«2015 Financial Capability and Asset Building as Part of Poverty 101 Self-Sufficiency, Assets, and Poverty Broad But Interrelated Topics: 1. ...»
Assets, and Poverty
J. Michael Collins
Financial Capability and Asset Building
as Part of Poverty 101
Self-Sufficiency, Assets, and Poverty
Broad But Interrelated Topics:
2. Financial Capability
3. Asset Building & Savings
• Accessing benefits • Managing
– Eligibility and take up
• Stable housing – Budgeting, – And related services Spending
• Movement into work
• Dealing with legal – Child care issues – Relax work ‘penalty’ – Judgments – Also movement off of – Garnishment public assistance – Child Support Financial Capability
• Financial Knowledge • Dealing with – Literacy negative triggers – Numeracy – Emergency
• Financial Access expenses – Financial Inclusion – Underbanked – Borrowing – Products:
• Attitudes transactions & savings – Stress
• Financial Skills – Confidence – Planning – Trust – Goals & Intentions Asset Building
• Savings • Political / Social Stake – Restricted purpose
• Small business – Ownership in
• Homeownership community
• Future Orientation
• Risk-taking – Aspirations for – Leverage assets children with debt Asset Poverty
• Wealth holdings are not sufficient to secure the socially determined minimum standard of living for a given period of time (Brandolini, Magri, & Smeeding, 2010, p. 271).
• Common threshold is whether a household has sufficient assets to sustain at the national poverty level for three months without any income (Haveman & Wolff, 2005).
– Assets = household net worth, or total ‘marketable assets’ - total debt • 19.6% of households “Asset Poor” in 2010 (Ratcliffe & Zhang, 2012).
– Liquid asset poverty = lack of cash or other sources that can be monetized quickly (bank accounts, bonds or CDs, stocks, mutual funds, retirement accounts) – $5,763 liquid asset poverty threshold (family of four) – Survey of Income and Program Participation (SIPP) data indicate that in the US liquid asset poverty increased from 41.4% in 2006 to 43.9% in 2010.
– Liquid asset poverty is highest for female headed and minority households; 80% for households below 200% of the federal poverty level (Aratani & Chau, 2010).
• Asset poverty is distinct: Rates of asset poverty remained steady even as income poverty declined (Caner & Wolff, 2004).
Aratani, Yumiko, and Michelle M. Chau. "Asset poverty and debt among families with children." (2010).
http://academiccommons.columbia.edu/catalog/ac:126218 Pew Charitable Trusts. “Pursuing the American dream: Economic mobility across generations.” Pew Charitable Trusts, Economic Mobility Project. (July 2010). http://www.pewstates.org/research/reports/pursuing-the-american-dream-85899403228 Emergency Savings Mills, Gregory, and Joe Amick. "Can Savings Help Overcome Income Instability?." Washington, DC: The Urban Institute (2010). http://www.urban.org/publications/412290.html Coping with an Emergency Lusardi, Annamaria, Daniel J. Schneider, and Peter Tufano. Financially fragile households: Evidence and implications. No. w17072. National Bureau of Economic Research, 2011.
• Why emergency savings?
• Federal policies to support emergency savings
• Innovations in savings policies, products, and services aimed at supporting emergency savings.
• Chapters by an practitioners
• Focuses on lower-income consumers, who often have the least options for finding cash in a pinch.
State by State Data
FDIC. “2011 FDIC National Survey of Unbanked and Underbanked Households.”Federal Deposit Insurance Corporation.
(2012); Levy, Robert, and Josh Sledge. “A complex portrait: An examination of small-dollar credit consumers.” Center for Financial Services Innovation, (2012).
Debt: Alternative Financial Services Klawitter, M., & Collin Morgan-Cross. “Assets, credit use and debt among low-income households.” (2012).
http://depts.washington.edu/wcpc/sites/default/files/papers/Credit%20andDebt%205_23_12.pdf Financial Decisions that Matter for Low-Income Families
• Schooling: Human Capital Investments
• Debt Management: Default, Judgments, Bankruptcy, Tax delinquency
• Income Tax filing: EITC claiming and use of Refund
• Managing program rules; Enroll, qualify, retain
• Avoiding Scams
• Use of Social Security and Disability – Claiming too early – Using DI when no alternative jobs Studies of Financial Education
• Array of methodological weaknesses – Selection bias due to non-randomized designs – Self-reported measures – Behavior vs. knowledge – Heterogeneous ‘treatment’ (content and mode) Weak Evidence for Financial Education Collins, J. Michael, and C M. O’Rourke. "Financial education and counseling—Still holding promise." Journal of Consumer Affairs 44.3 (2010): 483-498.
Education = More Debt?
Collins, J. Michael. "The Impacts of Mandatory Financial Education: Evidence from a Randomized Field Study." Journal of Economic Behavior & Organization,(2012).
• Idea came from
Assets and the Poor: A New American Welfare Policy in 1991
• Private foundations provided funds to test idea
• Assets for Independent Act passed in 1998 with broad bipartisan support IDA Impacts Social Experiment: 10 years of studies
• IDA participation is associated with:
Increased employment Better budgeting and financial planning Increased homeownership rates of renters
• But NOT:
Reduced receipt of public assistance benefits No evidence that IDA participation increases net worth in the first 3 to 4 years.
40% withdrew the entire balance for non-qualifying purposes Willing to forfeit the match in order to access funds
• Program costs to dollars saved: $1 of net savings costs $3.
Child Development Accounts
• SEED Accounts
• Matched accounts for children – about half are 529 plans
• Withdrawals for postsecondary education, vehicles, computers, health – $1,518 saved after 5 years
• SEED for Oklahoma Kids experiment (RCT) – 2008: 1,360 kids given $1000 529 accounts at birth Overall
• Seems Assets are an important consideration – Barriers to saving – Use for savings in emergency or for contingency
• Less clear how to promote savings – Education weak at best – Direct subsidy (pay to save) not cost effective so far
• Policy and practice implications… – Further experiments – Need for evidence – Caution about ‘right’ behavior or outcome Course Topics
• Asset vs. Income Poverty – Distinctions and importance
• Financial services and unbanked – Alternative financial services
• Financial Literacy – Behavior & knowledge (behavioral economics)
• Financial Capability and Self Sufficiency – Cases from public programs Potential Extensions
• Asset tests in public programs
• Predatory lending, auto title pawn and payday loan restrictions
• EITC refund and savings at tax time
• Retirement savings and employer options relative to Social Security annuity value
• Homeownership and mortgage access
• Medical debt and bankruptcy
• Financial security and domestic violence
• Behavioral economics and decision-making of people in poverty Case Study: Prisoner Re-entry Former offenders have few financial resources but many needs/obligations
- ‘Gate money’ issued via check $54 mean amount (30% of states provide $0)
- Access to any prison earned wages is often delayed by several weeks
- 1 in 5 have employment arranged at time of release
- Reliance on family/friends is common but relationships may be strained Key Readings
1. Blank, R. M., & Barr, M. S. (2009). Insufficient funds: Savings, assets, credit, and banking among low-income households.
New York: Russell Sage Foundation Publications. Chapter 1
2. Lusardi, A., Schneider, D. J., & Tufano, P. (2011). Financially fragile households: Evidence and implications (No. w17072).
National Bureau of Economic Research.
3. Bertrand, M., Mullainathan, S., & Shafir, E. (2006). Behavioral economics and marketing in aid of decision making among the poor. Journal of Public Policy and Marketing 25(1), 8-23.
4. Aratani, Y., & Chau, M. (2010). Asset Poverty and Debt Among Families with Children. New York: National Center for Children in Poverty.
• Aratani, Y., & Chau, M. (2010). Asset Poverty and Debt Among Families with Children. New York: National Center for Children in Poverty.
• Bertrand, M., Mullainathan, S., & Shafir, E. (2006). Behavioral economics and marketing in aid of decision making among the poor. Journal of Public Policy and Marketing 25(1), 8-23.
• Klawitter, M., & Morgan-Cross, C. (2012). Assets, Credit Use and Debt of LowIncome Households (May 11, 2012). Evans School of Public Affairs, University of Washington.
• Mills, G. B., & Amick, J. (2010). Can Savings Help Overcome Income Instability?
Urban Institute, http://www.urban.org/publications/412290.html
• O'Brien, R. (2012). We don't do banks: Financial Lives of Families on Public Assistance. Geo. J. Poverty Law & Policy 19, 485-535.
• Shapiro, T. M., Meschede, T., & Sullivan, L. (2010). Wealth Gap Increases Fourfold. Research and Policy Brief, The Heller School for Social Policy and Management, Brandeis University.
Books (* suggested chapters):
Barr, M. S. (2012). No Slack: The Financial Lives of Low-income Americans.
• Brookings Institution Press.
Blank, R. M., & Barr, M. S. (2009). Insufficient funds: Savings, assets, credit, and • banking among low-income households. New York: Russell Sage Foundation Publications.
Barr, M, & Blank, R. Savings, assets, credit, and banking among low-income households:
– Introduction and Overview. (pp. 1-23).
Mullainathan, S., & Shafir, E. Savings policy and decision-making in low-income households. (pp.
Sherraden, M. Individual development accounts and asset-building policy: Lessons and directions.
– (pp. 191-217).
Edin, K., & Lein, L. (1997). Making ends meet: How single mothers survive welfare • and low-wage work. Russell Sage Foundation Publications.
Schreiner, M., & Sherraden, M. (2007). Can the Poor Save? Saving and Asset • Building in Individual Development Accounts. New Brunswick, NJ: Transaction Publishers.
Shapiro, T. M., & Wolff, E. N. (2001). Assets for the Poor: the benefits of spreading • asset ownership. New York Russell Sage Foundation Publications.
Carney, S. & Gale, W. G. Asset accumulation among low-income households. (pp. 165-205).
– Edin, K. More than money: The role of assets in the survival strategies and material well-being of – the poor. (pp. 206-231)
Bertrand, Marianne, Sendhil Mullainathan, and Eldar Shafir. (2006). Behavioral economics and marketing in aid of decision making • among the poor. Journal of Public Policy and Marketing 25(1): 8-23.
Beverly, S. G., & Sherraden, M. (1999). Institutional determinants of saving: Implications for low-income households and public policy.
• Journal of Socio-economics, 28(4), 457-473.
Brandolini, A., Magri, S., & Smeeding, T. M. (2010). Asset-based measurement of poverty. Journal of Policy Analysis and Management, • 29(2), 267-284.
Carter, M. R. & C. Barrett (2006). The economics of poverty traps and persistent poverty: An asset-based approach. The Journal of • Development Studies, 42 (2), 178-199.
Collins, J. Michael, and Collin M. O’Rourke. Financial education and counseling—Still holding promise. Journal of Consumer Affairs 44.3 • (2010): 483-498.
Haveman, R., & Wolff, E. N. (2005). The concept and measurement of asset poverty: Levels, trends and composition for the US, 1983– •
2001. Journal of Economic Inequality, 2(2), 145-169.
Hogarth, J. M., & Anguelov, C. E. (2003). Can the poor save? Financial Counseling and Planning, 14(1), 1-18.
• Hurst, E., & Ziliak, J. P. (2006). Do Welfare Asset Limits Affect Household Saving? Evidence from Welfare Reform. Journal of Human • Resources, 41(1), 46–71.
Lerman, Robert I. and Eugene Steuerle, Life-Cycle Investing: Financial Education and Consumer Protection (and response), Research • Foundation Publications (November 2012): 85-96. http://www.cfapubs.org Lusardi, A., Schneider, D. J., & Tufano, P. (2011). Financially fragile households: Evidence and implications (No. w17072). National Bureau • of Economic Research.
Mills, G., Gale, W. G., Patterson, R., Engelhardt, G. V., Eriksen, M. D., & Apostolov, E. (2008). Effects of individual development accounts • on asset purchases and saving behavior: Evidence from a controlled experiment. Journal of Public Economics, 92(5), 1509-1530.
O'Brien, R. (2009). Ineligible to Save? Asset Limits and the Saving Behavior of Welfare Recipients. Journal of Community Practice, 16(2), • 183-199.
O'Brien, Rourke. "POLICY & PRACTICE:" We don't do banks": Financial Lives of Families on Public Assistance." Geo. J. Poverty Law & • Policy 19 (2012): 485-535.
Sullivan, J. X. (2006). Welfare Reform, Saving, and Vehicle Ownership Do Asset Limits and Vehicle Exemptions Matter?. Journal of Human • Resources, 41(1), 72-105.
Zinman, J. (2010). Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap. Journal of • Banking & Finance, 34(3), 546-556.
Briefs Abbi, S. (2012). A need for product innovation to help LMI consumers manage financial • emergencies. D2D Fund: Doorways to Dreams.