wiser use of financial products.

We are developing a proposal that would connect underbanked consumers with accounts for transactions and savings at tax time. We propose leveraging tax refund dollars in combination with a pooled account structure to generate sufficient volume to entice financial institutions to deliver a transaction and savings account at tax time.

Filers with adjusted gross incomes of $30,000 or less are refunded $80 billion each year, according to 2005 IRS data. The accounts would be structured so that holders would receive their refunds on their account and reload them throughout the year with wages and salary. The account, accessible with a network-branded card, could be used for point of sale transactions, to access cash, to make online purchases and pay bills, and possibly to make remittances and secure money orders. It also would contain a savings component, which could help to meet short-term emergency expenses. We're calling it the ATA, short for Assets and Transaction Account.

Demonstration projects have proven the poor can and will save. Technology has cut transaction costs, and new products are beginning to emerge. It's time for the financial industry, with a boost from government, to develop products and services that meet underbanked consumers' needs at a reasonable price and yield fair returns for the industry.

Let the Poor Save for Their Future

Cecille Isidro — Fri, 07 Sep 2007 12:23:00 -0400

In 1990, newspapers around the country profiled the story of Grace Capetillo, a welfare mom from Milwaukee who, after managing to save $3,000 in the bank, was hauled into court by the county Department of Social Services and charged with fraud. Having breached the limit on allowable assets, Ms. Capetillo was found guilty and ordered to pay a fine of $1,000, spend down another $1,000 of the money she had worked hard to save, and promise not to save again if she wanted to stay on assistance.

The country was rightfully outraged; the system was clearly broken. Yet today, 17 years later and a decade since welfare reform, asset limits continue to send mixed messages to the poor.

Last month on Capitol Hill, Rep. John Conyers (D) of Michigan introduced a bill that aims to reverse decades of this self-defeating policy toward the poor. In order to qualify for government assistance, from cash welfare and food stamps to disability income, low-income families must demonstrate they are not only income-poor but asset-poor as well.

These rules were understandably designed to preserve assistance for those truly in need. Yet, while policymakers created an asset test to keep hypothetical, unemployed trust fund brats from collecting government checks, these rules are sending a dangerous message to low-income families: Do not save.

Mr. Conyers’s proposal calls for a major reform in eligibility policy across public assistance programs, recommending aggressive liberalization or outright elimination of asset tests, depending on the program. While such a bill may prove too costly, Conyers is to be praised for shedding light on this tragic contradiction in American social policy: Income support programs designed to help families achieve economic self-sufficiency are penalizing those who save.

The climb out of poverty is fraught with unpredictable and expensive complications such as an illness, temporary unemployment, or divorce that can act as a riptide, dragging a working family back to government assistance. One of the proven ways to weather these income shocks is to develop a safety net of savings. But under today’s rules, in order to remain eligible for vital government assistance -- assistance understood to be crucial on the path to economic independence -- families aren’t permitted to save much at all.

While most would agree with the need for policies to protect income-support programs from fraud, existing asset limits are either far too restrictive or, in some cases, entirely unnecessary.

Take welfare. The program that gives temporary assistance to needy families requires all recipients to engage in 30 to 40 hours of "work activities" every week, meet stringent income requirements, and be subject to strict time limits. Coupled with the stigma associated with welfare, it’s no wonder that asset limits have become entirely unnecessary in preventing fraud (only 0.5 percent of applicants a year were denied assistance due to the asset limit in Virginia). In 1996, welfare was redesigned to be truly an option of last resort -- and in that respect it has overwhelmingly succeeded.

Any money that families might have saved in low-wage jobs must be spent before applying for government assistance. One young woman I met while interviewing recipients at a welfare office in Maryland laid bare her understanding of the relationship between saving and public benefits: "I definitely don’t think you can have any money in a bank account and still get assistance."

While Maryland permits families to hold up to $2,000 in liquid assets and still qualify for assistance, this woman believes the existence of an asset limit -- and the caseworker’s duty to investigate financial holdings -- sends a clear message that saving will be penalized.

The campaign for reform is gaining momentum. President Bush has recognized the disincentive to save that exists in the food-stamp program and has proposed excluding retirement accounts from the asset test. Sen. Saxby Chambliss (R) of Georgia has gone a step further in proposing to exclude education savings accounts and index the limit to inflation.

States across the country -- from Virginia to California -- are using what flexibility they have in administering government programs to raise or eliminate the asset test for low-income families. Unfortunately, state policymakers are limited in what they can do, and few legislators at any level are even aware such a problem exists.

This new legislation signals that awareness is growing -- the opportunity for reform is now. If we truly want low-income families to achieve self-sufficiency, we need to give them the tools, education, and incentives to save for the future -- not penalize those who try.

A version of this article also appeared in The Baltimore Sun.

Restoring the Value of Saving

Cecille Isidro — Tue, 04 Sep 2007 08:09:00 -0400

The value of saving is finally making a comeback. After years of over consumption and accelerating debt -- and more than two years with a negative personal savings rate -- Americans are finally beginning to fret over their empty coffers and negative balance sheets. As headlines profile subprime borrowers going into default around the country, the average American’s sense of economic security has jumped from unease to panic. As policymakers scramble to develop new policies to bolster working families, echoes calling for the return of the American value of thrift are beginning to grow louder.

Any middle class American will tell you that it is increasingly difficult to afford a middle-class lifestyle on a middle-class income. Tuition at four-year institutions -- in 2005, averaging $11,441 a year -- amounts to 25% of median income; in 1990, a year of higher education cost just 16% of annual household income. Increase in the median home price has also outpaced income growth. Throughout the 1980s and 1990s the cost of a new home was 3.8 to 4.2 times greater than the median household income; today a new home is 5.1 times greater than median household earnings. The accelerating costs of higher education and homeownership -- both hallmarks of the middle-class lifestyle and trophies of the American Dream -- have made these goods largely unattainable to those who rely solely on income to advance.

Americans are quickly beginning to realize they’ll need more than just stable wages to get ahead in the new economy. And with foreclosure rates skyrocketing, and student loan and credit card debt continuing to mount, families are rightfully hesitant to take on more debt. This leaves only one option: for hard working families to afford a middle-class lifestyle -- while avoiding the paralysis of debt -- they must restore the virtue of thrift and begin to develop personal assets through saving.

Saving has already emerged on the campaigned trail as one not-so-novel way to bring low- and middle-income American’s back onto solid economic footing. Just last week, John Edwards proposed the creation of “Get Ahead Accounts” that will provide matching dollars for working families who save. It is with savings, Edwards argues, that families will achieve economic security -- by investing in assets such as higher education or homeownership.

Just off the campaign trail back on Capitol Hill, savings proposals are gaining traction in a divided Congress looking for a bipartisan way to support working families who feel increasingly marginalized. Just before the August recess, Senators Clinton (D-NY) and Smith (R-OR) introduced the New Savers Act, a comprehensive bill designed to promote new savings, especially among low- and middle-income families, and enhance existing savings vehicles. In addition, members from both chambers and both sides of the aisle have proposed reforming asset limits -- rules in public assistance programs that prevent low-income families from saving while receiving benefits. The savings agenda appears to safely occupy the ever-receding common ground in both parties’ approach to social and economic policy, making it fertile ground for innovative policies that can actually become law.

One bold initiative rooted in this shared agenda has the potential to instantly reinvigorate America’s saving culture and provide every citizen with a vehicle to invest in his or her own economic future. To date there are a number of legislative proposals, from both Democrats and Republicans, to create a Children’s Savings Account for every child in America. These accounts, which could be started with government seed money and grown through personal deposits, would provide every individual with the start up capital needed to transition into adulthood. By limiting the use of these funds to investments in higher education, homeownership, or retirement, we can ensure that every young person has the opportunity to pursue the American Dream and the capital needed to secure a middle-class lifestyle through hard work and prudent investment.

Making homeownership, higher education, and retirement security a reality for families earning the median income in the new economy will require a fundamental shift away from debt and consumption back to the inherently American value of thrift on which our middle class emerged and thrived. Policies both big and small can help increase the incentive to save and expand access to savings products, but it will take a cultural reawakening for America to remember that the trophies of a middle-class lifestyle are bought with hard work and prudent investment, not with easy credit.