SACRAMENTO, CA – Governor Arnold Schwarzenegger has signed legislation to encourage CalWORKS recipients to build money management skills and savings for their long-term financial security. The bi-partisan legislation, authored by Assembly Members Lynn Daucher (R-Brea) and Juan Arambula (D-Fresno), will allow CalWORKS recipients to save in restricted accounts (i.e., IRAs) without jeopardizing their benefits. Also, the bill will allow California counties to offer money management classes as an allowable work activity for CalWORKS recipients.
“This bill is an important first step,” said Anne Stuhldreher, of the New America Foundation, a co-sponsor of the bill with the Asset Policy Initiative of California. “People don’t spend their way out of poverty. They save their way to a better life.”
Currently, recipients stand to lose their benefits if they accumulate more than $2,000 in savings. AB 2466, which was signed last Friday, will take effect Jan. 1, 2007. Specifically, the bill will exclude the principal and interest in a 401(k) plan, a 403(b) plan, an IRA, a 457 plan, a 529 college savings plan, or a Coverdell ESA from consideration as property when determining eligibility for CalWORKS, the state’s assistance program for low income families. Studies have shown that lower income people can and will save toward long-term goals, if provided with opportunities to do so.
“Too many California families have too little in savings,” said Stuhldreher. Over two-thirds of all California counties are home to households with asset poverty rates of over 25%. These “asset poor” families do not have enough cash reserves or equity in their home or businesses to meet basic needs for three months during a period of joblessness, health emergency, divorce, or other unexpected financial hardship.
Programs to encourage long-term savings are being piloted throughout California and the nation. Studies have confirmed that money management classes can help welfare recipients save more, improve their credit, and open bank accounts to stop relying on check cashing outlets. An estimated 28 percent of California families do not have bank accounts. Recent analysis by the Brookings Institution found that 50% San Francisco Blacks and Latinos don’t have bank accounts.
This summer, Governor Schwarzenegger signed a bill to make it easier for California tax filers to save their state income tax refunds. AB 2439, sponsored by the New America Foundation and the Asset Policy Initiative of California, allows Californians to “split” their tax refund and send it to two accounts, enabling people to split their refund into “money to spend” and “money to save.” Research has shown that this change will spur people—including low income people—to save more of their hard-earned refunds.
“We have a lot more work to do to make sure our laws help low income Californians to build the savings they need to exit poverty for good,” said Stuhldreher. New America plans to work with lawmakers next year to develop legislation that ensures Californians won’t deplete their long-term savings to qualify for short-term assistance such as CalWORKS. Other states—including Virginia, Ohio, and Colorado—have enacted similar reforms.
The New America Foundation, based in Sacramento and Washington, is a nonprofit nonpartisan policy institute that aims to bring new voices and ideas into the policy debate. The Asset Building program of the New America Foundation aims to broaden the ownership of assets in the United States, giving all Americans, especially low income people, a stake in the economy and the means to get ahead.
