Building Assets Building Financial Security Ida Rademacher Vice

Building Assets, Building Financial Security Ida Rademacher Vice President, Policy & Research, CFED Presentation to State CSBG Directors August 11, 2011

About CFED § CFED (Corporation for Enterprise Development) has worked for over 30 years to expand economic opportunity by helping people save and invest, own homes, succeed as entrepreneurs, contribute to and benefit from the economy § CFED’s special expertise is to connect public policy, private markets and community practice to bring effective approaches for building wealth and financial security to scale at the local, state and national levels 2

Overview § Why Assets? § Asset ownership – distribution & trends § Assets & Financial Security – New Research § Evidence-Based Strategies – What Works?

Why Assets? § Income alone is insufficient to create financial stability – £ Over half (56%) of black children whose parents were solidly middle income fall into the bottom third of the income distribution as adults, compared to 30% of whites (De. Leire, 2010, Pew Economic Mobility Project). § Building assets – in addition to income – is essential to achieving long-term economic stability & mobility £ £ £ Assets change thinking and behavior Improve economic household stability Create long-term thinking and planning Are linked to reduced marital dissolution and domestic violence Enhance the well-being and life chances of children

, 0 00 00 , 0 80 0– 00 0, 70 0– 00 , 0 60 0– 00 0, 00 , 0 50 0– 00 0, , 0 40 0– 00 0, 00 00 , 0 35 0– 00 5, 00 , 0 30 0– 00 0, , 0 25 00 , 0 20 0– 00 5, 00 0, 0– 00 0 0 0, – 9 0 0 $1 00 0, 00 00 – 1 0 , 0 00 0 , $1 0 0 50 – 1 00 , 0 50 $2 00 , 00 00 – 2 0 $5 , 00 00, 00 0– 00 , 0 50 0 $1 00– 0, 0 1 0 , 0 00 , 00 0 0 , 0 00 , 00 or 0 m or e Annual Income $9 $8 $7 $6 $5 $4 $3 $3 $2 $2 0 $20, 000 Source: CFED. 2010. Upside Down: The $400 Billion Federal Asset Budget $30, 000 $ 16, 48 $ 7, 908 $ 4, 889 $ 2, 864 $ 1, 604 $ 1, 219 $ 970 $ 702 $ 509 $ 271 $ 128 $ 81 $ 47 $ 26 $ 12 $4 $ — $0 9 $90, 000 15 0– 00 00 0, – 1 $100, 000 5, 00 0, , 0 $10, 000 $1 $1 – 5 $1 00 , 0 $5 Annual Subsidy 0 FY 2009 Distribution of Asset Building Subsidies, Average Benefit by Income Bracket $ 95, 82 Asset distribution & trends: Upside-down subsidies $80, 000 $70, 000 $60, 000 $50, 000 $40, 000 $0

Asset Distribution & Trends Median Income & Median Net Worth by Race, 2007 Source: American Community Survey (Income), Survey of Consumer Finances (Net Worth)

Asset Distribution & Trends Median Wealth by Race, Household Structure Source: Chang, M. and Lui, M. 2010. Lifting as We Climb: Women of Color, Wealth and America’s Future

Asset Distribution & Trends § Asset Poverty: % of households that lack a financial buffer to allow for 3 months consumption at poverty threshold in absence of income. £ 22% of households are asset poor. £ 27% of households with children. £ 37% of minority households £ 49% of minority households with children Source: CFED 2009 -2010 Assets & Opportunity Scorecard

Assets & Financial Security Assets create a financial buffer to weather emergencies § Savings and assets correlate with low-income families’ ability to weather unexpected employment gaps and hardships with health care, housing payments, food security, utility and phone bills, and basic consumptions. (Mc. Kernan and Caroline Ratcliffe. 2008. The Urban Institute) § Households with $2, 000 or more in liquid assets are better able to avoid subsequent hardships such as forgone doctor visits and missed utility payments, compared to those with smaller (or no) asset holdings. (Mills and Zhang. 2011. The Urban Institute). § A family’s ability to borrow $500 in the event of an emergency (i. e. , having good credit), may do as much to reduce hardship as tripling family income. (Mayer and Jencks. 1989. “Poverty and the Distribution of Material Hardship. ” The Journal of Human Resources).

Assets & Financial Security § Family structure improves chances for economic mobility for children of all races. £ £ £ 50% of low-income kids growing up in married households move up income ladder, compared to: 42% of low-income kids growing up single-parent households 26% of low-income kids growing up in divorced-households Source: De. Liere 2010, Pew Economic Mobility Project § Wealth plays an important role in predicting first marriage, especially for men but also for women. £ £ £ Vehicle ownership increases odds of first marriage by 57%. Financial assets increase odds of first marriage by 36% Asset ownership reduced race differential in rates of first marriage by 13%, a larger % than was explained by other factors like income or employment. Source: Schneider, 2010 (Doctoral thesis, Princeton University) § Financial assets are also positively associated with the economic well-being of women one year after marital disruption. (Cho. 1999. Center for Social Development)

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What Works: IDAs § American Dream Demonstration—the first large-scale test of individual development accounts— £ £ Participants saved an average of $19 per month. Average annual accumulation of approximately $700. Median household income of these participants was $16, 296. (Mills, et al. . 2004. Abt Associates). 10 year findings on Tulsa experimental site now being published (Grunstein-Weis et. al) § Key Findings from recent study on homeownership outcomes £ £ £ IDAs disproportionately helped minorities and women purchase homes IDA homebuyers overwhelmingly accessed prime, FHA & fixed rate lending IDA homebuyers 3 times less likely to experience foreclosure (Rademacher , Mc. Kernan et. al. 2010. CFED/Urban Institute)

What Works: $ave. NYC § Pilot @ tax prep sites to increase savings among lowincome individuals. £ £ Open account @ VITA w/ $200. 50% match if participants save for 1 year (up to $500 over 2 years) § Key Findings: £ £ Avg. income of savers $16, 200 78% women, 82% w/ children, 9% married 80% saved full year, and 59% continued Average savings of $627 Source: NYC Office of Financial Empowerment Tax time = unique opportunity Matched Savings can induce very low income to save

What Works: CSAs SEED Initiative—the first large-scale test of matched children’s savings accounts § Participants saved $30 per quarter (avg), resulting in an average accumulation of $1, 500 over three years, including incentives. About half of SEED participants were from families with incomes below the federal poverty line. § Children in families with as little as $3, 000 in savings have been found to have greater odds of graduating from high school than children in families without savings. (Zhan & Sherraden. 2003. Social Service Review) § Children with savings dedicated for college education are four times more likely to attend college. Among youth who expect to attend college, those with a savings account in their names are about seven times more likely to actually attend. (Elliott & Beverly. 2010. Center for Social Development) § Savings and other financial assets are a consistent predictor of college graduation, even after controlling for variables such as income. (Zhan & Sherraden. 2009. Center for Social Development)

Local policy and program strategies LEARN § Create financial education/counseling networks and referral structures § Open neighborhood-based financial one-stop/empowerment centers § Incorporate financial education into social service and workforce programs § Standardize and certify financial education services and providers EARN SAVE INVEST § Use technology to simplify benefits screening § Partner with banks to offer appropriate products § Home purchase subsidies, counseling § Benefits screening in highneed communities § Create alternative, affordable loan products § Create shared-equity homeownership programs § Fund EITC awareness campaigns § Encourage direct deposit § Expand access to small biz capital and training § Fund free tax prep § Incent asset-specific savings (IDAs, college savings) § Enact local EITC § Incent short-term savings § Connect small biz to free tax help PROTECT § Curb high-cost financial service providers through licensing and zoning § Enact and enforce consumer lending disclosure laws § Provide foreclosure counseling, forgivable emergency loans, assistance to renters

Contact Ida Rademacher Vice President, Policy & Research CFED irademacher@cfed. org 202. 408. 9788 www. cfed. org Using the Scorecard