Savings Programs for Working Families

When the California Working Families Policy Summit convenes Thursday in the Sacramento Convention Center, a familiar list of topics -- child care, after-school programs, cash assistance -- will dominate the agenda. These critical programs help families get by. What will be missing are bold proposals to help them get ahead.

The California Center for Research on Women and Families is sponsoring the summit for legislators and their staffs, administrative officials and other civic leaders to discuss public policy issues for this legislative session. Many important safety nets are already in place to support California’s working families. But we haven’t been as good at creating ladders to help them climb out of poverty for good. To do that, we need to help all families build assets -- such as savings to fund college for their kids and to buy homes. People don’t spend their way out of poverty; they save and invest their way out.

The common reply is that nobody, especially low-income people, can manage to save in high-cost California. Not true. Pilot efforts around the state are proving that lower-income people will take advantage of financial tools and incentives -- just like middle- and upper-income people -- if they’re given the opportunity.

Take the Assets for All Alliance in San Jose. A group of community organizations is partnering with Citibank to offer Individual Development Accounts. They target working-poor parents and offer them a dollar-for-dollar match for money the parents put in restricted accounts. The savers are offered money management classes and financial advisers. More than 1,700 families -- with average median incomes of $24,000 -- have saved more than $2.3 million in the Silicon Valley since 2000.

Families are allowed to save for up to three years with the matching funds. Five thousand other families are saving in similar pilot programs throughout the state. With assets, those families now have economic air bags in case anyone gets laid off or has a medical emergency.

Sound expensive for government? Consider that the federal government already spends more than $300 billion a year through the tax code to reward people who buy houses, save for retirement and college, and invest in businesses. Ninety percent of these tax benefits go to households earning more than $50,000 a year, or roughly those families in the top half of the income scale.

Democrats and Republicans are coming together in the Legislature to pursue a range of like-minded proposals to help people build savings and assets. Some of the ideas:

• Help "un-banked" Californians open bank accounts since 28 percent don’t have them.
  
• Get rid of outdated rules that prevent welfare recipients from building savings.
  
• Give tax credits to lower income people to buy their first home.
  
• Start all Californians on a path of saving from the day they are born by opening a Kids Account for investment at birth -- the boldest idea of all.

The spirit of these policies is nothing new. Our country has a robust history of making investments that allow people to build wealth. For instance, 25 percent of Americans can trace part of their family wealth back to the Homestead Act, which provided 160 acres of land to anyone who was willing to live and work on the land for more than five years. And the GI Bill returned up to $12.50 to our country for every $1 that was invested.

A 21st century version of the Homestead Act would aim to democratize financial assets. Can California lead the way? Let’s hope that’s discussed Thursday at the California Working Families Policy Summit.