A New Way to Help California's Poor

California first lady Maria Shriver, John Edwards and other political luminaries have converged on Los Angeles for a summit on California poverty. The organizers asked speakers to present ways to help California's poor that are "innovative, practical and achievable."

That's a tall order, but it's a timely one. California is at a crossroads in how it assists its less fortunate residents. We can limit ourselves to the old tools and policies. Or California can lead the country in the democratization of financial assets -- which could prove to be the Homestead Act of the 21st century.

In the former, the focus is on familiar strategies -- early childhood education, job training and youth programs. These services are crucial for struggling families, but they'll only take them so far. To permanently exit poverty, families need opportunities to build their savings so they can make key investments like sending their kids to college or buying a home.

Too many poverty analysts also low-ball the number of Californians who are struggling economically. They use the federal government's measure that states 12 percent of Californians live in poverty. According to these guidelines, a family of four is officially poor if it earns less than $18,400 a year. But this definition, which looks only at household income, just tells part of the story. For a more complete picture -- and a more discouraging one -- it is necessary to measure the assets of the poor.

Whereas 12 percent of Californians are income poor, about 29 percent are asset poor. If these greater numbers of Californians had to live only on their net worth -- savings, home equity and other investments -- they could not survive at the poverty level of three months. That's the fourth worst "asset poverty" rate in the nation.

When families don't have enough assets, they may be one medical emergency or one layoff away from government dependence. They also cannot buy a home, send their kids to college, start a business, reduce or manage their debts or make long-term investments. And pass on opportunities to future generations? Forget it.

When you ignore this expanded definition of poverty -- that considers a family's income and assets -- you put forward solutions that only solve part of the problem.

Incentives to save and invest have long been available to upper-income Americans. Twenty-five percent of American adults have a legacy of asset ownership from the Homestead Act. Today, the federal government provides over $300 billion a year in investment opportunities through the tax code for mortgage deductions, college and retirement savings and to spur stock ownership and business investment. Great policies, without a doubt -- except that more than 90 percent of these tax benefits accrue to households earning more than $50,000 a year or roughly the upper-half of America.

Fortunately, similar policies for the working poor are being piloted in California. These community programs don't rely on the old tools. Instead, they've worked with 5,000 families to cut an innovative deal: if you put aside savings to buy a home, go back to school or pursue some type of self-employment, we'll match your savings $2 for every $1 you put in an account. We'll help you create a budget to meet your savings goals and build your credit. And we'll help you open a bank account, IRA, and use other types of financial services.

The deal is working. The state's largest pilot program is the Assets for All Alliance in Silicon Valley. Almost 700 low-income families have reached their goals to buy houses, go back to school or start businesses. Together, they've saved $1.5 million. About 80 percent are meeting their monthly savings goals. Their median household income is $24,000 a year. These programs are proving that poor Californians can save, if they have the incentives and tools.

But the biggest "Asset Building" idea would help Californians build savings from the day they are born. A California Kids Account could be started for every Californian at birth. The state could make an initial deposit, matching deposits could be available for lower income children, and financial education could be provided to both parents and children. All California kids would grow up knowing they had a growing next egg to use for college, a home or a business.

The accounts would be hope in concrete form. Great Britain recently enacted a Children's Trust Fund, its own version of this idea. And a similar proposal has attracted bipartisan support in Congress.

The obvious critique of asset building policies is that they could break the bank. But Gov. Arnold Schwarzenegger just proposed an infrastructure initiative with a $222 billion price tag. California could pay for five years of KIDS accounts for less than 1 percent of that cost.

Surely we can find that much to help California children and parents invest in themselves.