Stroke of a pen policies: State governments can increase financial security and win political points
Spotlight on Poverty and Opportunity
Nov 18, 2011
State governments today face an unenviable task. They must balance their budgets - as most states are legally required to do - while providing the support families need to endure tough economic times. While there is clearly no appetite for new spending in the current environment, states’ hands are not tied. There are a host of low- or no-cost policies that expand economic opportunity and are political winners.
In a weak economy with high unemployment and shrinking services, constituents are hungry for “good news” about what policymakers are doing to improve constituents’ economic prospects. My organization, the Corporation for Enterprise Development (CFED), has identified two dozen approaches states can take to help people achieve financial security without putting additional strain on states’ bottom lines.
These “stroke of a pen” ideas, as we call them, are more often a matter of shifts in approach or tweaks in existing programs, rather than large-scale policy changes. But, taken together, they can make an important difference for families struggling to stay afloat and save for a more prosperous future.
In developing our list, we considered whether a policy was “meaningful,” “manageable,” and “moveable.” Meaningful policies are those that have a genuine impact. Manageable policies have a feasible route to implementation. Moveable policies have realistic costs, support from key policymakers, and the legislative mechanisms available to make the change.
Using CFED’s Household Financial Security Framework, which encompasses five milestones along the path to economic opportunity (Learn, Earn, Save, Invest and Protect), we then pinpointed policies that could accomplish a good deal at minimal cost:
• Learn. Financial education programs can have a significant effect on an individual’s ability to make informed decisions about saving and managing money. Rather than creating new free-standing programs, policymakers can make financial education part of school curriculums, allow financial education to count as a Temporary Assistance for Needy Families (TANF) work activity, and integrate it into Workforce Investment Act One-Stops.
• Earn. State policymakers can adopt several strategies to boost family income, including funding Earned Income Tax Credit (EITC) outreach programs to increase use of the federal and/or state credit, streamlining the application process for public benefits, and lifting asset limits in public benefit programs. The cost of EITC outreach programs, for example, is typically modest—usually ranging from $50,000 to $500,000 depending on the size of the state and scope of the effort. EITC outreach services might include volunteer tax preparation sites, public awareness campaigns, and referral hotlines.
• Save. There are a variety of effective, low-cost strategies that encourage financial institutions to meet the needs of low-income customers. One example is Bank On programs, which bring together local or state governments, financial institutions, and community organizations to design free or low-cost bank accounts for underserved populations. In addition, some Bank On programs partner with nonprofits and other organizations to offer financial education with the account.
• Invest. Having a low credit score or no credit score at all can result in reduced access to mainstream credit—scuttling hopes of buying a home or starting a business and forcing borrowers to turn to higher priced lenders. But there are a number of no- and low-cost approaches states can take to help families build assets. One straightforward solution is to add more information to the credit files of those who lack payment evidence to create a robust credit score. For instance, by reporting both on-time and delinquent payment information made to utility and telecommunications providers - known as “full-file reporting” - millions of Americans can establish payment histories and gain access to mainstream affordable credit.
• Protect. Several low-cost, politically viable approaches are available that allow states to protect consumers against loss of income and assets. These include requiring small-dollar lenders to report data on the loans they make, strengthening state consumer protections statutes, protecting consumers from predatory debt collectors, and increasing mortgage servicer regulation and accountability.
Taken together, these policies form a compelling political platform for promoting financial security and increasing opportunity. They bring federal dollars into local communities to stimulate the economy while helping people learn valuable skills for managing their money and building a personal safety net. They also create jobs through self-employment, safeguard homeownership as a route to the middle class, and crack down on unscrupulous lenders and others who unfairly undermine financial security.
For states, these policies offer a win-win solution for helping those most in need while boosting political capital and keeping state budgets in line.