California Asset Building Policy Options

What are asset-building policies?
Asset building is about giving all Californians access to the government-sponsored financial tools and incentives that have created and sustained economic prosperity for higher-income families. Today, for example, the federal government spends over $300 billion per year to help individuals and families acquire assets through home mortgage deductions, tax incentives, business investments and retirement savings programs. There’s only one problem with these effective policies--more than 90 percent of that money goes to households already making over $50,000 per year. The goal of asset building policies is to grow the middle class from the bottom up by extending similar opportunities for investments, housing purchases and higher education to lower-income individuals and families.

What is the "asset gap" in California?
The need to spur widespread asset ownership in California is immense. Some 7.8 million California households, or 29 percent, would only last three months at the poverty level if forced to deplete all of their assets. That’s the fourth worst “asset poverty” rate in the nation, more than twice California’s “official” poverty rate of 12 percent — and possibly more consequential. When families don’t have enough assets, they may be one medical emergency or one layoff away from government dependence. They face great challenges to 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. Just imagine any family trying to survive — let alone thrive — in today’s economy without assets.

The potential of asset building:
While the need to broaden asset ownership is great, the promise is even greater. Those with assets not only have brighter economic prospects, they’re better, happier and more productive citizens. This Jeffersonian insight is buttressed by recent research, which finds that when families — including very poor families — own assets (as distinct from income), they are more likely to stay married, work harder, enjoy better physical and mental health, make educational plans for their children, feel more confident about and in control of their futures, take better care of their property, and be involved in community and political affairs. Who doubts that California and the rest of the nation will be better off with more savers, investors and owners? We certainly can learn from history: Nearly one-quarter of U.S. adults today have a legacy of asset ownership directly traceable to the Homestead Act; in addition, the GI Bill — once dubbed “the magic carpet to the middle class” — has returned to the nation seven dollars for every one invested.

How can asset-building policies help all Californians?
Asset building policies provide a rare political opportunity for bipartisan cooperation to address stubborn poverty issues with initiatives that emphasize personal responsibility. Asset building includes a range of simple proposals that can have broad, deep and immediate impact with little cost; and others that, with a modest investment, would radically transform the long-term economic outlook for California’s children from one of uncertainty and fear tosustained prosperity and growth. Some of these policies have been tested in California. More than 5,000 people of modest income are already saving in matched savings accounts. In Silicon Valley, 1,300 savers — with average median incomes of $24,000 — have saved over $1.5 million. More than 500 people have used their savings to buy homes, go back to school and start college funds for their children.

For the complete document, please see the attached PDF version.