Savings

On December 13, 2012, Reid Cramer provided testimony to the FDIC Advisory Committee on Economic Inclusion. His remarks are available here, or for download under the related files section to the right.

Yesterday, President Obama signed into law the “American Taxpayer Relief Act of 2012,” also known as the fiscal cliff deal. As described in the New York Times and elsewhere, one of the key takeaways about the deal is that although income taxes will only rise for the wealthiest households, the preservation of the tax cut for all other taxpayers will largely be offset by the increase in the payroll tax. Specifically, less than one percent of all households will see their income taxes rise, but all taxpayers will be subject to a 2% increase in the payroll tax; consequently, families making the median income of about $50,000 will break even. However, the new legislation also has a number of implications more specific to asset building and low-income families’ balance sheets. Below, we highlight a few of the key provisions.

Retirement has historically been a top savings priority of Americans, though recent data from the Survey of Consumer Finances revealed that Americans were prioritizing liquidity over saving for the first time in a decade. Americans saving for retirement frequently do so through workplace-based options, such as 401(k) plans.

Editor's note: We're off next week, so there won't be another Asset Building News Week until 2013! We wish our readers a very safe and happy holiday season and look forward to connecting with you in the New Year.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include the middle class, student debt, housing, inequality, gender-based issues, and tax time.

Editor’s Note:This post was authored by Michael Chasnow. Michael is the Operations Manager for the 1:1 Fund, an online community, conceived and capitalized by CFED, that promotes educational opportunity for low-income students. He received an MBA and masters in urban planning from UNC-Chapel Hill.

Graduating college is a critical step for children from lower income families aspiring to join the middle class. According to 2012 Postsecondary Education Opportunity Research, only 10% of low-income children living in families in the bottom quartile of income (~$33,000 and below) graduate from college by their mid-20s. This low graduation rate severely limits their future opportunities. According to the U.S. Census Bureau, individuals with a college degree earn on average over $900K more in their lifetime than high school grads, and, as the Lumina Foundation argues, more college graduates in the work force also benefits the U.S. economy by helping to create jobs. Additionally, graduating college increases one’s chances of gaining employment (and thus building wealth), with college graduates’ unemployment rates at 3.8% and workers with high school degrees at 8.1% as of November 2012.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include the social safety net, inequality and wealth gaps, housing, and financial institutions.

Our friends and readers in the greater NYC area should take note that we're co-hosting an event tomorrow eveing, Thursday December 13th from 6:30 pm to 8:15 pm, at the New America NYC space at 199 Lafayette Street, Suite 3B in the SoHo neighborhood of Manhattan.

Yesterday, Newark Mayor Cory Booker finished his widely publicized “SNAP Challenge,” during which he subsisted solely on meals he could prepare on an average week’s worth of SNAP (formerly food stamps) benefits – which works out to about $1.40 a meal. While certainly difficult, the SNAP Challenge cannot mimic the actual experience of receiving and surviving on SNAP benefits; as others have pointed out, the exercise cannot simulate the “psychic costs” or cumulative effects of living in poverty: hunger, insecure housing, and inadequate healthcare. Moreover, participants in the challenge are neither subject to the often taxing application and recertification processes nor the burden of actually using an EBT card. Ensuring that a given store accepts SNAP; separating eligible food items from ineligible purchases; and enduring the perceived stigma of using an EBT card in the checkout line are all aspects of participating in the program that the SNAP Challenge cannot encapsulate.

Nevertheless, the challenge can play an important role in bringing attention to SNAP’s low benefit levels, as recently documented in a new report by the Food Research and Action Center. Furthermore, efforts like Booker’s can stimulate national conversation about the experience of using SNAP, with the voices of families that have participated in the program often the strongest in revealing both its crucial importance and its structural shortcomings.

Here at the Asset Building Program we write regularly about the inefficiency and ineffectiveness of asset limits in public benefits programs. Recent research conducted by our own Aleta Sprague and Rachel Black documents the substantial burden asset limits place on benefits administrators and participants alike, examines trends with asset limit policies at the state level, and identifies ways to reform these policies to better promote long-term financial stability.

In particular, Sprague and Black found that asset limits for benefits like SNAP (food stamps) and TANF (cash welfare) run counter to purported program goals of efficiency and financial independence. As guest blogger Jessica Bartholow recently put it: "remember what more than a decade of research on asset poverty and economic security for low-income households has taught us: that families are less likely to find their way back to financial solvency when they’ve lost everything they have." Forcing families to spend down any small savings they have before they qualify for benefits thwarts their efforts to get back on their feet.  

Sprague and Black have a new piece of commentary up on the Spotlight on Poverty site that delves into some of the recent policy conversations states are having about asset limits.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include housing, taxes and wealth gaps, the safety net, and financial products.