Building Assets, Building Financial Security

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Building Assets, Building Financial Security

• Ida Rademacher
• Vice President, Policy Research, CFED

Presentation to State CSBG Directors August
11, 2011
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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
• CFEDs 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

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Overview

• Why Assets?
• Asset ownership distribution trends
• Assets Financial Security New Research
• Evidence-Based Strategies What Works?

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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 (DeLeire, 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

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Asset distribution trends Upside-down subsidies
Source CFED. 2010. Upside Down The 400 Billion
Federal Asset Budget
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Asset Distribution Trends
Median Income Median Net Worth by Race, 2007
Source American Community Survey (Income),
Survey of Consumer Finances (Net Worth)
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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 Americas
Future
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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

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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. (McKernan
  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 familys 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).

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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 DeLiere 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 Demonstrationthe 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 , McKernan et. al. 2010.
  CFED/Urban Institute)

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What Works aveNYC

• Pilot _at_ tax prep sites to increase savings among
  low-income individuals.
• Open account _at_ 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

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What Works CSAs

• SEED Initiativethe first large-scale test of
  matched childrens 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)

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Local policy and program strategies
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Contact

• Ida Rademacher
• Vice President, Policy Research
• CFED
• irademacher_at_cfed.org
• 202.408.9788
• www.cfed.org

Using the Scorecard