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Cascade: No. 62, Summer 2006

Building Wealth and Ownership for All Americans

Over the past 10 years, a movement to build assets for the poor as an enduring route out of poverty has steadily gained momentum. This movement is charting a new path to economic opportunity, although, in fact, every policy over the past 200 years that has succeeded in building wealth for Americans, be it the Homestead Act of the 19th century or the GI Bill of the 20th century, has been grounded in the same principle, the ownership of assets. Assets – most commonly savings, a home, an education, or a business – offer the means to amass the financial resources that go beyond what it takes merely to survive.

CFED has been at the heart of this movement for the past decade, managing policy demonstrations; conducting applied research and policy advocacy; convening practitioners, policymakers, and financial institutions; delivering training and technical assistance; and investing in product development. This engagement began in the mid 1990s with the design and execution of the American dream demonstration (ADD), which tested the notion of whether low-income people could save money through individual development accounts (IDAs). IDAs are matched savings accounts to purchase a home, continue education, or start a business. Pioneering research throughout ADD conducted by the Center for Social Development at Washington University proved that low-income people would save and launched activities that range from access to checking accounts in mainstream financial institutions to retirement strategies.

CFED’s role in the asset-building field began with IDAs, and the organization continues to provide research, policy advocacy, events, and training services in a field that spans at least 500 programs and has increasing engagement by private- and public-sector institutions. Two years ago, CFED launched its Saving for Education, Entrepreneurship, and Downpayment Initiative (SEED), a children’s initiative with 12 community partners that seeks to demonstrate the impact of providing savings accounts to all children at birth. In addition, CFED works at the federal level and with state partners to remove barriers to asset building, primarily through the elimination of asset limits for those receiving public benefits.

CFED is experimenting with incentives to employers to provide asset-building products and financial education services at the workplace as a powerful means of achieving scale and access to asset-building opportunities. CFED helps low-income homeowners protect their investments through the regulation of predatory lending and is working to transform manufactured housing into an asset-building rather than asset-depleting strategy through access to conventional mortgages and well-designed homes and resident ownership.

Three principles are central to the success of asset-building products, policies, and programs:

  • Adapt the asset-building incentive structures or policies that have been so successful for middle- and upper-class people to the needs of low-income people.
  • Pair product offerings that address the real needs and preferences of low-income people with necessary investment in financial education.
  • Make the asset-building system universal and inclusive with benefits commensurate with need.

CFED has found that it takes the nonprofit, government, and private sectors to effectively build assets for the poor. CFED is just learning how imperative it is to leverage private-sector product development, delivery, and distribution systems in order to bring unbanked and underbanked people into the mainstream system of financial services. Yet this type of integration rarely happens through private-sector action alone. CFED has also learned the power of linking financial products and services with capacity-building and training services that are delivered by the nonprofit sector. Finally, products and services alone do not create new economic opportunity; they must be paired with necessary and sufficient incentives aligned through every level of government.

CFED has also learned a new truth in its work over the past decade. When many of today’s senior practitioners entered the world of economic and community development, the major challenge was expanding access to capital. CFED believes that entire communities were redlined by private-sector financial institutions. Minorities and women faced significant discrimination in accessing credit. But in most places in the U.S., this is no longer the situation. Access to capital from high-cost predatory lenders who operate without adequate regulation and oversight has led to asset stripping of profound dimensions.

Perhaps most symbolic of how far the asset-building movement has come is the partnership between the Federal Reserve System and CFED to conduct four forums and an additional event at the Federal Reserve Board of Governors to showcase innovations in asset-building products, policies, and programs and to identify key actions that lead to a much higher level of performance and impact.

It is time to make the public case that the proven incentives in building wealth for the middle and upper classes should be employed for the benefit of low-income Americans. There is bipartisan political support to do this as well as 10 years of policy development, program experience, and infrastructure development. More networks of talented advocates, practitioners, lenders, and funders are needed to work together toward this common vision.

For information, contact Andrea Levere at (202) 408-9788 or alevere@cfed.org; www.cfed.org.

How Do States Compare in Building and Preserving Assets?

The Corporation for Enterprise Development (CFED), a national nonprofit dedicated to expanding economic opportunity, has developed a detailed report on asset building and asset protection opportunities in all 50 states and the District of Columbia. CFED’s 2005 Assets and Opportunity Scorecard looks at six areas generally believed to be key indicators of performance: financial security, business development, homeownership, health care, education, and tax policy and accountability. The scorecard measures how easy or hard it is for families across the U.S. to get ahead.

CFED uses 31 outcome measures and 38 policy measures for each state and the District of Columbia and ranks states by their outcome measures, with one being the most desirable outcome and 51 being the least. For example, the state with the highest net worth is ranked number one as is the state with the lowest asset-poverty rate. Grades from A to F are assigned in five performance areas. State policies are assessed separately and are rated as either favorable, standard, or substandard. Grades are not issued for the tax policy area, since it does not include outcome measures. According to CFED, regardless of the ranking, there is room for improvement in every state.

The accompanying table shows a few of the measures from the 2005 Assets and Opportunities Scorecard for the three states in the Third Federal Reserve District. The table shows the percentages for four specific outcomes in each state and how that measurement ranks among all states and the District of Columbia.

State Homeownership  Low-Income Children Lacking Health Insurance Four Years of College Households with Savings Accounts
 
%
Rank
%
Rank
%
Rank
%
Rank
Delaware
77
2
14
17
28
18
59
30
New Jersey
67
42
21
41
35
4
62
27
Pennsylvania
74
13
17
28
26
24
70
15

The 2005 Assets and Opportunities Scorecard in its entirety can be found online at www.cfed.org/go/scorecard along with the first edition of the scorecard, the2002 State Asset Development Report Card (SADRC),which can be found at sadrc.cfed.org. Both reports can be downloaded to Excel spreadsheets. CFED has also published a 20-page version of the findings of the 2005 scorecard that can be ordered on CFED’s website at www.cfed.org.

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