Eliminating Asset Limits Helps Families Save
By Ezra Levin on 11/26/2013 @ 02:30 PM
Read CFED's new Federal Policy Brief on Asset Limits for Federal Programs.
As Congress debates the Farm Bill, we here at CFED are focused on an eye-glazing phrase: “broad-based categorical eligibility.” That incomprehensible wordsmithing refers to a feature of the SNAP program (formerly Food Stamps) that allows families that receive TANF benefits to automatically receive SNAP benefits. This simplifies SNAP administration, and, crucially, it allows states to eliminate the $2,000 asset limit that would otherwise apply to most families on SNAP.
Raising asset limits is a no-brainer for state administrators who want low-income families to save, which is why 41 states have used this provision to raise or eliminate SNAP asset limits. But this wonderful provision is on the chopping block. The House Farm Bill proposal eliminates “broad-based categorical eligibility,” reinstating the $2,000 asset limit for every state.
Will this really impact families all that much? Yes, it will.
Just as an example, consider the Earned Income Tax Credit (EITC), which boosts tax refunds for low-income working families. Last year, 27 million households qualified for the EITC, with an average refund boost of $2,200.
Now think about what happens if a family decides to save that refund for the future. Currently, in states that have eliminated the SNAP asset limit, families can put that tax refund away for a rainy day without fear of losing public benefits that they need to make ends meet. But without “broad-based categorical eligibility,” families that choose to save that money risk losing their SNAP benefits.
So let’s review the House Farm Bill proposal
While families in most states can currently save without fear, the House Farm Bill reforms will give families two options:
Earn income -> get tax refund -> save your tax refund for the future -> lose your SNAP benefits
Earn income -> get tax refund -> spend your tax refund today! -> keep your SNAP benefits
How is this better than letting low-income working families save for the future without penalty? It’s not. This is bad policy that eliminates state flexibility and stops families from investing in the long-term for themselves and their children.
For more information on asset limits, read our new Federal Policy Brief, which describes how eliminating these barriers to saving can help families that are struggling to get ahead.
Empowering Low-income Families with the SAVINGS Act
By Melanie Kwon Duch, Guest Contributor on 10/30/2013 @ 01:00 PM
Today, Congressman Matt Cartwright (D-PA) and 17 Democrat and Republican cosponsors introduced the SAVINGS (Save Access to a Valuable Investment Needed to Generate Savings) Act. This legislation would protect the tax-time savings bond policy, the policy that allows tax filers receiving refunds of at least $50 to purchase a Series I Savings Bond directly on their tax form. This option has been available since the 2010 filing season, but is not guaranteed beyond the next one. The SAVINGS Act would protect it until 2018 while pushing the Treasury Department to come up with a more permanent tax-time savings bond solution, one that is in line with its goal of paperless bonds.
Savings bonds may seem quaint to some, but they are one of the best products available for small savers and investors. For them, bonds fill a conspicuous gap in the marketplace. There has been much discussion about how to curb the predatory financial products and services that target low-income and unbanked communities, but what has been largely absent from this discussion is the role that the lack of accessible savings products plays in people’s reliance on them. More than one in four American households is underserved by the traditional financial services industry—banks have been pulling out of low-income communities even as they expand in wealthier ones. Tax-time savings bonds do the invaluable work of bringing safe, competitive, accessible savings products to low- and moderate-income households. Importantly, they do this tax time, which, thanks to refundable tax credits like the EITC, is one of the most “savable” moments of the year. For many low-income families, a tax return can comprise as much as 15% of their annual income.
The tax-time savings bond policy grew out of pilot tests that began in 2007 and has proved successful in the four years it has been offered nationally. More than 100,000 tax filers have purchased U.S. Savings Bonds through the policy since it began, setting aside more than $60 million dollars for themselves and their loved ones. Although it is open to all tax filers who receive a refund, the majority of bond purchasers have adjusted gross incomes below the national median and nearly one in three is an EITC-recipient. Furthermore, about 25% of bond buyers buy again the following year, evidence of a growing savings habit.
Saving is hard. We need to find ways to make it easier to save, not eliminate them. The tax-time savings bond policy is a much-needed solution, one that leverages the existing assets and infrastructure of the U.S. Savings Bond Program. It compliments existing federal asset building programs and policies, the majority of which focus on the tax code. There are few good options for low- and moderate income Americans who want to invest in their futures. The SAVINGS Act preserves one of them and takes the important first step towards making tax-time savings bonds a permanent option for all Americans.
Melanie Kwon Duch is an Innovation Strategist at the Doorways to Dreams Fund.
Bipartisan Legislation Supports Innovative Strategies to Help Working Families Save
By Ezra Levin on 10/29/2013 @ 03:00 PM
Yesterday, Senator Jerry Moran (R-KS) was joined by Senator Sherrod Brown (D-OH) to introduce the American Savings Promotion Act (see Sen. Moran’s press release here). Representative Derek Kilmer (D-WA), joined by Representatives Tsongas (D-MA) and Cotton (R-AR), led the way in the House of Representatives with a companion bill introduced today as well (see Rep. Kilmer’s press release here). This commonsense legislation will encourage the growth of Prize Linked Savings (PLS) accounts, which have already succeeded in increasing the financial capability of working families in many states and have the potential to spread throughout the country.
“Prize-linked savings” is the brainchild of former Harvard Business School professor and now Dean of Oxford University’s business school Peter Tufano. Doorways to Dreams (D2D) has worked the last several years testing the theory on the ground by partnering with local credit unions to run “Save to Win” programs in four states. These programs allow savers to open a 12-month “Save to Win share certificate” (essentially a certificate of deposit). For each $25 deposit, savers are entered into both a monthly drawing for small cash prizes and an annual drawing for a grand prize of $10,000 or more.
For savers the math is simple: they get a chance to take home cash prizes while saving for the future—it’s a win-win. D2D research has found that these prizes encourage healthy savings behavior, and the results are impressive. In less than five years since its inception, the number of participating credit unions has grown from eight in Michigan to more than sixty in four states. In just two of the states where Save to Win operates—Michigan and Nebraska—42,000 people have opened accounts and saved $72 million.
Many of these accounts are opened by families who have never had significant savings before. This includes former non-savers, families who are asset poor, and families who are low- and moderate income. In short, without a dime of government subsidy, Prize Linked Savings accounts are helping families enter the financial mainstream and attain financial security. What a deal!
Unfortunately, federal law prohibits banks from offering Prize Linked Savings products, which is why only credit unions in some states have participated so far. This is where the American Savings Promotion Act comes in. This legislation would remove the regulation banning banks from the Prize Linked Savings field, allowing these savings products to spread further and faster throughout the country. It’s no wonder why this legislation has attracted support from a wide range of groups and an ideologically diverse group of Senators and Representatives—it just makes sense.
CFED’s Kim Pate Testifies Before U.S. House of Representatives
By Ezra Levin on 09/19/2013 @ 05:00 PM
On Thursday, CFED’s Chief External Relations Officer Kim Pate testified before the House Small Business Committee’s Subcommittee on Economic Growth, Tax and Capital Access. The topic of the subcommittee’s hearing was “Private Sector Initiatives to Educate Small Business Owners and Entrepreneurs.” Click here to download Kim’s full written testimony.
In her testimony, Kim highlighted the importance of “microbusinesses”—those with fewer than five employees. While individually small in size, microbusinesses account for 90% of all businesses in the country. Taken together, these microentrepreneurs are responsible for creating millions of businesses and even more jobs. On average, these ventures create 2.9 full and part-time jobs each.
Not only are microbusinesses an important influence on the macro economy, they also offer a real opportunity for low- and moderate-income individuals and families to attain economic self-sufficiency and stability. Microbusinesses that survive, grow and become profitable, enhance household income and reduce families’ reliance on public assistance.
Kim also discussed the importance of tax time for microbusinesses. In 2005, CFED launched the Self-Employment Tax Initiative (SETI) with the goals of building assets for low-income households, creating jobs and increasing tax revenue by bringing the self-employed into the tax system. Through this effort, CFED has partnered with Volunteer Income Tax Assistance (VITA) programs, which provide free tax support to low- and moderate-income taxpayers. In short, VITA works and works well—a National Community Tax Coalition (NCTC) report found that VITA programs helped more than 3 million taxpayers claim $2.2 billion in tax refunds while saving the federal government $5.5 million in reduced processing costs.
Building on the success of SETI, CFED joined NCTC and the IRS to launch the Schedule C VITA Initiative, which aims to test new ways to expand support for microentrepreneurs through the VITA program. Also inspired by SETI, Representative Judy Chu (CA-27) introduced the Entrepreneur Startup Growth Act last Congress, which would have added much-needed additional tax assistance support for small entrepreneurs.
CFED looks forward to working with the Subcommittee and Congress as a whole to move forward on these and other opportunities to expand economic opportunity, create jobs and support the most powerful little engines for economic growth in the country—microentrepreneurs.
Census Poverty Report: America’s Working Poor Still Waiting for Recovery
By Lebaron Sims on 09/18/2013 @ 10:30 AM
Though the nation’s GDP has bounced back in the last six years, millions of Americans have yet to recover from the economic crisis.
Today the U.S. Census Bureau released its 2012 Income, Poverty and Health Insurance Coverage report and data, and the state of play for working Americans is as bleak as at the post-recession crest.
Median household income remained a full $4,500 (8.3 percent) below its pre-recession point, in real terms. The official poverty rate was 15%, representing 46.5 million Americans living below the poverty line. These trends are no different than 2011, highlighting the lasting effects of the Great Recession and the long road to recovery most Americans have yet to traverse. These findings only reinforce the importance of America’s safety net programs, like Social Security and the Supplemental Nutrition Assistance Program (SNAP).
Low- and moderate-income families have seen the largest proportional losses in family income over the last six years, and, as these latest Census Bureau data reiterate, little has changed over time.
Average family income for the lowest fifth of the income distribution (less than $20,600) has declined steadily since the 2001 recession, with that decline accelerating to greater than three percent annually after 2007. Families earning between $20,600 and $39,764 have seen annual declines in family income greater than two percent, and, like those in the lowest quintile, have watched their incomes slide downward since 2001.
The historical data on poverty rates by age serve as a brilliant illustration of our nation’s misplaced priorities regarding assistance programs. By the official poverty measure, 21.8% of all American children—over 16 million boys and girls—lived below the poverty level in 2012. In fact, only the age cohort 65 years and older has seen *any* decline in the poverty rate since the recession hit in late 2007. This disparity can be attributed, at least in part, to the success of Social Security and Medicare, the transfer programs in place specifically for older Americans. The importance of this safety net cannot be understated—without it, over 15 million more seniors would live in poverty. This protection, however, should not come at the expense of programs that assist low-income families.
The cuts to the SNAP already in effect, and the more extensive ones proposed by the House GOP as an addendum to the Farm Bill, would devastate low-income households that rely on these benefits to stave off poverty. The Census Bureau estimates that SNAP alone keeps 4 million low-income parents and children above the poverty line. The House GOP’s proposed cuts would almost entirely erase this benefit. In addition, the federal Earned Income Tax Credit keeps 3.1 million children out of poverty. Though neither estimate is included in the official poverty estimates released yesterday, both are included in the Census Bureau’s Supplemental Poverty Measure (SPM), to be released October 30.
Today’s data release only underscores the importance of America’s safety net. Until household incomes recover fully from the recession—which they continue to show no signs of doing in the immediate future—programs like Social Security, Medicare, SNAP and Medicaid are all keeping millions of children, working families and seniors out of abject poverty. Now, more than ever, is the time to strengthen our policies, and lend a hand to families working to climb out of poverty.
All-In Nation: Making the America that Works for All
We were delighted last month when the Center for American Progress (CAP) and Policy Link released All-in Nation: An America that Works for All. The book, edited by Vanessa Cárdenas and Sarah Treuhaft, is an eloquent explanation of how strong communities of color are the linchpin to a vital economic future in the United States. We were also extremely pleased to see that saving, college access, education, homeownership and so many other issues typically left out of the conversation were thoughtfully included in this treatise on inclusivity.
All-in Nation is noteworthy for how it advances the conversation about asset-based strategies that create pathways for economic security. As one example, we love the recommendation that Congress turn certain tax deductions into refundable tax credits as a method for incenting saving. Likewise, the proposal for a savings tax credit to be used for a variety of purposes such as retirement savings or health care is one that Congress ought to seriously consider if they want to move the dial on our country’s burgeoning racial wealth gap. It’s policies like these—moveable, meaningful and manageable—that actually have the potential to make a difference when it comes to ensuring fair financial footing for communities of color.
All-in Nation also gains kudos for including in its pages descriptions of many of the collaborative efforts to close the racial wealth gap and advance America’s assets agenda that are springing up around the country.
An additional example to consider is the Asset Building Policy Network, or ABPN. Made possible through support from Citi, who is also a member, the ABPN is a coalition of the nation’s preeminent civil rights and advocacy organizations—including CAP and PolicyLink—committed to improving economic opportunity and security for low- and moderate-income families and communities of color. The ABPN engages in policy advocacy, such as authoring several comment letters to federal agencies, which has resulted in action by the agencies that supports ABPN issues. The Consumer Financial Protection Bureau, for example, directly quoted the ABPN’s comment letter on financial education. ABPN members have also collaborated to conduct research, including the recent collaboration among member organizations National Council of La Raza, National Urban League and National CAPACD to study the financial access challenges facing low-income people of color in the financial marketplace.
These examples, and the broader message of All-in Nation, reaffirm one of CFED’s core values: collaboration. As a special organizational calling and competency, engendered by a conviction that our success requires the varied talents and contributions of many, that a rich diversity of race, gender, background and perspectives and a commitment to learning from others strengthens our work, collaboration has defined our work since the beginning.
As Dr. King reminded us some 50 years ago, change doesn’t roll in on the wheels of inevitability; it comes through continuous struggle. That struggle is as important now as ever before; CFED’s own research finds that about two-thirds of households of color find themselves living in asset poverty, meaning they lack the resources necessary to sustain themselves at or above the poverty line in the event that an emergency like illness leaves them without their primary source of income.
While we cannot undo past discrimination, we can change the trajectory of its future. This is the call that organizations like CAP and Policy Link and coalitions like the ABPN are heeding every single day. Books like All-in Nation are precious moments when that call is amplified, so we hope you’ll read it as soon as you have the chance.
How Food Stamps Keep Families in a Cycle of Poverty
By Mercedes White, Deseret News on 09/09/2013 @ 12:00 PM
EDITOR'S NOTE: This article originally appeared in Salt Lake City's Deseret News and you can read it here.
On a recent Monday evening, 6-year-old Esther lugged a jar of Nutella from the kitchen into the living room where her mother Melissa, nine months pregnant, rested on the sofa in their modest Utah County home. Esther held the jar out to her mother, smiling shyly as she asked for permission to have some. Melissa let out a gentle sigh as she unscrewed the lid. “Not too much,” she said as she handed the jar back to her daughter. In one week she may not be able to give her daughter luxuries like a spoonful of Nutella.
Until recently, Melissa and her husband Jimmy received $400 a month from the Supplemental Nutritional Assistance Program, also known as food stamps. Combined with the $21,000 Jimmy earns as a security guard at a local hospital, it was just enough to feed their four (soon to be five) children ages 2 to 10.
Since 2007, the number of Americans on SNAP has exploded, going from approximately 22 million people at the start of the recession in 2008 to more than 45 million in 2013. The program provides these families a much-needed safety net as they struggle to get back on their feet, according to Jennifer Brooks, policy director with the progressive Corporation for Enterprise Development based in Washington, D.C.
Jimmy and Melissa say they would like to get off food stamps altogether and be on their own, but the rules governing eligibility for the program make it hard. In particular, federal policy stipulates that no matter how small the income or how large the family, persons with assets more than $2,000 — which include savings accounts — are not eligible to take part in SNAP.
According to many social policy experts, this rule needs to be changed. “Asset tests impede the process of moving from dependence on government assistance to self-sufficiency,” said Michael Sherraden, professor of social work at Washington University in St. Louis. Savings are an important part of economic development, he said. “In order to develop capacity, families and communities must accumulate assets and invest for long-term goals.”
A safety net of three months worth of living expenses can ensure that low-income families have some cushion when their car breaks down or work hours get cut, said Brooks. “It will be the difference between going right back on government assistance when an unexpected expense comes up and being able to absorb the cost and remain self-sufficient.”
Wrong to save
Melissa and Jimmy didn’t know about the asset limitation when they decided to put a $3,000 tax refund into a savings account. The couple was eager to get off government assistance as soon as possible. “I never thought I would be in a position where we needed this kind of help,” Jimmy said. Putting some money aside for unexpected expenses and towards a down payment on a home seemed like important first steps.
Several months after depositing their refund, the couple received notice that their food-stamp benefits would be cut at the end of July. The couple understands why the rule exists, but they said it came as an unexpected blow. “You don’t want people with no income and $50,000 in savings taking government benefits,” Jimmy said, “but that isn’t what was going on here. They need to look at the totality of the situation.”
Melissa and Jimmy weren’t sure what to do. Without SNAP they’d need to use their nest egg to feed their family, defeating the purpose of saving in the first place. Not only would they lose their savings, their monthly food budget would go from $400 on SNAP to $250. As she looked at the numbers, Melissa wasn't sure if she could feed six people on that. Though the family eats modestly on SNAP, there is room for some fresh fruits and vegetables and the occasional treat. Without SNAP, the only way they could get by is by cutting out fresh produce altogether. Melissa is reluctant to go this route: "I'm worried this kind of diet will jeopardize my kids' health," she said.
The alternative is to spend some of their savings so they can again qualify for SNAP. “It felt like a no-win situation,” Melissa said, “like we were being forced to choose between what is good for our family in the long term and what our kids need right now.” Survival in the short term and financial security in the long term seemed completely at odds.
Melissa and Jimmy's experience is not unique — according to Reid Cramner, a director with the New America Foundation's Asset Building Program — it is how American welfare works. The rules force "families to choose between a small emergency cushion and putting food on the table," he said in a recent statement for the New American Foundation. "We're forcing them to accept long-term poverty in exchange for short-term assistance."
Prior to 1996, federal social assistance programs like food stamps focused on providing long-term income support to poor Americans. “Essentially, people could be on welfare indefinitely,” Brooks said. “In this context (when the goal of the program is to provide income support), an asset test makes sense,” Brooks added, explaining that it reduces the likelihood that individuals with the resources to support themselves will claim government assistance.
However, the “Personal Responsibility and Work Opportunity Reconciliation Act,” signed by President Bill Clinton in August of 1996, marked a fundamental shift in the American approach to social welfare programs. “The goal of the welfare reform was to move families off government assistance,” Brooks said. “You couldn’t be on welfare forever anymore.”
But when the federal government made these sweeping changes to welfare, the assets test remained in place. The problem with assets tests, however, is that they are “contrary to the goal of getting people off welfare,” according to Brooks. “If a program has the explicit goal of moving people from dependency to self-sufficiency, people need to have an opportunity to build up a safety net before they transition off government assistance.”
The states’ role in welfare
Welfare is federally funded, but it is up to each state to determine how to administer the programs, including SNAP, Medicaid and Temporary Assistance for Needy Families. Shortly after welfare reform, some states recognized that assets tests didn’t make sense anymore. Since 1996, 35 states eliminated assets tests for SNAP benefits. Five states (Nebraska, Pennsylvania, Texas, Michigan and Idaho) increased the amount of assets beneficiaries can hold from $2,000 to between $5,000 and $25,000. Ten states (including Utah, Wyoming, Virginia and Alaska) use the federal government’s $2,000 assets threshold.
Moving off dependence on government benefits is difficult everywhere, but the challenges are especially formidable in states with strict assets limits. In many circumstances it means that families, like Jimmy and Melissa, are getting pushed out of the nest before they can fly. "These programs are supposed to help people transition out of poverty," said Martha Wunderli, state director of the Fair Credit Foundation in Utah, a non-profit organization that provides financial services including education, debt management and asset building programs for low-income families. “Building assets is a big part of getting out of poverty ... and it is not fair to remove benefits that help them get out of poverty before they are ready."
Some states are reluctant to change their policies due to fears people will abuse the system. Brooks notes several states reinstituted assets tests after allegations of lotto winners and wealthy elderly retirees receiving benefits were made public by the press.
Brooks recommends that instead of re-instituting assets tests, governments change the rules about what counts as income. “The situation with the lottery winners could have been avoided if state law considered their winnings income, not assets,” Brooks said.
But not everyone agrees. Some conservative lawmakers want to hold all states to the federal assets limit. For example, Rep. Paul Ryan (R-Wis.) and Rep. Frank Lucas (R-Okla.) would like to add a condition to the Farm Bill that would force states to adhere to the federal government's assets test. This could result in millions of people losing benefits, Brooks said, adding that supporters of this policy consider it a way to decrease fraud.
Weeks away from delivering her fifth child, Melissa isn't in a position where she can work. Even after the baby comes she's unsure about whether she will be able to work. The couple's eldest daughter has a rare chromosomal abnormality, which requires extensive medical care and behavioral therapies. Someone needs to be there to take her to these appointments and communicate with the doctors and therapists about her progress. She'd love to take on some part-time work from home, but it will be some time before she's in a position to do that.
Jimmy is looking for better-paying jobs, too. He'd like to apply for the police force in their city, but at this point, his fitness level isn't where it needs to be to meet the requirements. He's working on it, but it will be a few months before he can apply for the police force and several more before he would start working — assuming he gets hired.
As they look at the numbers and their current situation, Jimmy and Melissa feel they don't have much of a choice but to spend some of the money they saved so they can again qualify for SNAP benefits. They would prefer the security and potential for leaving welfare that the savings represented, but as Jimmy puts it, ”When you have kids, you have to put the needs of your family before your pride.”
Policy Alert: Tell Congress to Keep State Flexibility to Lift Asset Limits
By Emanuel Nieves and Jeremie Greer on 07/24/2013 @ 02:00 PM
After failing to pass a Farm Bill in early July, House Republicans last week managed to pass a pared-down Farm Bill without the Supplemental Nutrition Assistance Program (SNAP), previously known as food stamps. The 216-208 vote was mainly along on party lines with all Democrats and 12 Republicans voting against the measure. Last week’s vote is also noteworthy as it’s the first time in 40 years that SNAP has not been a part of a Farm Bill, a strategy that House leadership adopted in order to persuade more conservative members to vote for the measure.
The House Agriculture Committee chairman, Rep. Frank Lucas (R-OK), and House leadership have indicated plans to work on a SNAP-only bill, although the precise timeline and extent of SNAP cuts in that bill remain unclear.
Last month’s failed Farm Bill included a $20.5 billion cut to the SNAP program, with 60% of these cuts coming from elimination of “broad-based categorical eligibility,” which since 1996 has given 36 states the flexibility to eliminate asset limits in SNAP. Had this policy been enacted it would have reversed 17 years of state-level progress and would have caused up to two million Americans to lose benefits altogether. One of the biggest reasons for the failure of last month’s farm bill was that a large number of Republicans (64) voted against that measure because they felt that SNAP cuts were not deep enough. This does not bode well for a future SNAP-only bill.
The Senate passed its Farm Bill with strong bipartisan support, which includes modest cuts to the SNAP program but does not separate it from the overall bill. Importantly, the approved Senate cuts would not affect states’ flexibility to remove asset limits in the SNAP program.
It remains unclear at this point what will happen next, legislatively speaking. There is a strong possibility that both chambers will go to conference and begin working to resolve disagreements between the two versions, which will almost entirely revolve around SNAP. Democrats are holding to their position that SNAP should remain in the Farm Bill with only modest cuts. In addition to Democratic opposition, nutrition and asset-building advocates, as well as the farm lobby, do not support the split and are advocating for the farm and SNAP titles to remain part of a single bill.
While we wait until the path forward is clearer, you can still make your voices heard back home as Members of Congress will soon begin their August recess. Schedule a meeting with your Member’s district office to express your concerns over the Farm Bill and what this will mean for your asset-building work. Members will also hold numerous town halls and other local events while they are back home and you should try to attend at least one event so that you can express your concerns over this debate directly to your Member of Congress.
Opinion: Bipartisan Bill Invests in Next Generation
EDITOR'S NOTE: This story originally appeared on Politico and you can read it here.
Every 5-year-old wants a piggy bank to fill with the jangling pennies and nickels that hold the promise of dreams. But for children from low-income households, even filling a toy bank can be a challenge. That’s why both Democrats and Republicans on Capitol Hill have come together to develop a plan that would help the youngest students learn the benefits of depositing their money in a real bank and saving for a future that includes college.
This week, Sens. Chris Coons (D-Del.) and Marco Rubio (R-Fla.) will reintroduce the American Dream Accounts Act, which would create college savings accounts for low-income students and monitor higher education readiness through a personal online account. The proposal applies existing Department of Education dollars to encourage the development of online platforms that partner students with colleges, schools, nonprofits and businesses, and provide them with a savings account and college readiness tools.
If passed, the Coons-Rubio bill could be an important bipartisan catalyst for new children’s savings efforts nationwide, some of which are already taking shape at the state and local level. Last month, Cuyahoga County, Ohio, approved a measure that will provide all kindergarteners with $100 college savings accounts starting this fall. Similar initiatives are in the planning stages in Colorado and the Puget Sound area of Washington state. These efforts follow in the footsteps of San Francisco’s pioneering Kindergarten to College program, which provides a $50 deposit in a college savings account to every child entering kindergarten. Beyond the initial deposits, these programs seek to encourage families and friends to make regular contributions.
While the deposits may seem like mere pennies given the ballooning costs of a college education, more than a decade of research shows that even small amounts of savings can have a major impact on both college aspirations and attendance. Researchers at Washington University in St. Louis, for example, have found that children with college savings accounts in their own names are six times more likely to go to college than children who do not have an account.
As Cuyahoga County Executive Ed FitzGerald put it at his program’s launch, “Every child in our area will grow up knowing that college is a real and attainable goal.”
The increasing interest in college savings accounts is an acknowledgment of today’s reality: College is indisputably a ticket up the economic ladder, but the soaring cost makes it out of reach for more and more families. According to the Brookings Institution and the Pew Economic Mobility Project, barely one in three children from the poorest fifth of families enrolls in college, and only about one in 10 graduates. By comparison, among the wealthiest fifth of families, four in five children go to college, and more than half (53 percent) graduate.
Children’s savings programs, which have the potential to offer big returns on relatively small investments, are a response with bipartisan appeal. Cuyahoga County’s program, for example, is expected to reach 15,000 students at an estimated cost of $2 million to $3 million a year. Moreover, funding to “seed” and “match” the accounts can come from private and philanthropic sources. The Corporation for Enterprise Development, for instance, recently launched the 1:1 Fund, which raises private dollars for the purpose of matching college savings by lower-income kids through an online platform.
We believe all sectors have a role to play in building strong ladders of opportunity for our children and youth, and that good jobs in our 21st-century economy often require a degree or credential beyond high school. Higher education is one important piece of a comprehensive approach that ensures every young person, regardless of that person’s ZIP code, has a shot at the American dream. With growing state and local interest in college savings accounts, policymakers should seek every chance to encourage their availability nationwide.
They can start by exempting education savings accounts from asset limits that could result in families losing access to much-needed federal benefits programs — a potentially powerful disincentive to save for their children’s future. They can also push for the integration of college savings accounts into existing programs, such as Head Start, and include a financial education component that helps both children and their parents understand the importance of saving for the future.
Finally, they should encourage innovative efforts like the Coons-Rubio legislation. In introducing the original bill last year, Coons posed a simple question: “How can we get more Americans to think about, save for and prepare for education after high school so that they can go to trade school, community college or four-year colleges or universities?” One answer: Give children their own savings account — and then help them fill it with hard cash and hope for the future through personal efforts and policy support.
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Thelma Small: Financial Education at Any Age
By Veronica Weis on 05/07/2013 @ 04:00 PM
EDITOR'S NOTE: Thank you to the Real$ense Prosperity Campaign of the United Way of Northeast Florida for submitting this inspiring tax time story.
This year, Thelma Small of Jacksonville, Florida attended a Super Saturday event held on March 2 by the Real$ense Prosperity Campaign of United Way of Northeast Florida. At 82 years young, Thelma is living proof that improving your financial education and participating in free tax preparation services can happen at any age.
Thelma got her taxes prepared by trained Real$ense volunteer, Stephonie Holmes, and attended a financial education workshop. She was also able to access her credit report through the event. The best part? All of the services were free and the whole process took just a couple of hours.
One of Thelma’s daughters has been using Real$ense for several years. She’s the one who encouraged her mother and sister to this year’s event. Real$ense has really turned into a family affair for Thelma and her daughters.
“Rosalind Brown helped me,” said Small. “I would definitely come back to Real$ense, it’s a great service. I got lots of great information and my taxes are done!”
Putting College Back Within Reach
By Jeremie Greer on 05/02/2013 @ 10:00 AM
Access to a quality college education has proven to be essential to climbing the economic ladder out of poverty and into the middle class. Unfortunately, runaway tuition and out-of-control student debt have made college an unattainable aspiration for far too many. In a report released earlier this month, the College Board recommends linking two extremely powerful tools for enhancing access to a college education for millions of low income young people: Pell Grants and Children’s Savings Accounts (CSAs).
For more than 30 years, Pell Grants have made the dream of a college education a reality for millions of low-income young people. As a former Pell Grant recipient, I can personally attest to the power of the Pell grant, which made my own college education possible and positioned me to serve in the capacity I do today. However, rapid growth in the uptake of Pell Grants has caused some to question the fiscal sustainability of this powerfully important program.
So, how can Pell be saved? In its report, “Rethinking Pell Grants,” the College Board recommends the creation of “education accounts” aimed at narrowing the financial and information gaps between low-income youth and young people that grow up under more privileged circumstances.
Here is how the recommendation of the College Board would work:
- The federal government would supplement a student’s future Pell Grant by opening an education account for 11- or 12-year-old children who would be eligible for Pell Grants if they were entering college.
- The federal government would then make annual deposits equal to 5-10% of the Pell Grant they would receive if they were enrolled in college. These funds would accrue interest until the child is 17 and ready to expend the funds for college.
- The funds could only be used to pay college expenses.
- Children and parents would receive annual notification of the amount of funds available in their accounts.
The College Board estimates that, if the deposits were equal to 10% of the current average Pell Grant value, at current Pell Grant enrollment levels, the cost of the program would be about $3.7 billion per year. Furthermore, the government would only spend the funds at the point of withdrawal, not when they were credited to the accounts.
As CFED President Andrea Levere often says, “parents will do for their children what they will not do for themselves.” This simple truth has guided CFED’s belief that CSAs are elemental to the economic security and mobility of households, and by extension our country’s economic success. We believe, and research finds, that CSAs can increase college access for low-income individuals and families. Research by Washington University in St. Louis has found that children with college savings accounts in their own names are six times more likely to go to college than children without accounts.
The possibilities evident in these findings have made policymakers at all levels of government take notice. San Francisco’s Kindergarten to College program is pioneering a bold and burgeoning state and local effort to make CSAs widely accessible to all children. More recently, Cuyahoga County, Ohio, announced an effort to open CSAs seeded with $100 for all kindergarteners starting the fall of 2013, while similar initiatives are in planning stages in Colorado and Washington State. Further, Senators Christopher Coons and Marco Rubio have introduced the American Dreams Account Act, which uses existing Department of Education funds to create CSAs for low-income students and to monitor higher education readiness through a personal online savings account.
Bringing together these powerful instruments—Pell Grants and CSAs—has the potential to be a game-changer in the field of college access, and CFED looks forward to working with the College Board to advance these policy recommendations.
CFPB Releases New Payday Research
Yesterday, the Consumer Financial Protection Bureau released a new white paper examining payday and deposit advance loans. The paper found that most borrowers are not using payday loans for short-term needs (as the payday industry often claims), but instead are repeatedly rolling over loans and taking out additional loans. As a result, borrowers often become stuck in an expensive and financially disastrous cycle of debt. The CFPB found that nearly half of payday borrowers have more than 10 loans a year, while 14 percent undertook 20 or more transactions annually.
This study is more comprehensive than almost any other study ever conducted, since the CFPB was able to acquire data on millions of borrowers directly from banks and small dollar lenders.
In a press release, CFPB Directory Richard Cordray explained: “This comprehensive study shows that payday and deposit advance loans put many consumers at risk of turning what is supposed to be a short-term, emergency loan into a long-term, expensive debt burden. For too many consumers, payday and deposit advance loans are debt traps that cause them to be living their lives off money borrowed at huge interest rates.”
The paper indicates that the Bureau is very concerned with current industry practices. The Bureau plans to conduct additional research and analysis, looking at online payday lending, the effectiveness of state restrictions on payday lending, and consumers’ motivations for borrowing. The report concludes that consumers need additional protections in this market and that the Bureau intends to use its authority to implement new protections once its research is complete. Even though, by law, the CFPB cannot set rate interest rate caps (the gold standard policy), there is much the Bureau still can do to protect consumers.
The Bureau’s interest in investigating payday borrowers’ experiences provides an important opportunity for asset builders to bring attention to the financial instability that results when predatory loans lead consumers into cycles of debt. This opportunity comes as asset-building advocates have worked for years to implement better consumer protections at the state and local levels. In fact, Twenty-five states currently have pending legislation addressing predatory small dollar lending. And the Assets & Opportunity Network recently released a 2013 Network Federal Policy Agenda, outlining the key policy issues that are most important to Network members. The number one issue on the agenda is educating the CFPB on predatory small dollar lending and other consumer issues. A few weeks ago, Network members weighed in with their recommendations on how the CFPB could curb predatory lending, which will become the basis for a statement and comments to the CFPB in the coming weeks.
Click here to read the full CFPB paper. Other key findings from the report are below.
Key Findings: Payday and Deposit Advance Loans Can Become Debt Traps for Consumers
The report found many consumers repeatedly roll over their payday and deposit advance loans or take out additional loans; often a short time after the previous one was repaid. This means that a sizable share of consumers end up in cycles of repeated borrowing and incur significant costs over time. The study also confirmed that these loans are quite expensive and not suitable for sustained use. Specifically, the study found limited underwriting and the single payment structure of the loans may contribute to trapping consumers in debt.
Loose Lending: Lenders often do not take a borrower’s ability to repay into consideration when making a loan. Instead, they may rely on ensuring they are one of the first in line to be repaid from a borrower’s income. For the consumer, this means there may not be sufficient funds after paying off the loan for expenses such as for their rent or groceries – leading them to return to the bank or payday lender for more money.
- Payday: Eligibility to qualify for a payday loan usually requires proper identification, proof of income, and a personal checking account. No collateral is held for the loan, although the borrower does provide the lender with a personal check or authorization to debit her checking account for repayment. Credit score and financial obligations are generally not taken in to account.
- Deposit Advance: Depository institutions have various eligibility rules for their customers, who generally already have checking accounts with them. The borrower authorizes the bank to claim repayment as soon as the next qualifying electronic deposit is received. Typically, though, a customer’s ability to repay the loan outside of other debts and ordinary living expenses is not taken into account.
Risky Loan Structures: The risk posed by the loose underwriting is compounded by some of the features of payday and deposit advance loans, particularly the rapid repayment structure. Paying back a lump sum when a consumer’s next paycheck or other deposit arrives can be difficult for an already cash-strapped consumer, leading them to take out another loan.
- Payday: Payday loans typically must be repaid in full when the borrower’s next paycheck or other income is due. The report finds the median loan term to be just 14 days.
- Deposit Advance: There is not a fixed due date with a deposit advance. Instead, the bank will repay itself from the next qualifying electronic deposit into the borrower’s account. The report finds that deposit advance “episodes,” which may include multiple advances, have a median duration of 12 days.
High Costs: Both payday loans and deposit advances are designed for short-term use and can have very high costs. These high costs can add up – on top of the already existing loans that a consumer is taking on.
- Payday: Fees for storefront payday loans generally range from $10-$20 per $100 borrowed. For the typical loan of $350, for example, the median $15 fee per $100 would mean that the borrower must come up with more than $400 in just two weeks. A loan outstanding for two weeks with a $15 fee per $100 has an Annual Percentage Rate (APR) of 391 percent.
- Deposit Advance: Fees generally are about $10 per $100 borrowed. For a deposit advance with a $10 fee per $100 borrowed on a 12-day loan, for example, the APR would be 304 percent.
Sustained Use: The loose underwriting, the rapid repayment requirement, and the high costs all may contribute to turning a short-term loan into a very expensive, long-term loan. For consumers, it is unclear whether they fully appreciate the risk that they may end up using these products much longer than the original term. Or, that they may end up paying fees that equal or exceed the amount they borrowed, leading them into a revolving door of debt.
- Payday: For payday borrowers, nearly half have more than 10 transactions a year, while 14 percent undertook 20 or more transactions annually. Payday borrowers are indebted a median of 55 percent (or 199 days) of the year. For the majority of payday borrowers, new loans are most frequently taken on the same day a previous loan is closed, or shortly thereafter.
- Deposit Advance: More than half of all users borrow more than $3,000 per year while 14 percent borrow more than $9,000 per year. These borrowers typically have an outstanding balance at least 9 months of the year and typically are indebted more than 40 percent of the year. And while these products are sometimes described as a way to avoid the high cost of overdraft fees, 65 percent of deposit advance users incur such fees. The heaviest deposit advance borrowers accrue the most overdraft fees.
Levere: FY14 Budget a "Strong Starting Point" for Rebuilding American Opportunity
By Andrea Levere on 04/11/2013 @ 10:00 AM
President Obama’s budget lays out a strong starting point for rebuilding American opportunity. He preserves our historic commitment to protect the nation’s most vulnerable households, reverses some of the most harmful impacts of sequestration, and calls for a sensible, balanced approach to reducing the federal deficit.
In particular, the President should be applauded for his commitment to the success of the Consumer Financial Protection Bureau, which in the short period of its existence has already made huge strides in protecting consumers against predatory financial products and empowering them to build savings and financial security.
The President’s budget also calls for sustaining the nation’s investments in education by increasing access to high-quality early childhood education, improving the nation’s high schools and making college more affordable and attainable, especially for low-income students. The budget also maintains a commitment to fund programs that have been vital to the efforts of low- and moderate-income families who have been striving to save and build wealth. These vital programs include the Community Development Block Grant, the Community Development Financial Institutions Fund, the Earned Income Tax Credit, the Child Tax Credit and the Assets for Independence program, which has helped more than 70,000 low-income families open special matched savings accounts to help them buy a home, launch a business or pay for school.
But the President’s budget could also do more to ensure that low- and moderate-income households have full access to the tools they need to achieve financial security. While the budget includes a laudable commitment to simplify the tax code to make it more fair, it should include as part of that commitment an effort to broaden tax incentives for savings for the low- and moderate-income households who now get virtually no benefit.
In addition, the budget should contain an explicit commitment to help households save, build wealth and improve their financial capability. As CFED’s 2013 Assets & Opportunity Scorecard found, as many as 44% of households in America lack the cash savings to survive three months at the federal poverty line in the event of a loss of income.
For example, the President did not request funds for Bank On USA, an innovative effort in multiple cities across the nation to connect households without bank accounts to the financial mainstream, as he has in his past budgets.
CFED looks forward to working with the President and Congress to improve the financial security of America’s households and expand economic opportunity for all families.”
Take Action on Hunger with 'A Place at the Table'
By Veronica Weis on 03/07/2013 @ 11:00 AM
Most headlines concerning nutrition in America focus on rising obesity rates, especially among children. However, little attention is paid to the problem of food insecurity that leaves about 50 million low-income Americans victims of hunger, including nearly 17 million children. That's one in four kids.
To shed light on this important issue, A Place at the Table, a film concerning hunger in the United States, was released on March 1. As it points out, obesity and hunger are actually interrelated problems. Low-income families struggle to afford healthy, more expensive food despite having jobs, leaving them with empty calories and poor nutrition. To deal with obesity, we also need to tackle hunger.
One notable mention in the film is the role of federal food assistance through food stamps, otherwise known as SNAP, in curbing food insecurity. It suggests that these programs need to be reformed and expanded in order to combat the very solvable problem of hunger in this country. The documentary’s website offers a SNAP alumni gallery that features notable public figures who were once dependent on food stamps and rose out of poverty with the support of federal programs.
A Place at the Table shows the public that hunger poses serious economic, social and cultural implications for our nation, and that it could be solved once and for all. As in the past, if the American public decides that making healthy food available and affordable is in the best interest of us all, we'll be able to tackle this problem together.
The conversation doesn’t stop with the film. The producers and team see it as a call to action. Their website serves as a resource for all kinds of hunger-related advocacy. Take a look around and learn how you can become an advocate to end hunger in America!
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Can America Save Itself? Tax Reform, Savings and Financial Security
By Emanuel Nieves on 03/01/2013 @ 12:46 PM
As Congress begins to move towards the first major rewrite of the tax code since 1986, they are presented with an opportunity to solve one of the biggest threats to Americans’ financial security: the lack of household savings. Our research shows that as many as 44 percent of American households – about 132.1 million people – don’t have a basic personal safety net to prepare for unplanned emergencies or the resources to live three months at the federal poverty line, which for a family of four is just $5,763.
This week, CFED sponsored a bipartisan policy forum titled: Can America Save Itself? Tax Reform, Savings and Financial Security that brought together two panels of experts to discuss potential opportunities in tax reform as well as other ideas that can help families save and ultimately become financially secure.
The keynote panel moderated by CFED’s president, Andrea Levere, consisted of Representative Richard Neal (D-MA), Representative Jim Gerlach (R-PA), and Jonathan Mintz, Commissioner of the New York City Department of Consumer Affairs.
Representative Richard Neal (D-MA) spoke about the behavior and thinking around personal and retirement savings, noting that many Americans (mainly younger) are not actively planning for retirement. He emphasized the need for additional savings by pointing out that income from social security alone is not enough for retirement. The Congressman highlighted the Automatic IRA Act of 2012, a bipartisan legislative proposal he last introduced during the previous Congress that would provide tax incentives to employers to set up Automatic IRA accounts to promote retirement savings at the workplace. Representative Jim Gerlach (R-PA) echoed Representative Neal’s comments but also added that as the House tax writing Committee works on tax reform he hopes to see a good, comprehensive piece of legislation that achieves three things: simplifies the tax code, is more equitable and encourages investment in the domestic economy.
Jonathan Mintz, Commissioner of the New York City Department of Consumer Affairs, spoke about need to provide an on-ramp for families to stabilize their finances in the short-term as well as build long term savings by making it as easy as possible for them to save. Commissioner Mintz discussed New York City’s SaveUSA initiative that is incentivizing families to save by strategically targeting them during a time when many receive a large sum of money at one time – tax season. The SaveUSA initiative partners with Volunteer Income Tax Assistance (VITA) sites throughout New York City to offer the opportunity to open a SaveUSA account at the time of filing with participants required to save a portion of their refund for a year and every dollar saved earns them a .50 match for up to $500.
The second panel of key experts, moderated by CFED Founder Bob Friedman, were asked to present one policy idea that they believed could help to support savings.
Pamela Everhart of Fidelity Investments spoke about the importance of defaults in program design and the role of employer-sponsored saving. She proposed changing the federal government’s guidance to employers on Safe Harbor 401(k) accounts from the current 3% savings default rate to 6%. She highlighted the level of inactivity seen on the part of the participant as another barrier for families to save enough for retirement with about 59% of workers within Fidelity’s portfolio staying at the 3% default rate. By changing the Safe Harbor guidance to require employers to set a 6% automatic savings default it would greatly help families save early, save more, and save enough for a range of retirement needs.
David John of The Heritage Foundation talked about the United Kingdom’s innovation with "corporate platform" accounts as an encouraging, flexible, and portable tool that can allow participants to simultaneously save for retirement while saving for other non-retirement related purposes. The accounts could greatly help with retirement account leakage as the non-retirement savings can be structured to meet needs such as mortgages, debt reduction, educational expenses, and a variety of other purposes. In addition, these accounts can also provide many lower income participants a bridge to other previously unknown savings opportunities and because of their portability they can include targeted financial literacy trainings as milestones are reached.
Reid Cramer of the New America Foundation discussed the need to elevate the conversation that savings are not just a long-term issue but also an intermediate and short-term issue. He highlighted the Financial Security Credit, which would replace the existing saver’s credit to help encourage, incentivize, and reward families who save.
Lisa Mensah of the Aspen Institute spoke about seizing the tax reform debate to address savings and financial security. She highlighted the Freedom Savings Credit, which would also expand the existing saver’s credit – currently missing about 69 million eligible Americans – by providing a match incentive to promote and reward saving.
The current tax code, as noted in our report, is upside down as it rewards millionaires an average of $96,000 a year in federal subsidies and tax breaks for their efforts to save, while those earning $19,000 a year or less receive less than $5 apiece. If we can turn this aspect of the tax code right side-up, provide the right tools and incentives and target families during key moments, many will save and ultimately achieve financial security.
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This Thursday: EITC Briefing on Capitol Hill
By Sean Luechtefeld on 01/22/2013 @ 08:30 AM
The announcement below is an advertisement for the EITC briefing that our friends at the National Community Tax Coalition are hosting in recognition of Friday's Earned Income Tax Credit Awareness Day. If you're in Washington, we hope you'll consider attending Thursday's briefing.
What Americans Didn't Get from the Fiscal Cliff Tax Deal
By Anne Kim on 01/04/2013 @ 12:30 PM
EDITOR'S NOTE: This post originally appeared in Real Clear Policy and can be read here.
By all accounts, the recently passed tax deal averting the “fiscal cliff” was a big win for the American people.
Among other things, the agreement preserves the full package of Bush-era tax cuts for the middle class and raises rates only on the wealthiest Americans. It also permanently patches the Alternative Minimum Tax so it wouldn’t affect middle-class households.
Moreover, it extends for five more years an expansion of three major tax benefits for lower-income households: the earned income tax credit for low-income wage-earners, the child tax credit and the “American Opportunity Tax Credit,” aimed at helping families defray college costs.
But Americans may end up losing more than they’ve gained if this agreement is all that passes as “tax reform” this Congress. If so, Americans will have been robbed of an opportunity to rebuild a tax code that’s truly in their favor.
This means a tax code that’s not just less complex but whose benefits, as well as its burdens, are distributed more fairly. In particular, middle-and lower-income Americans deserve far more help than they’re getting to save and invest in their economic security.
According to a 2010 analysis by CFED, the federal government spends more than $400 billion a year—mostly in tax breaks—to help American households accumulate assets and build wealth. In addition to the home mortgage interest deduction, this includes tax incentives for retirement savings, college and entrepreneurship.
The problem is that much of this $400 billion goes to the wealthiest taxpayers. For every $1 in tax benefits that middle-income families receive, according to CFED, millionaires get $188. On average, millionaires receive a tax benefit of $95,820 each year for their savings efforts, while families earning $50,000 receive $509. Families with incomes of $30,000 get just $81. (See a related infographic here.)
But despite its current flaws, the tax code is still a principal engine of social policy, particularly when it comes to savings and retirement security. That’s why true, comprehensive tax reform is essential to building a robust savings system that benefits everyone—particularly with entitlement reform, including Social Security reform, still on the table.
In fact, helping middle-class and lower-income Americans save—and save more—will be of paramount and increasing importance. While there’s little doubt that Social Security for future generations will be less generous than it is today, there’s also little doubt that Americans are woefully ill-prepared to take on more of the burden of their own retirement security.
Just 14 percent of Americans say they’re confident of a comfortable retirement, and in fact, many Americans assume they can’t afford to retire. According to Gallup, the percentage of Americans expecting to work past 65 has more than tripled since 1990 (and most people today expect to stay on the job until they’re a ripe 67).
Enhancing savings incentives in the tax code is a critical piece of Americans’ retirement security. Moreover, there’s no shortage of proposals for improving the current system. Rep. Richard Neal (D-MA), for example, has proposed expanding the current Saver’s Credit, which provides a small “match” to lower-income savers, to benefit more taxpayers. Similarly, the New America Foundation and the Aspen Institute have proposed “matched savings” incentives to benefit and reward lower-income savers through the tax code.
Many policymakers also support the idea of an “auto-IRA,” first proposed by Mark Iwry and David John, to benefit workers in small businesses whose employers don’t currently offer a retirement savings plan.
Unfortunately, proposals such as these might have a tougher time getting their day in the sun. The fiscal cliff tax agreement gave both President Obama and Republicans big enough political “wins” that they may not feel compelled to revisit the tax code in the short term.
For President Obama, who defined “fairness” purely in terms of tax rates paid by the wealthy, the deal achieved his political goal of raising taxes on the “top 2 percent” of Americans. For Republicans, the debate now moves to the debt limit and government spending, which is turf they feel comfortable conquering. Moreover, to the extent that tax issues arise again, the likely context will be that of raising revenue, rather than reforming social policy.
Nevertheless, let’s hope that Congress can see past short-term wins and deadlines to the bigger issues of financial security that Americans are facing in the long-term, and the vital role that a sensible tax code can play in providing Americans with more tools to achieve economic security and success.
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.
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
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
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