Asset Building:

Changing the Landscape for Low-Income Families

\[15 minutes\]

Thank you very much for inviting me to talk with you today about
building assets for low-income, working families. Asset building has a
great deal of potential and I hope that during the time that I have, I
can encourage you to become a champion of these efforts here in \[[local
area]{.mark}\].

Frame Asset Building for the Working Poor

![](media/image1.wmf){width="2.6875in"
height="2.5527777777777776in"}This is a model utilized by the
Alternatives Federal Credit Union in Ithaca, New York to develop
financial products. Their goal is to develop products for consumers at
each stage along the credit path. I think this is a useful way of
looking at the path to financial empowerment -- in which people travel
from Transactors to Savers, then become Borrowers and eventually,
Owners. We all find ourselves along this continuum between poverty and
prosperity at some point in our lives. Unfortunately, the journey to
prosperity for many can be long and difficult.

Helping low-income families build assets is about creating opportunities
that will empower them to move forward on the path toward
self-sufficiency.

Clearly, families cannot achieve self-sufficiency without an adequate
level of income. Social services for lower-income families have
historically focused on income supports \-- such as Temporary Aid for
Needy Families \-- but income alone is not enough. Strategies that help
families save and leverage their income to invest in productive assets
are needed as well.

Assets give people a stake in their future and in their community. We
all know the economic benefits of financial assets...

-   They provide a service to the owner, such as shelter or
    transportation,

-   They can be a cushion in difficult times,

-   They can leverage additional assets,

-   And eventually, they become wealth that can be transferred to a
    future generation.

...But there are many important non-economic benefits as well.

Holding assets can lead to a dramatic shift in how lower-income families
view and operate in the world. This simple, but insightful quotation
from Michael Sherraden, a professor at Washington University and a
pioneer in the asset development field, is often used to illustrate the
importance of asset building tools: "Income may feed people's stomachs,
but assets change their heads."

The U.S. government has long recognized the value of asset building --
to families as well as to our overall economy. From the Homestead Act
and the GI Bill to the home mortgage interest deduction, the government
has and continues to play a critical role in helping families achieve
the American Dream.

In [\[insert year\]]{.mark}, the federal government invested over
[\[\$335 billion\]]{.mark} in asset policies to encourage homeownership,
retirement, and other savings and investments. Unfortunately, low-income
families benefited very little from these policies because most
incentives to build assets are delivered through the tax code and the
poor can't use them. When you add this to the day-to-day realities of
low wages and no health benefits, you can see how the path to prosperity
can be like climbing Mount Everest.

We still need to help ensure people earn decent wages, but we have to do
much more.

Connect the Challenges of Being Poor with Work

Every day expenses are often higher for the poor than for other segments
of the population. Let's consider one of the expenses associated with
work: transportation.

-   ![](media/image2.jpeg){width="3.2708333333333335in"
    height="2.4583333333333335in"}Getting to work -- in both urban and
    rural communities -- can be expensive. Few jobs are in close
    proximity to workers' homes and public transportation can make for a
    lengthy commute, if it is available at all.

-   Buying and owning a car can be even more expensive for the poor
    because ...:

    -   Low-income workers are not ideal candidates for loans; they are
        subject to high interest rates and fees when financing a
        vehicle. Sub-prime rates on car loans can be 2-3 times the
        prime-rate on a car loan -- this can take an extra \$50-100 per
        month out of their paycheck.

    -   Without a loan, many low-income workers cannot purchase a
        reliable car and, as a result, incur additional expenses to keep
        the car running.

    -   Insurance rates are considerably higher in low-income
        communities and car owners may pay up to 5 times more in
        premiums for their auto insurance -- just because of where they
        live. And if they can't afford insurance, then they go without
        -- losing the use of the car in the event of an accident.

The cost of these transportation problems can be significant to
employers as well. Absences, late arrivals and turnover are often the
result of...

-   the lack of an adequate public transportation system,

    -   unreliable or broken down vehicles, and/or

    -   long and unpredictable commutes.

...all of these can impact a company's' bottom line.

Transportation is just one example. The same scenario can be played out
when looking at child care, banking, and many other expenses of working
families. Clearly, the high cost of every day expenses can make it very
hard for low-income families to translate increased work efforts into
economic security. Without assets to provide a cushion and a ladder out
of poverty, economic security can be elusive.

In the event of a sudden job loss or an extended illness, one in four
American families lack the cushion to survive, even at the poverty
level, for more than three months. This means that by the most
conservative measure, 25 percent of American families are asset poor
\[*note*: 25% is around 73 million\].

While income poverty declined through the late 1990s, asset poverty has
continued to increase and the number of [asset]{.underline} poor
families today is twice that of
[income]{.underline}![](media/image3.jpeg){width="3.3333333333333335in"
height="2.5in"} poor families. This has serious implications for tens of
millions of Americans.

Today, more and more people are living paycheck to paycheck;
bankruptcies and credit card debt continue to skyrocket; and savings and
investments for retirement are inadequate. It's estimated that 15% of
Americans don't even have a basic checking or savings account.

For those who are both income AND asset poor, the future can look pretty
bleak -- but it doesn't have to. There is amazing work being done to
change policy at both the federal and state levels, while innovative
strategies for building assets are being testing and implemented,
bringing practical solutions to communities around the country. This is
beginning to change the landscape for low-wage workers. But we can do
more.

Introduce Specific Asset Building Strategies and Their Impact

Emphasize the Need for Cross-sector Engagement

To create systemic change needed, we need the **full** engagement of all
sectors -- public policy, public agencies, private markets, and
community partners.

[\[Local initiative or agency\]]{.mark}'s initiative is a prime example
of this model at the local level. This initiative is forging
partnerships in the [\[local area\]]{.mark} region, bringing together
nonprofits, business associations, industry, government and educators
\[[*note*: edit the list of representatives to reflect local
efforts]{.mark}\] to develop and implement strategies that help
low-to-moderate income families build financial literacy and acquire
productive assets and build wealth.

One tool with a great deal of promise is Individual Development
Accounts, or IDAs. An IDA is a matched savings account designed help
low-income families save and accumulate financial assets -- homes,
businesses, education. An IDA looks much like a 401k or IRA, but it
better addresses the needs of poor families because participants can
acquire a lasting asset that improves their lives in the near-term,
after saving for a few years. []{.mark}

The most successful IDA programs have provided low-income families with
what we all need to build assets: Access, Information, Incentives and
Facilitation.

Introduce Local Perspective

Since 1999, when most IDA programs began operating, it is estimated that
20,000 -- 40,000 IDAs have been opened in 500 communities across the
country. Using data representing roughly 60% of these programs, we have
found that accountholders have saved and invested more than \$14 million
in nearly 8,000 assets.

\$130 million in loans were made by financial institutions to leverage
these assets purchases which include homes, education, businesses and
automobiles.

We are very excited about the potential of IDAs to help low-income
families achieve economic self-sufficiency. There are a number of other
strategies that communities are using that also hold a great deal of
promise.

-   Financial education by itself can transform. Do you know where EVERY
    dollar that you spend each month goes? Tracking expenses and making
    small changes in spending has enabled thousands of people to find
    ways to save. Comparing the cost of predatory financial services to
    those of lower cost banks and credits unions has empowered poor
    families to find ways to make different choices when mainstream
    institutions make the right products available.

-   Access to lower-cost, mainstream financial services can save poor
    families a great deal. For example, someone making \$16,000 a year
    who doesn't have a bank account often pays check-cashing fees of
    \$350 a year. One \$200 payday loan that takes three months to pay
    off can cost \$180 in fees. These are not the choices that people
    want to make; they are the choices people have.

    -   Even the simplest tools like direct deposit and automatic bill
        paying make us all better money managers.

-   Free or low-cost tax preparation can help to return billions of
    dollars in income to low-wage workers each year through the Earned
    Income Tax Credit and other tax credits. The Earned Income Tax
    Credit is a federal income tax credit for low-income workers. The
    credit was designed to offset the burden of social security taxes
    and provide an incentive to work. When the amount of the credit
    exceeds the amount of taxes owed, it results in a tax refund.

    -   Here in \[[local area]{.mark}\], the IRS estimates that around
        \$\[[amount]{.mark}\] million in EITC \[[*note*: or tax
        refunds]{.mark}\] goes unclaimed -- which is why \[[name of
        local initiative or
        agency]{.mark}![](media/image4.jpeg){width="3.3333333333333335in"
        height="2.5in"}\] has launched an effort to help families
        capture these dollars and put them to work.

    -   The tax credit working families receive at the end of the year
        can be used to purchase necessities, pay for needed car or home
        repairs, reduce debt, or be invested in an IDA.

    -   Low-income families will often spend \$200 or more to have their
        taxes prepared by a professional tax preparer -- at accuracy
        levels that are no better than the general public -- to get
        their refund a little faster. That's \$200 that doesn't pay down
        a debt or get invested in an asset or pay for groceries. In
        1999, over \$1.75 billion in EITC benefits went to pay for
        preparation and quick-refund services -- that's \$1.75 billion
        of benefits that didn't go to low-wage workers.

Frame the Payoff

These are just a few examples of strategies that organizations across
the nation are using today to help working families. The **investment**
in these strategies can range from the hours and expertise needed to
provide quality, low-cost financial education or tax preparation to the
cost of administering an IDA program.

The **benefits** of implementing these strategies go directly to working
families, employers and the community as a whole.

The **direct return** on investment in wealth building via IDAs and
related strategies is increased economic security for families and
increased profitability for employers. Beyond that there is a multiplier
effect that includes:

-   Increased work activity as employees spend less time at work on
    personal financial matters;

-   Increased business volume for financial institutions and other local
    businesses due to increase in prosperity of the community;

-   And eventually, transferred wealth and expectations to the next
    generation.

Every day we have more families saving a portion of their income in
IDAs. They are improving their money management skills, getting the full
benefit of available tax credits, and accessing lower cost, mainstream
banking services. These families are building assets, looking toward the
future and changing their communities. However, there are many more
families that do not have access to these valuable services. Locally, we
need more partners -- especially employers and financial institutions
\-- working together to create the opportunities for low-income families
that will make the difference.

[\[name of local initiative or agency]{.mark}\] is one of the
organizations working to help lower-income families in our community
build assets and achieve economic self-sufficiency by offering \[[list
of services offered here]{.mark}\]. I encourage you to explore the ways
that we can work together to transform the landscape for lower-income
families in \[local area\].

Thank You