Savings Bonds: The Season's "Should-Have" Stocking Stuffer
By Anne Kim on 12/14/2012 @ 01:45 PM
EDITOR'S NOTE: This post originally appeared last week on RealClearPolicy. Read the original post here.
For many Americans, the winter holidays are an orgy of shopping and consumption. On Black Friday, a record 247 million Americans—or more than half the country—went to the mall. According to the National Retail Federation, the average shopper spent $423 Thanksgiving weekend, for total sales of $59.1 billion.
Still shopping for holiday stocking stuffers? Forget Pokemon cards—why not a savings bond?
It might be time for a holiday counter-tradition: “Savings Bond Sunday.” That’s when every parent in America gives one $25 U.S. savings bond as a pre-holiday gift to each child. Unlike a check, it doesn’t beg to be spent or require a trip to the bank. And while it might not be as glamorous as a Wii U, it’s far less expensive and infinitely more valuable in the long run.
In addition to bolstering a budding nest egg, the annual gift of a savings bond can help instill in kids the habit and expectation of saving—something that Americans very badly need to do.
In September 2012, the personal saving rate was just 3.3 percent. According to CFED, a stunning 43 percent of Americans don’t have enough cash socked away to make it three months at the federal poverty level. And even as Americans are paying down their credit cards, the average American still owed more than $5,500 on their credit cards as of July 2012, according to consumer site CreditKarma.com. This is on top of other typical burdens on Americans’ household balance sheets: student loans, car payments, and mortgages.
So what better way to help reverse this tide of consumption and debt than by giving savings bonds, the ultimate national symbol of thrift?
Among their virtues, savings bonds are safe, they’re available for just $25, they come with no fees, and they offer interest rates that are relatively competitive compared to bank savings accounts. Moreover, the “Series I Bond” is reasonably liquid. It’s bought and redeemed at face value (you pay $25 for a $25 bond), and can be cashed in with minimal penalties in case of an emergency.
Because of these benefits, savings bonds have in fact proved an ideal savings tool for some Americans, especially “starter” savers with less money to put away or who lack access to a traditional savings account.
For example, the Boston-based Doorways to Dreams (D2D) Fund, a non-profit founded by former Harvard Business School professor Peter Tufano, has long championed savings bonds as a tool for helping low-and moderate-income savers.
In particular, the organization is spearheading an initiative encouraging lower-income taxpayers to save at tax time by buying savings bonds with some of their refunds. In the 2012 tax year, more than 35,000 people participated in the “tax time savings bond” campaign, saving an average of $579 and a total of $20.3 million. In the three years since the program’s launch, the amount saved and the number of community organizations participating has grown exponentially.
Moreover, it’s only been fairly recently that “gifting” bonds has faded as a tradition. After their introduction in 1935 to help finance World War II, Uncle Sam launched an aggressive and successful marketing campaign to make savings bonds a popular holiday, graduation and all-purpose gift.
Like Wheaties, savings bonds enjoyed a string of celebrity endorsers over the decades including Lassie, the Lone Ranger, Superman, Bugs Bunny and Bullwinkle. (One film clip from the 1930s shows Bing Crosby singing a sales pitch for bonds in front of rows of marching sailors. The lyrics: “We’ve got another bomb to buy.”) In 1972, a TV ad presaging the gift-card era shows shoppers returning tacky gifts while a voiceover touts bonds as a gift that works for everyone. Awkwardly-worded dialogue on the benefits of bond-buying even made its way onto such middle-American TV shows as “Father Knows Best,” “Cheers” and “WKRP in Cincinnati.” (Click here for a montage.)
It was only after Congress pulled the plug on marketing savings bonds in 2003 that sales slipped precipitously. In 2011, the U.S. Treasury sold $2.4 billion in savings bonds, compared to $11.3 billion in 2003.
Savings bonds deserve a comeback, if only as a small, retro-chic protest against holiday mass consumption.
As anyone who has been following the “fiscal cliff” discussions knows, the nation is about to embark on a long-term, serious discussion about how to put the federal government’s fiscal house back in order. But an equally important conversation is restoring the personal balance sheets of American households as well.
Reviving a tradition of Christmas-time savings—with the gift of just one savings bond to your child—could be one small step toward that goal.
CFED Notes: "Hope in Concrete Form"
By Anne Kim on 12/13/2012 @ 03:30 PM
CFED Fact File: New Hampshire College Graduates Have the Highest Average Student Debt Burden in the Country.
CFED’s Assets & Opportunity Scorecard finds that college graduates in New Hampshire carried an average student debt load of $31,048 in 2010, significantly higher than the national average of $25,250.
According to the Scorecard, the nation’s next most indebted college graduates are in Maine (average student debt: $29,983), Iowa ($29,598) and Minnesota ($29,058). Meanwhile, the least debt-burdened are from Utah (average student debt: $15,509), Hawaii ($15,550) and New Mexico ($16,399). To see how your state ranks, click here.
“Hope in Concrete Form”: College Savings for Kindergarteners in Cuyahoga County and San Francisco
Local leaders in Cuyahoga County, Ohio, and San Francisco, California, have launched a quiet revolution in college access: they’re opening college savings accounts for every kindergartener to kick-start both college aspirations and savings.
Under a bold new program announced this month, every Cuyahoga County kindergartener will get a college savings account “seeded” with $100. Parents, grandparents and friends can all contribute, and the accounts can only be tapped for educational expenses. A similar effort, San Francisco’s “Kindergarten to College” program, offers $50 in each account.
“Every child in our area will grow up knowing that college is a real and attainable goal,” said Cuyahoga County Executive Ed Fitzgerald at the launch. Research shows that students with savings accounts in their own name are seven times more likely to go to college. Moreover, even small amounts in savings have big impacts. As Washington University researcher Michael Sherraden writes, “Assets are hope in concrete form.”
Cuyahoga County’s program is set to begin in 2013, reaching 15,000 students next fall. San Francisco’s program, launched in 2010, now reaches nearly 8,000 elementary schoolers. With the Cuyahoga County effort projected to cost just $2 million to $3 million a year, children’s savings accounts are a cost-effective investment in both children’s aspirations and the nation’s future growth.
See press coverage of the Cuyahoga County initiative’s launch from American Public Media’s Marketplace; the Cleveland Plain Dealer; the Associated Press; and local affiliates for NBC, CBS and ABC News. Watch remarks from Secretary of Education Arne Duncan here.
Save $25; Win $10,000?
How would you like a chance to win $10,000—just for putting $25 into a savings account? You can in Michigan and a growing number of states.
In CFED’s new policy series on savings innovations, From the Field, we feature an effort by the non-profit Doorways to Dreams (D2D) Fund and credit unions in Michigan to transform savings from a “should do” to pure fun. Their innovation, “prize-linked savings,” rewards savers with a chance to win cash prizes at the same time they are socking away a nest egg. In Michigan alone, these efforts have led to more than 25,000 new savings accounts, along with more than $40 million in savings.
To learn more, click here.
CFED in the News
- In RealClearPolicy, CFED proposes “Savings Bond Sunday” as an antidote to Black Friday consumerism.
- The Cleveland Plain Dealer writes about CFED Senior Researcher Ethan Geiling’s analysis ranking Cleveland the fourth most unbanked city in America.
Give Today to Help Kids Save for College
By Veronica Weis and Michael Chasnow on 12/12/2012 @ 12:30 PM
The holiday season is upon us and as you run around finding presents for your loved ones, we encourage you to consider the gift of giving and investing in education. Earlier this month, the 1:1 Fund, a new online community promoting educational opportunity for low-income students, launched a holiday campaign with the ambitious goal of raising $5,000 in matching funds for students already saving for college. Your donations would go to students in the Bay Area of California or Mississippi to help them and their families save for their education.
Why is this cause so important? Access to rigorous K-12 education is a critical component to preparing students for college attendance and success, but financial preparedness is a surprisingly powerful factor. Research from the Center for Social Development shows that children with savings accounts in their own name are six times more likely to attend college, and significantly more likely to complete college. Having tangible savings gives students more ownership over the college-going process, and perhaps more important, the act of saving for college, even in accounts with small balances, helps to build college aspirations among parents and their children.
Now is the time to effectively invest in the next generation, and these kinds of child savings programs are a broad-based and cost-effective way to seed increased opportunity for lower income students to complete higher education programs. Graduating college is a critical step for lower income families aspiring to join the middle class. Currently, less than 10% of low-income children graduate from college by their mid-20s, severely limiting their future opportunities. Child savings accounts, coupled with quality financial education, can be a critical element in dramatically increasing college graduation rates among low-income families.
Each of us got to where we are today with the support of our families, parents and community. As you shop this month, consider giving in honor of the one person who helped you along your path.
So far, 19 individuals have given over $1,500. Help the 1:1 Fund meet this ambitious goal to raise $5,000 in matching funds during December. To join the movement, go to 1:1 Fund's website, www.1to1fund.org, to safely donate an amount of your choice toward this goal. We hope you'll have a warm and merry holiday season!
The Academic BCS
By Sean Luechtefeld on 12/11/2012 @ 04:30 PM
Today, New America Foundation’s 2012 Academic BCS standings were released. Let me start out by saying that these rankings are far preferable to the actual BCS rankings.
Certainly, I understand that this is a fun way to get people thinking about college success and about the race gap that exists in education. For these purposes, I think New America’s Higher Ed Watch deserves applause. Yet, I think that the Academic BCS rankings call into a question an important point about how we measure college success.
Now, in the interest of full disclosure, I am a proud Florida State grad and was a bit disappointed that my Seminoles came in last place. But, rest assured, that pride doesn’t implicate my bias on this topic; I also worked for three summers at Northwestern and my sister did her undergraduate work at NIU. As a native Illinoisan, I’m actually quite pleased to see the Huskies and the Wildcats at the top of this list.
Nevertheless, the teacher in me takes issue with the methodology here, because it places a lot of emphasis on whether the graduation rate among football players is higher than the graduation rate among the student body more generally. While increased graduation rates is the goal, too often, student-athletes are successful in part thanks to help from programs that, although effective, aren’t accessible to the entire student body.
Rather than focusing on college success for football players, then, the conversation needs to be broadened to focus on primary predictors of college success for all students. One such predictor is whether or not a student – well before they even apply to college – has a savings account for college in their name. Research finds that those students with college savings accounts from a young age are six times more likely to finish a college degree when compared with their non-account-holding counterparts. The benefit: not only can we overcome the race gap in higher education, but we can also begin to address what Jennifer Brooks calls the “aspiration gap.”
Programs that seed accounts for families with young children for the purposes of higher education are gaining steam across the country. Just last month, Cuyahoga County, Ohio announced that it is starting a universal college savings program. Likewise, the State of Colorado is in the process of piloting a program that would create Children’s Savings Accounts for all TANF recipients. Initiatives like these are essential if we are to get serious about the changing nature (read: increase cost) of higher education.
While my Seminole pride makes me wish FSU performed a bit better, I think New America’s Academic BCS rankings are an important starting point to discuss means by which we can improve college access and success, and I applaud their efforts to mainstream this conversation.
Self-Employment IS Job Creation
By Sean Luechtefeld on 12/10/2012 @ 03:30 PM
Twenty-twelve was a banner year for small business. The election, combined with the lingering aftereffects of the Great Recession, brought small business to the forefront of a national conversation about job creation. Indeed, the American public refuses to believe that it’s only large corporations who create jobs.
In fact, not only is it not the case that large corporations create new jobs, but rather, according to research by the Kauffman Foundation, it’s new and small businesses that are solely responsible for all net new jobs that are created in this country.
All net new jobs.
Although this fact is realized by the owners of startups under a year old – those responsible for job creation – the public is yet to embrace a system that supports entrepreneurs who, in essence, create jobs for themselves where employment is otherwise unavailable. Meanwhile, millions remain jobless in an economy that still has a long way to go.
The struggles facing low-income people who turn to self-employment, though real, certainly aren’t insurmountable. For example, one barrier facing the self-employed is that the cost to file the taxes necessary to stay “legal” is high. In many cases, paying to file taxes which themselves come with a lofty price tag simply isn’t viable for business owners who lack liquid capital in the first place. Yet, programs exist to help these filers. Volunteer Income Tax Assistance (VITA) sites – nonprofit programs authorized by the IRS to provide free or low-cost tax filing services – not only defray the cost of filing, but can also help low-income entrepreneurs claim the Earned Income Tax Credit (EITC). Annually, the EITC delivers $7.5 billion in capital assistance to 4.4 million self-employed households.
As a related example, low-income business owners often lack capital and business services that help more established businesses succeed. These services are currently being offered by nonprofits all over the country who help owners of startups access checking and savings accounts or who offer workshops and trainings on homeownership, foreclosure prevention, business development and financial management.
These programs are already proving successful in hundreds of communities throughout the US. To expand on these successes, the federal government should expand programs that help entrepreneurs. Doing so would help more low-income entrepreneurs succeed. When they succeed, we all benefit.
The key, of course, is making the obvious yet overlooked argument: that self-employment IS job creation.
Intuit Wants to Make Your Small Business Dream Come True
By Veronica Weis on 12/07/2012 @ 09:00 AM
Until December 21, Intuit is running the Small Business Big Wishes contest to support local small businesses around the country. Entrepreneurs are invited to apply by sending over a business wish, along with a photo. Since popularity influences the decisions, after hitting submit, they should share it with friends and ask them to vote for their wish. Each weekday they'll grant one for up to $5,000.
Announcing the BETA Project Test Sites
By Ethan Geiling on 12/06/2012 @ 10:00 AM
We’re excited to announce the three partner organizations that CFED and ideas42 will work with through the Behavioral Economics Technical Assistance (BETA) Project: Accion Texas, Cleveland Housing Network and Neighborhood Trust Financial Partners. The Project, funded by the Citi Foundation, will work closely with these partners to diagnose, design and test behaviorally informed interventions that can improve service delivery and financial outcomes for customers.
Almost 100 organizations submitted proposals to the Project--an exciting response demonstrating substantial interest in behavioral economics across the asset-building field. The insights and lessons we learn along the way will be widely shared with the assets field through CFED’s Behavioral Economics website.
And the three test sites are…
Accion Texas Inc. is one of the largest microlenders in the country, successfully lending to low-income consumers who are often shut out of traditional credit channels. Through the BETA Project, Accion Texas will explore behavioral barriers to successful loan repayment that often prevent low-income entrepreneurs from improving their credit scores and climbing the economic ladder. Learn more about the behavioral questions Accion Texas will explore.
The Cleveland Housing Network – the largest nonprofit, single-family affordable housing developer in the country – builds vibrant neighborhoods and strong families through healthy affordable housing. Through the BETA Project, Cleveland Housing Network will examine behavioral barriers to using online payment tools among families in the Network’s flagship Lease-Purchase program. Learn more about the behavioral questions Cleveland Housing Network will explore.
Neighborhood Trust promotes long-term financial security among low-income families by helping individuals become banked, start saving, and begin adhering to a long-term financial plan. Through the BETA Project, Neighborhood Trust will explore the behavioral barriers that prevent low-income individuals from signing up and actively using transaction accounts. Learn more about the behavioral questions Neighborhood Trust will explore.
Over the coming months, we’ll share insights, lessons and early findings from the project. In the meantime, visit our newly-updated behavioral economics website to get the latest BE news and resources. For example, check out these resources:
- Matthew Darling of ideas42 discusses behavioral economics in the assets field in a recent blog post.
- The revamped Behavioral Economics 101 Primer page provides a dynamic introduction to the field of behavioral economics.
- Mindy Hernandez’s paper offers the top lessons gleaned from a year of applying behavioral research to asset-building initiatives.
- The Research and Resources page includes the latest Behavioral Economics news stories, like this article in The New Republic discussing how the Consumer Financial Protection Bureau is helping solve “behavioral market failures.” Or this article in Marketplace exploring the psychology of poverty and how the poor have less room for error when making financial decisions.
The BETA Project is part of the Assets & Opportunity Network’s Intensive Learning Clusters - which are time-limited, thematically-based opportunities for organizations to learn from each other and from outside experts to advance a learning agenda on specific topics or approaches of critical importance to the assets field. To learn more about this and other learning community opportunities, visit our Learning Community page.
Congressional Briefing on Center-Based Strategies for Moving Working Families into the Middle Class
By Kori Hattemer on 12/05/2012 @ 12:00 PM
United Way of the Bay Area (UWBA), Annie E. Casey Foundation, Local Initiatives Support Corporation (LISC), United Way Worldwide and MDC are leading the way in developing an innovative approach that provides “bundled” services that integrate multiple programs in one place to address the complexity of a person’s financial situation.
UWBA partnered with the Annie E. Casey Foundation, LISC and MDC to present their approach yesterday during a congressional briefing hosted by Congresswoman Barbara Lee, who chairs the Out of Poverty Caucus. The organizations presented the findings that are outlined in the Ladders to Success report UWBA recently published. The report details how United Way and other organizations are providing multiple services under one roof to move people out of poverty.
At the briefing, UWBA highlighted their 10 Bay Area SparkPoint Centers that bundle services to give low-income residents one location where they can access public benefits, receive financial and job coaching, credit counseling and job training, and get referrals to housing, child care and emergency food. UWBA and their partners emphasized the need to find innovative ways to streamline services and shift how government services are administered as Congress works to fix the federal budget.
The Annie E. Casey Foundation created the Center for Working Families model that is being implemented across the country by United Way, LISC and MDC in more than 90 sites. In 2011, these sites provided education, employment and financial services to nearly 13,000 clients and found that clients who received two or more bundled services were two to three times more likely to achieve their economic goals (e.g., obtaining employment, increasing skills, improving credit or starting savings) than those who only took advantage of a single service.
CFED believes that the integration of services presents a tremendous opportunity to impact low-income households by innovating on how, when and where integration occurs – particularly when it comes to embedding financial empowerment strategies. Currently, we are bringing together five social service delivery organizations in an Intensive Learning Cluster and working with them to integrate financial empowerment into the services they provide by leveraging our asset-building expertise and connections to experts throughout the field. We recently published a blog post and brief about our work on this project to date and will continue to publish our findings throughout the Intensive Learning Cluster as we work to build on the integrated service delivery model.
Manufactured Housing by Any Other Name Would Work As Well
By Susan Bond on 12/04/2012 @ 11:30 AM
EDITOR'S NOTE: This post originally appeared on the Next Step blog and can be read here.
Note: This blog post is a response to an article that appeared in the Wall Street Journal, which speculated about the language being used to describe manufactured housing. The title “What’s in a Name?” is taken from a line in Romeo and Juliet, but the rest of the line is worth quoting: “That which we call a rose by any other name would smell as sweet.” The line conveys the arbitrary nature of naming, but offers positively that even tainted names like Romeo’s surname, Montague, would still not stop him from being be made up of his pleasant essence. Like Romeo, manufactured housing continues to be tainted with names like trailer and mobile home. Hopefully, this blog will address why we have come to call manufactured housing what it is, and I will try to get at the essence of what it means when we call manufactured housing a “home.“
In, “What’s in a Name? A Lot, for FEMA’s Housing Units” a linguistics professor was consulted to weigh in on the debate between politicians who used a variety of terms to describe FEMA manufactured housing. Stephen Schiffer asserted that changing the name “trailer” or “mobile home” to manufactured housing was just using a “euphemism” to wash over lower standards for FEMA housing, effectively ignoring the HUD spokesman. This simple linguistic trick ignores the great strides that manufactured housing has made to bring quality to homeowners. It’s true that renaming a product line can be used to create a new image for corporations, products, and even people to create distance from a tainted history. But that power of perception and linguistic symbolism can also be used for the reverse. It can also be used to reclaim identity and to distance a product from an unfair stigma. The same word reclaiming happens in all areas of social justice, and it is often employed in areas of race and gender among other causes. Similar discrimination bolstered by language happens to owners of manufactured homes based not only on their homes, but also their identity as people.
The term “manufactured housing” actually has less to do with quality and more to do with its production model. Its history is a derivative of the Ford business model of car production lines via RVs, a model that was an innovation for both business and transportation, helping grow the United States economy. This model allows manufactured homes to be built in a more controlled work environment, with less exposure to elements that can rot materials, and allowing work under all weather conditions – allowing increased efficiency, comfort, and access to amenities you wouldn’t get during site-built construction. And since the enactment of the HUD Code in 1976, manufactured homes built in these factories have been held to building and safety standards just as stringent as those for site-built homes. But solely because of their history in the travel trailer industry, owners of manufactured homes in most states still must title their homes as personal property, subjecting them to high interest consumer loans. Advocates for policy to ensure that owners of manufactured homes have the same rights as owners of site-built homes are working to change this, but many owners of manufactured homes continue to bear the effects of this discrimination.
Suggesting that a term like manufactured housing deserves to retain the social contamination of “trailer” may have the appearance of savvy critical thinking, but it also lapses into futility for change and progress. The stereotype of a “trailer” invokes racial and class smears that are more acceptable to use in the media than other dehumanizing slurs. Specifically, the term “trailer trash” is a slur that condemns a type of residence while characterizing its tenant as also less than human. The Appalachian region is the most impoverished region in the US, and was compared to the living conditions of the third world by Lyndon B. Johnson in 1964. There is still a dragging poverty in the Appalachian region, but manufactured housing has been used as tool to provide housing and financial stability. While a significant percentage of manufactured housing makes up the housing stock in this region, it is also spread out from coast to coast in both rural and urban environments, and across racial and financial demographics.
Language is easy to use to manipulate things into ready-made categories, but it takes deep, systematic change based on science to generate the material reality that will lead to equity in homeownership and subsequent, universal acceptance of people – the two are directly related. While it is important to note that turning a blind eye to perceived lower standards of housing will not bring equality, it is also important to make sure that we do not dismiss a great opportunity for housing people in immediate need for shelter or in the long term because we believe that the industry cannot or will not improve.
Ideally, manufactured housing used for natural disasters could provide people with homes furnished with electricity, plumbing, internet, phone, security, and privacy compared to stadiums, tents, or hotels miles from your home that hinder your ability to clean and rebuild faster. Because of its inherent efficiencies, it could also be used to replace a home entirely in as little as six weeks. Changing the terminology of trailer to manufactured housing is supported as much by nonprofits who wish to reframe how we view the people who live in manufactured housing, as much as the homes. Manufactured housing advocates have helped homeowners form land co-ops, create community associations that promote civic engagement, and save money for investments like college by getting access to responsible, fixed-rate financing and green homes which save on bills and energy. Language should not be arbitrary, but when backed up by a systematic approach of creating new building standards, equal access to homeownership, and social awareness and mobility, it can help communicate a direction for change.
CFED Selects Integrated Service Delivery Learning Cluster Participants
By Kori Hattemer on 12/03/2012 @ 09:45 AM
CFED is bringing together five organizations in an Intensive Learning Cluster to help them improve the financial security of the low-income households they serve. Thanks to support from the Bank of America Charitable Foundation, CFED is helping these social service delivery organizations integrate financial inclusion and asset-building strategies using an Integrated Service Delivery (ISD) model.
Innovative practitioners and charitable foundations have developed the ISD model to improve outcomes for the people they serve by bundling services. Research has shown the effectiveness of this approach but revealed a shortage of organizations successfully integrating financial empowerment services. During the Intensive Learning Cluster, CFED is working with the member organizations to help families access financial information; connect to safe, affordable financial products and services; build savings and wealth; and protect themselves in the financial marketplace – all while offering this alongside the other services they provide.
Each of the five organizations participating in the Intensive Learning Cluster brings a unique perspective and comes from a particular place on the service delivery spectrum.
- El Buen Samaritano is a multi-sectoral organization that serves 12,000 disadvantaged Latinos in the Central Texas Latino community per year.
- FEGS Health and Human Services is a large, nonprofit workforce development agency that serves 100,000 people in the New York City area per year.
- Pacific Clinics is a behavioral health provider that serves 15,000 low-income and homeless people at 50 sites across southern California per year.
- Solid Ground is a multi-sectoral Community Action Agency that serves 57,000 low-income people in the Seattle, Washington area each year.
- The Family Initiatives Section of the Texas Office of the Attorney General Child Support Division serves 1.3 million children and families throughout the state of Texas.
The specific issues facing each organization vary, but a number of challenges are common among multiple Learning Cluster members, including:
- Assessing client needs with a tool that is not cumbersome to administer and that will help them determine the appropriate services for their consumers
- Connecting to the existing field of financial empowerment experts and implementers, both nationally and within their communities
- Identifying available and appropriate financial empowerment services, despite having limited knowledge of and experience with this type of service delivery
- Determining the appropriate financial education for diverse clients and service settings from among the multitude of available curricula and delivery options
- Choosing whether to offer services in-house or to refer to external partners, according to organizational capacity and community relationships
- Setting up a data collection and evaluation system that measures the anticipated outcomes of financial empowerment strategies and fits within existing data management systems
- Recruiting participants from the community who are ready for and interested in financial empowerment services
- Managing organizational change while planning and implementing both large and small systematic and programmatic changes, including obtaining buy-in from administrators, managers and front-line staff, and training staff to take on new job responsibilities
CFED is excited to be learning alongside these integration pioneers and will report on their progress toward addressing these challenges along the way. Please see this recently published brief for more information about the Intensive Learning Cluster.
CFED Notes: How Many Americans Have "Subprime" Credit?
By Anne Kim on 12/03/2012 @ 08:00 AM
CFED Fact File: 56% of Americans have "Subprime" Credit Scores.
Most people may think of themselves as having good credit. But the reality is that most Americans don’t. CFED’s Assets & Opportunity Scorecard finds that a whopping 56% of Americans have credit scores of 700 or below, as reported by credit reporting agency TransUnion. Even in North Dakota, which ranks as the nation’s most “credit-worthy” state, 42% of residents have “subprime” credit.
Among other penalties, less-than-stellar credit can cost a consumer thousands of dollars in additional interest on a home or car loan. On a $100,000 mortgage, for example, www.myFICO.com calculates that a credit score of 620 (versus 720) translates into more than $32,000 in additional interest over the life of the loan, plus nearly $100 more per month in monthly payments.
Another Warning for Household Financial Security: Ranks of the "Unbanked" Rising.
According to the FDIC, growing numbers of American households are becoming disconnected from the financial mainstream. In 2011, 10 million households had no bank account at all (are “unbanked”), while another 24 million households had a bank account but still relied on non-bank providers such as check cashers and payday lenders for essential financial services (are “underbanked”). All told, more than 1 in 4 American households (28%) are unbanked or underbanked.
CFED’s latest Fact File, “Unaccounted,” gives a snapshot of these households, many of whom are “middle class.” You can also see a map of the top 10 most unbanked places in America, along with a quick analysis of what this all means for Americans’ financial security. Read here.
Rebuilding America's Balance Sheet -- One Household at a Time.
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, 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; and
- Tweaks to existing savings vehicles to make their more accessible to lower- and moderate-income families.
Struggling Homeowners Head Toward Their Own Tax Cliff.
Among the potential solutions for restoring Americans’ balance sheets is principal reduction—loan forgiveness for struggling borrowers defaulting or underwater on their mortgages. Since 2007, lenders have modified more than 5.8 million home loans, including 1.1 million mortgages under the federal government’s HAMP program.
But homeowners may not find much relief if principal reductions become taxable, as could happen at year-end. The law currently exempting mortgage debt forgiveness from taxes expires December 31, along with the other provisions are part of the “fiscal cliff.” The potential result is a crippling choice for homeowners—a tax bill they can’t afford to pay or a foreclosure because they can’t afford to renegotiate their mortgage.
Writing for RealClearPolicy, CFED argues for the temporary extension of mortgage tax relief, which would particularly benefit low-income borrowers hit hardest by the foreclosure crisis. Read more here.
CFED in the Spotlight
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 email@example.com 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 firstname.lastname@example.org. 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).
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