Struggling Homeowners Headed Off the Fiscal Cliff
By Anne Kim on 11/30/2012 @ 02:00 PM
EDITOR'S NOTE: Anne's post originally appeared on RealClearPolicy. Read it here.
If you’re working with your mortgage lender to modify your loan, hurry. Otherwise, you could be in for a nasty shock in April at tax time.
As the nation edges closer to the “fiscal cliff,” it’s not just millionaires and the middle class who might be looking at higher taxes. Struggling homeowners are also headed toward their own tax cliff, with potentially dire impacts for the housing market’s recovery and for lower-income homeowners in particular.
Unless Congress acts otherwise, mortgage principal reductions will become taxable “income” after December—even though no cash changes hands when a mortgage is forgiven and almost no one seeking a loan modification is in a position to pay hefty taxes (if they had cash, they likely wouldn’t seek a modification in the first place). A relatively small principal reduction of $20,000, for example, would mean $3,000 in taxes at a 15 percent rate—potentially insurmountable for a homeowner facing foreclosure after, say, a job loss.
For desperate homeowners, taxing principal reductions would essentially take loan modifications off the table—and at a time when the market is recovering but still vulnerable. When Congress finally cuts a deal on the taxes set to expire this year, it shouldn’t overlook these homeowners.
The particular provision in question is the Mortgage Debt Relief Act of 2007, passed in response to the deepening foreclosure crisis. As millions of borrowers plunged into default, and policymakers sought to keep people in their homes, Congress changed the tax law to temporarily exclude principal reductions from “income” normally taxable by the IRS.
But with housing not yet “normal,” there’s still strong reason to encourage modifications, especially with principal reduction.
For one thing, homeowners still need help. Consumer credit reporting agency TransUnion reports the national mortgage delinquency rate for loans 60 days past due was 5.4 percent in the third quarter of 2012. While declining, it’s still above what TransUnion calls the “more ‘normal’ conditions of a delinquency rate in the 1-2 percent range.”
There are also still deep pockets of distress. According to the Mortgage Bankers Association, 13 percent of mortgages in Florida are in foreclosure, as well as 8.9 percent of mortgages in New Jersey and 6.8 percent of mortgages in Illinois.
Another reason to encourage modifications is that lenders are finally doing them.
After a sluggish start, lenders have modified more than 5.8 million mortgages since 2007, says HOPE NOW, including nearly 1.1 million mortgages under the Home Affordable Modification Program (HAMP), the federal government’s leading mortgage modification effort. As of September 2012, more than 132,000 “trial” HAMP modifications were in progress. The majority of these modifications involve principal reduction, and under HAMP modifications alone, homeowners have saved $15.6 billion in mortgage payments to date.
Moreover, the nation’s five largest mortgage servicers have yet to spend down the money committed to mortgage relief under a $25 billion settlement this year with the federal government and state attorneys general over “robo-signing.” Under this deal, at least $10 billion is to go toward principal reduction. After the months it took for this settlement, it would be a mistake to allow any policy changes that could discourage every last dollar of this money from going to homeowners.
Third, loan modification might be the best way to preserve the wealth of lower-income and minority communities disproportionately damaged by the housing crisis. In Chicago, for instance, the Woodstock Institute found that nearly half the homes in minority communities were underwater or close to it, versus just 16.7 percent in predominantly white neighborhoods.
Data suggest that minority borrowers are especially benefiting from loan modifications. For example, researchers at the University of Wisconsin-Madison and the Federal Reserve Bank of San Francisco concluded that minorities were somewhat more likely to receive loan modifications than whites. Among delinquent borrowers who took out loans in 2005—the height of the subprime lending boom—11 percent of African-American borrowers got modifications, versus 5 percent of whites. And while evidence finds minority homeowners are more likely to end up in foreclosure, the study found that modifications virtually eliminated that elevated risk.
For lower-income borrowers, loan modification is particularly important because housing makes up a larger share of household wealth. In 2010, says the Federal Reserve, housing accounted for more than a third to one half of the total assets held by people in the bottom 40 percent of households by income, versus just one-fifth of the total assets held by families in the top 10 percent. Given the outsized importance of housing to these families, modification might be the best way to save what wealth they have. Levying taxes on loan modifications, however, could tip these same families into foreclosure.
Extending the Mortgage Debt Relief Act currently has bipartisan support, but because it wasn’t part of the original Bush-era tax cuts, it could just get lost in the shuffle. This would be tragic for struggling homeowners who might get the burden of a tax bill instead of much-needed mortgage relief.
Cuyahoga County Will Offer Universal College Savings Accounts to All Kindergarteners
By Kori Hattemer on 11/30/2012 @ 10:00 AM
In Ohio, Cuyahoga County today announced a new initiative to open a college savings account for every incoming kindergartener in the county, which includes Cleveland. Championed by County Executive Ed FitzGerald, the program is the largest effort to offer child savings program in the U.S. and will serve about 15,000 students in public, private, charter and parochial schools.
Cuyahoga County will start by enrolling 25% of kindergarteners in the program in fall 2013 and plans to enroll 100 percent of incoming kindergarteners by fall 2015. The county will seed each account with a $100 initial deposit that can be used for any postsecondary education, including vocational training as well as two- and four-year colleges. The program will also include a financial education component and is part of an accelerating trend to begin teaching saving and money management skills to both children and their parents.
The Cuyahoga County initiative is part of a growing national movement at the state and local level to help low-income children and families learn how to save for college and manage their finances. It follows a similar effort launched in San Francisco, now entering its third year, that provides a $50 deposit to public school kindergarteners, and a pilot program recently started in Mississippi. A number of other large-scale initiatives are also in development. The emergence of these programs reflects increasing recognition by local and state governments that even a small amount of savings can have a dramatic impact on long-term expectations, particularly for low-income children who may otherwise grow up believing college is out of reach.
Rebuilding America's Balance Sheet, One Household at a Time
By Anne Kim on 11/29/2012 @ 09:15 AM
While Congress debates how to balance the nation’s books, American households are still struggling to rebuild their personal balance sheets, devastated by the recession. Americans lost more than 40% of their wealth from 2007 to 2010, according to the Federal Reserve, while CFED’s analysis finds that 43% of American households lack the cash to live three months at the federal poverty line if they suffer a loss of income.
More than ever, the nation needs a new agenda to rebuild Americans’ financial security. At an event sponsored by CFED and Democracy: A Journal of Ideas, speakers including Sen. Jeff Merkley (D-Ore.), CFED President Andrea Levere, Urban Institute President Sarah Rosen Wartell, Opportunity Agenda’s James Carr and Ray Boshara of the Federal Reserve Bank of St. Louis offered up a host of ideas that could form the backbone of a new opportunity agenda. Among the proposals:
- Cracking down on predatory payday lenders and financial service providers
- Focused federal attention on the continuing problem of “underwater borrowers” and the drag of negative equity on economic growth
- Tweaks to existing savings vehicles to make their more accessible to lower- and moderate-income families
The Asset Building Narrative Is in the Works
EDITOR'S NOTE: This post originally appeared on Living Cities' blog The Catalyst. Read the original post here.
It is no surprise that many people zone out when they see statistics, but love a good story. The asset-building field is crafting its story, creating the narrative and casting new characters. As the field forms the statistics into a compelling narrative, it is imperative that equity play a leading role. Recently, the Assets Learning Conference sponsored by the Corporation for Enterprise Development (CFED) brought together over 1,300 government leaders, service providers, bankers, and funders to discuss trends, lessons, and best practices for expanding economic opportunity for low-income families. We gained significant insight into the burgeoning field of asset building that we would like to share with you.
CFE defines assets as tangible and intangible economic resources – a home, savings in a bank account, a college education – that can produce value for their owner. Assets are important because they provide the ability to weather a job loss as well as the potential to move up the economic ladder. Someone new to the asset-building field might ask, how can we focus on assets while the basic needs of low-income families are unmet? Michael Sherraden, author of Assets and the Poor, argues that assets have economic, social and psychological power that income alone does not. Assets are the foundation for achieving financial sustainability and escaping poverty. Here are some observations from the conference:
Communities thirst for practical tools. Rather than theories, leaders want tools and action plans. Living Cities designed and moderated a standing-room-only session called “Embedding Financial Empowerment into Social Service Delivery.” Program Associate Helen Leung moderated the panel featuring our Income & Assets Working Group grantees and grant evaluator. The panel highlighted the ways Louisville and Seattle are integrating financial empowerment into their homeless-service continuum for low-income people. Our audience was intrigued by our unconventional focus on the process of helping people manage their assets rather than just the products that dominate the field. Our panelists highlighted various emergent processes in asset building, including cross-sector partnerships, improved contract requirements for social-service delivery, and training on financial empowerment approaches. Ultimately, what matters most is perspective. Seattle’s Senior Mayoral Advisor Jerry DeGrieck, a leader in municipal financial empowerment, commented that “folks are more comfortable talking about sex and drugs than financial empowerment for low-income people.” In order for financial empowerment to succeed as an asset-building strategy, practical tools must be complemented by education, technical assistance and provider training.
Growing race and gender wealth gaps must be addressed. Data strongly link wealth inequality to income inequality. Wealth confers benefits that income does not. Wealth can generate further income, be used as collateral for loans, be passed from generation to generation, and help weather financial crises. Wealth inequality is distinct from income inequality and much more severe. Dr. Mariko Chang, author of Shortchanged: Why Women Have Less Wealth and What Can Be Done About It, states that white families have 18 times the wealth of Hispanic households and 20 times the wealth of African American households. The gender wealth gap is similarly severe. Women have less wealth and disposable income, yet are more likely to be the sole custodial parent and to support more people. For both women and minorities, there needs to be increased focus on the “wealth escalator” – the transition potential from income into wealth. Closing racial and gender wealth gaps is imperative. Strategies to closing these gaps range from access to employment and appropriate financial products, policy interventions that remove asset limits on public assistance and greater focus on product innovation and outreach.
Social capital is not reserved for only the rich. A theme that emerged repeatedly, especially among service providers, is the need to leverage social capital – the value derived from social networks. A big challenge is that lower-income populations have different and arguably more limited types of social capital. For example, 80% of available jobs are never formally advertised and therefore remain inaccessible to people without extensive social networks. Innovative programs piloted by Boston Rising and the Family Independence Initiative help strengthen and broaden social connections for low-income individuals. Both organizations challenge the field to invest in programs that build social capital and encourage support networks among family and friends. The successes of these efforts demonstrate the unleashed power of social capital when applied to lower-income communities’ financial empowerment and asset building strategies.
Unfortunately, most systems we rely on for prosperity are obsolete, and overhauling the systems that support low-income people is incredibly difficult. We believe that asset building practitioners and advocates have to stop working around systemic problems and face wealth and gender gaps head on. There is great potential in moving innovations in financial empowerment and social capital from the periphery to the mainstream and to scale. So, as the asset-building field pens its story, we suggest integrating the points made here into the storyline. The key mandate is that the narrative compels actions on behalf of low income people.
Building Assets & Wealth among Native Americans: Part One, Opportunities in Indian Country
By Kevin Walker, Guest Contributor on 11/27/2012 @ 01:00 PM
EDITOR'S NOTE: This post originally appeared on New America Foundation's The Ladder. Read the original post here.
When the mainstream media pay attention to Native American communities at all, they most often tell stories of trauma and tragedy. There is truth in many of those stories, of course, but we at Northwest Area Foundation see a different reality that also is true. When we meet with people on reservations and in urban Indian communities, we see energy and vision. We encounter a passion for self-determination in a rising generation of young leaders. And we see innovative Native organizations building assets for the future. We support Native-led asset and wealth building programs that have potential to nurture thriving economies in Indian Country. Job-building programs and wealth-creation models anchored in Native culture have track records of success that should be more widely known and studied. These approaches could help other Native and non-Native communities in their pursuits of lasting prosperity.
The most effective programs are anchored in cultural perspective. The Native American Youth and Family Center (NAYA) in Portland, Ore., applies a Relational World View Model to its prosperity-building programs. This concept focuses on balance and a holistic thought process in relation to life elements of mind, body, spirit and social needs.
“Asset and wealth building is a western concept,” said Matthew Morton, executive director of NAYA, a Foundation grantee. “A lot of these programs have been in the Portland area for quite a while. We’ve had more success when we create strategies geared specifically for the urban Native community.”
Native-led asset building organizations are working to bridge the cultural gap. Access to capital is the key to building new businesses, funding community projects, and building personal wealth. Yet most non-Native banks find it too risky to lend on reservations. Northwest Area Foundation has made grants to support Native American community development financial institutions (CDFIs), which provide long-term investments needed to lift incomes, build wealth, and overcome a historic lack of Native personal assets. These CDFIs provide a wide range of loan services, financial training, and business assistance.
“We’ve had great nonprofit and tribal asset building programs in place for many years, but they haven’t been able to increase prosperity like CDFIs,” said Tanya Fiddler, executive director of Four Bands Community Fund, a CDFI on the Cheyenne River Sioux Reservation. “Native CDFIs attract small investments that they leverage in a big way through partnerships, innovative programming and a strong advocacy voice to make the most fundamental impact of all – developing Native human capital.” The Native CDFI movement has taken off in recent years, and there are now more than 72 such organizations dedicated to strengthening Native communities.
Advancing the strength and organizational effectiveness of Native CDFIs is a primary strategy of the Foundation’s Native American Social Entrepreneurship Initiative. This two-year learning cohort seeks to accelerate the role of CDFIs in providing services that spawn new businesses and new partnerships across many sectors. The goal is to foster entrepreneurial skills that build a local economy and can be applied to a variety of social challenges as well.
Another successful asset building model is the Reservation Partnership Fund. Established by the Cheyenne River Tribal Ventures, a Foundation grantee, the Reservation Partnership Fund offers matching funds of up to $50,000 for new and expanding enterprises. Similar to tax increment financing, this Fund has provided 15 grants since 2009 to expand Native-owned businesses such as retail establishments, hotels, construction companies, and a farmers’ co-op.
“The Reservation Partnership Fund made it possible for one business to buy a larger piece of equipment, bid on a larger project, hire more employees, and increase sales due to the upgrades of equipment,” according to Eileen Briggs, executive director of Cheyenne River Tribal Ventures.
Culturally based asset building programs are opening new opportunities for Native Americans to move from low income to financial stability. We at the Northwest Area Foundation are honored to support nonprofits working to create thriving Native economies. We welcome funding partners who, like us, want to develop this potential for creating real and lasting change. If you are interested in joining us in opening opportunities for Native Americans, please contact Martin Jennings, Northwest Area Foundation program officer at firstname.lastname@example.org or 651-225-7716.
For more information on the Northwest Area Foundation and its work with Native American communities, please visit www.nwaf.org.
Last Call: The Forgotten 40 Percent
By Sean Luechtefeld on 11/26/2012 @ 08:00 AM
Today is your last chance to register for tomorrow’s event, The Forgotten 40 Percent, a panel discussion co-hosted by CFED and the editors of Democracy: A Journal of Ideas. To join the event in-person at our Washington, DC headquarters (1200 G Street NW), send an email to email@example.com. To join the event via live webcast, click here.
Tomorrow’s event, which kicks off with breakfast at 8:45 am (EST), will feature opening remarks from Senator Jeff Merkley (D-Ore.). The panel discussion will begin at 9 am (EST) and will include CFED President Andrea Levere, Federal Reserve Bank of St. Louis Senior Advisor Ray Boshara, Insight Center for Community Economic Development Fellow James Carr and Urban Institute President Sarah Rosen Wartell. The event will be moderated by Jim Tankersley, Economics Correspondent for The National Journal.
Based on the centerpiece symposium in the Fall 2012 issue of Democracy, our panelists will argue that Washington’s top post-election priority should be to restore American opportunity. They’ll also offer up their best ideas on how to do it, ranging from tax reform to encouraging savings and beefing up consumer protections.
We hope to see you tomorrow!
Cut to the Front of the Line: Innovative Ways to Promote Saving
By David Rothstein, Guest Contributor on 11/21/2012 @ 09:30 AM
EDITOR'S NOTE: This post originally appeared on New America Foundation's The Ladder. Read the original post here.
Behavioral economics heavily contributes to the way we design asset building and savings programs. We know that savers respond to cues, nudges, incentives, and targeted choices. Seems simple enough. One thing we are learning, however, is that individuals need more than just incentives. There was a time when groups would offer $50 to open a savings account and wonder why the take-up rate didn’t surpass 10 percent.
It’s a good question. Money talks, right? A recent post by Matthew Darling of ideas42 on CFED's blog presents some of the challenges of behavioral economics in asset building. Among those challenges, I would emphasize the need for easiness and shortening of time when enrolling. That’s right, short-cuts are key and time matters. For low- and moderate-income families, it matters a lot. Retail marketing gets this. Check out this pre-holiday store sign. Not only do you get the 30% off for signing up with their 20-some percent APR credit card but you also get to skip ahead to the front of the line! Literally, a short-cut to beat out the 30 people in line.
The “why” question here is important. Why does the 30% off not do the trick for opening the credit card? Why does going to the front of the line sweeten the pot greatly? Two reasons are that mental imagery and quick-action matter. People can’t necessarily envision 30% off of $40 jeans mattering enough to take the time to open a card and save a few dollars. Plus, by the time you wait in line, who wants to spend 10 more minutes opening a credit card? That being said, people can literally visualize moving past the long line of consumers to the front of the line. There is a real and immediate benefit to moving to the front of the line.
So, as a field, let’s borrow a bit from this spending example. What can we do to make saving easier and decrease the time it takes to enroll in programs? What if…you received your tax refund a few days faster if you committed to saving a portion of it? Or how about if a bank pre-enrolls you for a savings account when you open your checking account, leaving you a signature away from opening it? Again, incentives matter but cutting red-tape or passing a line full of angry, jean-holding customers, might matter more.
Related Blog Post
New Report: The Right Choices to Cut Poverty and Restore Shared Prosperity
By Katie Wright, Guest Contributor on 11/20/2012 @ 05:00 PM
In the coming weeks and months, Congress will consider the fate of tax cuts for the wealthiest Americans and the fate of critical health, nutrition, education, and income supports that provide a pathway to the middle class. As can be seen in the video above, low-income families across the country have a lot on the line in this debate.
The newly released Half in Ten Report, “The Right Choices to Cut Poverty and Restore Shared Prosperity” provides critical data and policy recommendations to inform this debate. The Half in Ten Report sheds light on how our nation is faring on key indicators of cutting poverty and expanding opportunity for all, tracking progress from 2010 to 2011 as well as longer-term trends at the national level and for every state. The report, the second in an annual series, also offers recommendations to move the indicators in the right direction and expand the middle class, even as we cut our long-term deficits.
The Half in Ten Report website also includes features like fact sheets on each indicator, state data and rankings, and a Poverty and Opportunity Profile on the Latino Community.
Owners of Manufactured Homes are Homeowners, Too
By Sean Luechtefeld on 11/19/2012 @ 03:00 PM
Though seemingly an effort at snark and sarcasm, the title of this blog post makes an important claim, which is that owners of manufactured homes are very much homeowners. Yet, in many cases, they aren’t seen that way, and more troubling still is that they don’t often reap the benefits of homeownership that owners of site-built homes do. For a family living in a home in Unadilla, New York, their homeownership didn’t translate into any ability to beautify their community, despite ownership, because they didn’t own the land on which their house was situated. This became an immense problem given the dangerous conditions created by an abandoned home that sat just next door no more than a few yards away.
Their solution: cooperative resident ownership of the community, and the land, on which their home sat.
Resident ownership of manufactured home communities is becoming more and more popular, with resident ownership being the prevailing model in hundreds of communities across the country. As Paul Bradley and George McCarthy argue in the latest edition of Democracy: A Journal of Ideas, resident ownership is a critical asset-building strategy for owners of manufactured homes because it gives control to the homeowners over things like beautification projects. Just in the same way that paying HOA fees gives owners of condos the ability to request certain services, so too does cooperative ownership guarantee owners of manufactured homes certain rights than can, in many instances, bolster the value of their homes.
This and other asset-building topics will be the focus of conversation at the forum we’re hosting next week with Democracy. Please join us on Tuesday, November 27 from 9 – 10:30 am at our National Headquarters. Speakers will include Andrea Levere (President, CFED), Ray Boshara (Senior Advisor and Community Development Policy Officer, Federal Reserve Bank of St. Louis), James Carr (Fellow, Insight Center for Community Economic Development) and Sarah Rosen Wartell (President, Urban Institute). The event will be moderated by Jim Tankersley (Economics Correspondent, National Journal).
Success Story: New Financial Education Workshop in Texas
By Julian Mensah, Guest Contributor on 11/16/2012 @ 03:30 PM
Literacy Instruction for Texas has been at the forefront of helping improve the literacy rate in Dallas for over fifty years. All of our adult low-level literacy classes are taught by volunteer instructors. We firmly believe that it's unacceptable that 21% of adults in the 11 county vicinity of North Texas are functionally illiterate.
We've recently begun to focus more on financial literacy by partnering with YWDallas to offer our students a financial educational workshop. We had the opportunity to attend the 2012 Assets Learning Conference and realize education and financial stability go hand in hand.
Just this week, three students were the first to graduate from the Financial Educational Workshop. We owe a big thank you to YWDallas for administering the workshop on our grounds! These three are now eligible for Individual Development Accounts (IDAs).
Center for Financial Security at the University of Wisconsin-Madison Call for Concept Proposals
By Roberto Arjona on 11/16/2012 @ 09:00 AM
The Center for Financial Security at the University of Wisconsin-Madison, in partnership with the Charles Stewart Mott Foundation, has launched a call for Concept Proposals for the Emergency Savings Project. The effort will capture innovative ways to address emergency savings issues with financial strategies designed to help low-income households to meet immediate non-recurring expenses.
The goal of the call for concept proposals is to generate a broad set of ideas for strategies that can serve to expand emergency savings mechanisms, vehicles, policy, public or nonprofit programs, or new financial products. For application guidelines, click here.
Submissions will be accepted through November, 27, 2012 and decisions are expected on January 7, 2013. To apply for this opportunity, click here.
Kindergarten to College: A Foot in the Door
By Jenny Flores, Guest Contributor on 11/15/2012 @ 04:30 PM
EDITOR'S NOTE: This post originally appeared on the Citi blog. Many thanks to Jenny Flores for supporting children's savings accounts.
A new documentary film "A Foot in the Door" tells the story of the nation's first universal college savings program, San Francisco's Kindergarten to College, through the personal experiences of participating students and parents.
The film was co-produced by Citi Community Development, San Francisco Office of Financial Empowerment, and the Corporation for Enterprise Development (CFED), to tell the story of this unique program. Kindergarten to College was launched by the City and County of San Francisco in 2010, and is now providing college savings accounts to every kindergarten student entering public school.
Last week, I was thrilled to attend the premier of "A Foot in the Door" at the Brava Theater in San Francisco along with the award-winning filmmakers at GroundSpark and Citizen Film, several of the families featured in the film, and local officials.
The opportunity to save for college is an important tool for families to secure their children's financial futures. That's why we've collaboratively designed Kindergarten to College to combine matched savings with financial education that is integrated into the public school curriculum. This approach reflects our commitment to removing barriers to higher education and to combining access to financial tools with knowledge.
All of that is conveyed in this powerful new film, and Citi has supported it and its premier both to highlight the program's success and impact and to encourage additional financial support.
A new partnership, announced last week, aims to facilitate just that. Through a collaboration with the 1 to 1 Fund, a project of CFED any individual can now contribute funds to match children's and families' Kindergarten to College savings accounts through a simple online donation.
I am so proud to be a part of the team who has taken this program from concept to reality. I encourage you to read Kindergarten to College: Save steady, dream huge, a blog post about the program by a close colleague in this endeavor, Leigh Phillips, Director of San Francisco's Office of Financial Empowerment.
I agree wholeheartedly with Mayor Edwin M. Lee, as he said in a recent press release: "Kindergarten to College represents the success that we can have by working in partnership with the private and nonprofit sectors to benefit families."
Last month, Jenny Flores was recognized by San Francisco Mayor Lee and U.S. Representative Nancy Pelosi for her "enduring contributions to the Latino community and to the entire City," including work on Kindergarten to College and other programs, as a recipient of the 2012 Latino Heritage Awards.
The award-winning Kindergarten to College program was developed by the City and County of San Francisco's Office of Financial Empowerment in the Office of the Treasurer and Tax Collector, in collaboration with Citi Community Development, which has provided funding since the program's inception. The account platform, which includes easy online account tracking and management by participants at mysavingsaccount.com, was developed by Citi Microfinance and Citibank in collaboration with the City and County of San Francisco. Child savings and financial capability have long been areas of focus of the Citi Foundation as critical components of college preparation and completion.
Consumer Financial Protection Needs Rebranding
By Margaret Miley, Guest Contributor on 11/15/2012 @ 08:00 AM
Last week, the CFED and the Assets & Opportunity Network Steering Committee co-hosted a national conference call with national pollster Guy Molyneux from Hart Research Associates on the outcome of the election and what it means for the asset-building field. Yesterday, I posted my first overview of Guy's analysis.
One interesting point from Molyneux was on the topic of consumer financial protection. His research showed that consumers don’t know what is meant by “financial regulation,” yet they are suspicious of large financial institutions and reactive in specific instances, such as the recent backlash on overdraft fees.
In Massachusetts, we now have a senator-elect who is a strong champion for consumer protection in the financial services sector. Elizabeth Warren’s election will raise the visibility of our work in a way that we have not seen since the fall of 2008. Remember then? With no small amount of heartburn, the nation asked “What just happened in the capital markets?” The general public (and some of us) learned about liars, loans, exploding mortgages, collateralized debt obligations, credit default swaps, corrupt credit ratings, zombie assets and much more. Elizabeth Warren coined the term “tricks and traps” to diagnose the illness that plagued the whole system, infecting borrowers, savers, investors and taxpayers in its quest for innovation, automation and expansion. Though Warren’s campaign was sprinkled with references to the economy being “rigged,” her candidacy was framed around the more expansive notion of protecting the middle class, with less focus on the financial sector.
Consumer financial protection is so important, but rebranding is needed to make it compelling. The terminology of “financial regulation” is inaccessible. Vague terms like “rigged” and “tricks and traps” will not resonate with the general public in 2012, as they did in 2008. Those in our field can observe that the marketplace is still riddled with traps, but to the general public, this may sound like a tired conspiracy theory.
So how can we re-brand consumer financial protection?
1. We need to make it concrete by providing examples that compare financial products to other consumer products. For example:
- Mortgages should not unexpectedly explode in a balloon obligation, just as trucks shouldn’t explode after a few years on the road.
- Applicants at for-profit colleges should know what they are buying and how much they are paying before they sign the paperwork, just as buyers of cars do.
- Debt collectors should show evidence of the borrower’s obligation if they are using the court system to collect the debt, as plaintiffs in any other lawsuit are required to do.
- Payday loans should not burden borrowers in perpetually high-cost revolving debt, just as….I don’t know, but you get the point here.
2. We also need a better overall tagline. Just as we some of us are moving from “asset building” to the more accessible terms like “financial security” and “financial capability” for our field, we need language that is encompassing, accessible and timely.
At Midas, we use the expression "making the economy safe for all" and "making the economy work for all." But we could do much better...ideas welcome!
What the Election Means for Asset-Building Work
By Margaret Miley, Guest Contributor on 11/14/2012 @ 12:00 PM
Last week, the CFED and the Assets & Opportunity Network Steering Committee co-hosted a national conference call on the outcome of the election and what it means for the asset-building field.
National pollster Guy Molyneux from Hart Research Associates gave us an overview, answered questions, and described the polling data collected before and during the election. They show interesting national trends and opportunities. Here what is “in” and “out” from the polling.
- IN: Tax reform. The nation’s 35-year-long “tax revolt” has ended, as evidenced by national exit polling and the passage of Proposition 30 in California. Focused tax increases can be passed, and polling shows support for tax increases on the wealthy.
- OUT: Debt. One lesson taken from the economic crash is the danger of debt. This refers to both personal debt that threatens individual financial stability, as well public deficits and debts. The flip side is the value of having a financial cushion – an asset of some kind.
- IN: Financial education. A lesson from the housing crash pointed to the importance of financial sophistication. Financial skills and knowledge are increasingly valued.
- IN: Efficiency. Programs that show the net benefit of the programs is very high relative to the seed money of public investment. This is good news for those of us who use a data-driven approach to program design, but we do need to support the infrastructure of public incentives that our savers rely on to save and invest in assets. Rep. Barney Frank (D-Mass.) expressed this at Midas’ recent Assets & Opportunity Breakfast in Boston. “There are public programs that are not self-executing; they can be very complicated,” Frank said. “Your work makes the public programs more important, and the public programs make your work more important.” Financial stability and asset-building programs augment – but do not replace – the essential social safety net provided by the public sector.
- IN: Republican realignment. There are some Republicans who may find asset-building work appealing, as the party may be going through a process of trying to rework its agenda. It has “crossover appeal,” and could give an opportunity for them to demonstrate compassion for the less fortunate, which has been seen as a big problem for Republicans for a number of years.
- OUT: Generational competition. Public investment discussions that bifurcate the population generationally are tricky. People are uncomfortable with the argument that we should put more investments toward children than elders. We need to take care that any promotion of child savings incentives does not get swept into this frame.
- IN: Better consumer protections could be in, but they need a lift, and this is our challenge. Consumers don’t know what is meant by “financial regulation,” yet they are suspicious of large financial institutions and reactive in specific instances, such as the recent backlash on overdraft fees. This work needs rebranding in order to make it accessible and engaging.
NALCAB To Award $280K to Nonprofits that Support Small Businesses
By Veronica Weis on 11/13/2012 @ 01:00 PM
The National Association for Latino Community Asset Builders has announced the availability of $280,000 in grants for nonprofit organizations seeking to strengthen their small business development programs. The funds are made possible with the generous support of Sam’s Club Giving Program. Eligible organizations may apply for grants that range from $20,000 - $25,000 and Request for Proposals (RFP) must be submitted no later than November 28, 2012.
NALCAB builds and expands nonprofit asset-building infrastructure that can competently serve Latino and immigrant communities and thereby bring equitable and enduring change to low-income Latino and immigrant communities across the region.
Eligible organizations are nonprofit organizations that provide culturally and linguistically relevant training and technical assistance to small business owners and aspiring entrepreneurs. There are no regional restrictions on applicants for this pool of funding.
Applications should be received no later than midnight PST on Wednesday, November 28. They can be directly submitted to Carol Rodriguez at firstname.lastname@example.org.
Behavioral Economics in the Assets Field
By Matthew Darling, Guest Contributor on 11/09/2012 @ 03:45 PM
In the last few years, behavioral economics has taken off in the asset building community. Numerous pilot programs have been launched that make use of behaviorally-inspired interventions such as reminders, defaults, and social norms. But at ideas42, we’ve learned that behavioral economics isn’t just about designing interventions. It’s about correctly defining the problem and accurately diagnosing what is leading to the problems we see.
For example, one of the most powerful behavioral interventions is using defaults to increase enrollment is 401(k) savings plans. By switching the form from “opt in” (you had to check a box if you wanted to enroll) to “opt out” (you had to check a box to not enroll), companies were able to achieve an astounding effect. Enrollment rates leaped from as little as 13% to as much as 80%. And the “nudge” stuck. Years later, employees were still enrolled in the 401(k) program, and still saving.
The success of this intervention has led to a temptation to think of defaults as a magic bullet. After all, they are cheap (only requiring the rewriting of a few forms) and tremendously effective. And defaults have been extended to some contexts (such as organ donation) without losing their punch.
But the asset building community has struggled. An innovative EITC VITA site experimented with using defaults to encourage savings at tax time. Everyone was given the opportunity to elect to have a portion of their refund in the form of a savings bond, but a randomly selected group was defaulted to receive 10% of their refund as a bond.
In the control group, who were defaulted to receive their refund in cash, 9% elected to receive a portion of their refund as a savings bond. In the treatment group, the number of people who received a savings bond was…still 9%! Defaults had no effect at all.
It is tempting to conclude that defaults do not work in this case, perhaps because low-income people are unable to save for structural, technical or dispositional reasons. But we believe that that the problem lay in diagnosis. While both the 401(k) and EITC defaults were an attempt to increase savings, the psychology behind the both the decision to save and the action of saving are wildly different in either case.
How so? Interviews of employees who have not enrolled in a 401(k) program reveal that over two-thirds of them of them recognize that they are not saving enough. And while one-fourth of employees plan to start saving more in the next 2 months, virtually none do. Employees were not saving because they failed to translate their intentions into action.
The psychology behind EITC refunds is very different. In a follow up survey of VITA volunteers to determine why so few people took up the savings bond, nearly 80% of the tax preparers said that people came to the VITA site with a pre-existing plan for how they were going to spend the refund. The refund is a commitment account. It allows low-income people to receive a large amount of cash for purchases they could not afford living paycheck to paycheck. Getting people to save their EITC refund is difficult because to those who get it, the EITC refund is accumulated savings. People were not failing to follow through on an intention – the intention the program designers were looking for was simply not present. The thing that made defaults too powerful in the case of 401(k) enrolment was simply missing.
CFED and ideas42 are collaborating on the BETA project, with the goal of tackling tough social problems by designing and testing behavioral interventions on real world products, processes and/or services. But we have built in a behavioral mapping process that teases out the sequence of events from client engagement to client outcomes. The goal is to understand every possible step in the process and unearth the barriers and potential psychologies at play that are inhibiting decision choice, action, or both. That way, we can ensure that we are using the right tools for the job.
Bronchetti, E. T., Dee, T. S., Huffman, D. B., & Magenheim, E. (2011). When a Nudge Isn’t Enough: Defaults and Saving Among Low-Income Tax Filers (No. w16887). National Bureau of Economic Research.
Madrian, B. C., & Shea, D. F. (2000). The power of suggestion: Inertia in 401 (k) participation and savings behavior (No. w7682). National Bureau of Economic Research.
Romich, J. L., & Weisner, T. (2000). How families view and use the EITC: Advance payment versus lump sum delivery. National Tax Journal, 53(4; PART 2), 1245-1262.
Matthew Darling is a Senior Associate at ideas42.
Assets & Opportunity Network Tells CFPB What Effective Financial Education Looks Like
By Jennifer Brooks on 11/09/2012 @ 02:00 PM
In one of its first collective actions, the Assets & Opportunity Network sent comments to the Consumer Financial Protection Bureau (CFPB) on what works and what doesn’t to build financial capability.
The comment letter, which you can read here, identifies two pressing challenges to making financial education effective. First, it argues, there is behavioral resistance; many people who need financial education the most are not open to receiving it. Second, there is no agreed-upon definition of “financial capability,” nor is there a clear and coherent means of assessing the effectiveness of financial education programs.
Addressing each of these gaps will need to be central to CFPB’s efforts to build financial capability. As the Network argues in the Letter, “if our ultimate goal is to raise the general financial capability of American households, we will need to reach beyond the households who are already receptive to new information and behavior change. Behavioral resistance to financial education must be understood, confronted and overcome. If we fail in this endeavor, households who don’t get the benefit of financial education will only fall further behind in their own financial security, while at the same time posing a ‘systemic risk’ to the nation’s overall financial health.”
CFED and the 60 Assets & Opportunity Network organizations applaud the CFPB’s efforts to bolster financial capability and invite you to read the Comment Letter and learn more about some of the challenges facing this important endeavor.
The Following Organizations Signed Onto This Letter:
- AAA Fair Credit Foundation
- AHEAD, Inc.
- Bilbrew Consulting Services, LLC
- Center for Asset Building Opportunities (CABO)
- Cambridge Economic Opportunity Committee, Inc.
- Catholic Charities of Maine
- CHANGE, Inc,
- Chautauqua Opportunities Inc.
- ClearPoint Credit Counseling Solutions
- Coalition for the Advancement of Financial Education, Montgomery, Maryland
- Coastal Enterprises, Inc.
- Community Action Board of Montgomery County, Maryland
- Community Action Partnership of Utah
- Delta Citizens Alliance
- Doorways to Dreams (D2D) Fund
- Florida Prosperity Partnership
- Glory Temple Ministries, Inc.
- Haven Neighborhood Services
- Hawaii Alliance for Community-Based Economic Development
- Innovative Changes
- KaizenRhino Solutions International
- Keiser Consulting, LLC
- Kemetic Business Consultants (KBC)
- Lower Columbia Community Action Council
- Lucy Gorham (A&O Network Steering Committee Member)
- Maryland CASH Campaign
- Midas Collaborative
- Mission Asset Fund
- Mutual Housing California
- National Community Tax Coalition
- Neighborhood Partnerships
- New York State Community Action Association
- Oklahoma Policy Institute
- Opportunity Fund
- Our Daily Bread, Inc.
- Partners for Prosperity
- Pathfinder Community Connections
- Peaceful Paths Domestic Abuse Network
- Pine Hills Community Development Corporation
- RAISE Texas
- Real$ense Prosperity Campaign
- Rural Dynamics, Inc.
- Sage Financial Solutions
- Southern Bancorp Community Partners
- Step Up Savannah
- Suncoast Community Capital
- Supports to Encourage Low-Income Families (SELF)
- Tacoma Housing Authority
- The Coalition for Debtor Education
- Treasure Island Homeless Development Initiative
- Turtle Mountain CDFI
- United Way of Greater Houston
- United Way of Northeast Florida
- United Way of the Costal Bend
- Urban Enterprise Association of Richmond
- Woodstock Institute
- Yakima County Asset Building Coalition
- YWCA Delaware
Be Your Own Boss! California’s Opportunity to Support Self-Employment and Job Creation
By Heidi Pickman, Guest Contributor on 11/09/2012 @ 08:30 AM
Right now, California leaders have the opportunity to assist the unemployed to become self-employed, create jobs and reduce the unemployment rolls – all at the same time. Last spring, the federal Department of Labor government set aside $5.3 million for California to help unemployed workers start their own businesses, but so far the state has left that money on the table. The money is part of $35 million in grants that Congress made available for states to implement expansions of the Self-Employment Assistance (SEA) program. Under the SEA program, unemployed workers receive up to 26 weeks of unemployment insurance benefits while starting a small businesses – a full-time job in its own right. Participants receive training and assistance and do not have to look for other full-time work during that time. States have to opt in to the SEA program, but California has not yet done so.
To start a California SEA program and access the $5.3 million, the state legislature needs to pass a bill. CAMEO is working to make this a reality, but surprisingly there is opposition. “We initiated the Help Unemployed Be Your Own Boss (BYOB) campaign because California’s unemployment rate continues to remains higher than the national average,” said Claudia Viek, C.E.O. of the California Association for Microenterprise Opportunity (CAMEO). “If the unemployed can’t find a job, they can create their own. California needs to apply for these federal funds and train the unemployed to become their own boss.” CAMEO launched this petition to show Governor Brown and state legislators that Californians need and want this program.
California has had double digit unemployment for more than three years and a persistent problem with long-term unemployment. The percent of long-term unemployed (jobless for 27 weeks or more) as a share of total unemployed in California rose from 19.9% in December 2005 to 44.5% in December 2010. This dramatic increase in long-term unemployment has hit all demographic groups in California, but some populations experience more long-term unemployment than on average, including minorities and older workers.
Self-employment must be part of any economic recovery plan for California because existing companies are simply not creating enough jobs. Self-employment is a growing labor market trend; before 2000, self-employment grew at an average of 1.4% a year but post-2000, self-employment grew at an average of 3.5% a year. As of 2009, self-employment was more than 25% of wage and salary employment in California. The self-employment rate is projected to continue to grow in the years to come, increasing by an estimated 7.2% in the next five years. The SEA program would help those jobs develop faster and ensure that new business owners have the skills they need to succeed—but only if California acts soon. The deadline to apply for the $5.3 million in SEA funding is June 2013.
Please support CAMEO’s efforts! Sign the Be Your Own Boss petition and invite 10 or more friends to sign it. Spread the word with Facebook and Twitter.
Sherry Williams of the Treasure Island Homeless Development Initiative Gives an ALC Attendee Perspective
By Veronica Weis on 11/08/2012 @ 10:30 AM
EDITOR'S NOTE: While the Assets Learning Conference took place over a month ago, ideas and suggestions from those who participated are still pouring into our inboxes. To showcase the power of the sessions and conversations that took place in September, we've compiled a series of interviews with attendees.
Sherry Williams is Executive Director of the Treasure Island Homeless Development Initiative and has worked with the organization since 1995. She's the lead fundraiser and program planner, as well as its liaison to public and private entities. In October, she offered her post-Conference attendee perspective with our team.
Which session(s) inspired you the most and what were some of the major takeaways?
I was very inspired by the financial opportunity center model where folks could get financial education and assistance, benefit information and employment assistance and placement all under one roof.
The Children’s Savings Account Institute was also very inspiring, we recognize the need to reach out to the families in our community so we can encourage and provide more information and support so families get the maximum benefit out of San Francisco’s Kindergarten to College program.
Integrating our financial education services with housing case management is also something we plan to work on as a result of the conference. We do not manage the housing directly so are working with the social service provider to develop a training for their staff.
Did the ALC inspire any changes or new approaches after you returned to your organization?
Yes, primarily in the area of maximizing integration of services.
For example, we have a job program and a financial education and assistance program. Job seekers are referred and encouraged to use the financial education services but rarely do or say they are receiving them elsewhere. We plan to improve that connection by including financial education workshops or assistance as part of each intake.
We are planning on working closer with our housing partners in the community, spending more time training front line staff and also coordinating closer within our own organization.
If you attended the 2012 Assets Learning Conference and have a similar impact story to share, please leave a comment below!
Asset Building Panels at APPAM Research Conference
By Ethan Geiling on 11/06/2012 @ 01:00 PM
This week is the The Association of Public Policy Analysis and Management (APPAM) 2012 Fall Research Conference. APPAM will again include a number of panels and papers that highlight new asset-based research that directly inform policy and practice. For the past three years, the Building Wealth over a Lifetime steering committee has worked to promote more asset-related research and to build a network of inter-disciplinary researchers interested in asset building questions.
The following panels and papers will be presented at the 2012 APPAM Fall Research Conference, November 8-10, 2012, in Baltimore, MD. We hope you can join!
ASSET BUILDING PANELS
Thursday, November 8, 2012: 1:15 PM-2:45 PM Pratt B (Sheraton Baltimore City Center Hotel) Building Policy Solutions to Address Wealth Gaps
Thursday, November 8, 2012: 1:15 PM-2:45 PM International E (Sheraton Baltimore City Center Hotel) Public Policy Implications of Consumer and Other Debt On Individual Health and Well-Being
Thursday, November 8, 2012: 3:00 PM-4:30 PM Salon D (Radisson Plaza Lord Baltimore Hotel) Exploring Public Policy Options for Debt Relief: Foreclosure Moratoria, Bankruptcy, and Principal Forgiveness
Friday, November 9, 2012: 1:00 PM-2:30 PM Schaefer (Sheraton Baltimore City Center Hotel) Tax Time’s Golden Opportunity: How Policy Can Leverage Tax Time to Bolster Savings
Saturday, November 10, 2012: 8:30 AM-10:00 AM Schaefer (Sheraton Baltimore City Center Hotel) Financial Capability and Public Policy
Saturday, November 10, 2012: 10:15 AM-11:45 AM Salon B (Radisson Plaza Lord Baltimore Hotel) Preserving Individual and Community Assets In Times of Financial Hardship
Saturday, November 10, 2012: 1:45 PM-3:15 PM Preston (Sheraton Baltimore City Center Hotel) Child Development Accounts As a Response to Economic Inequality: An Effective and Sustainable Policy Strategy?
Saturday, November 10, 2012: 3:30 PM-5:00 PM International C (Sheraton Baltimore City Center Hotel) Wealth Loss and Recovery During the Great Recession
Click here to download the full list of panels.
Currently reading page 13 of 53.