‘Asset-tests’ are sometimes used alongside income to determine a household’s eligibility for public assistance.  For instance, a low-income household might otherwise have qualified for the tribal food program because their earnings were below the poverty-level, but because they had over $2,000 in a savings account, they became ineligible for assistance.  CFED explains the original rationale behind asset-limits, and their irrelevance today:

If individuals or families have assets exceeding the state’s limit, they must “spend down” longer-term savings in order to receive what is often short-term public assistance. These asset limits, which were originally created to ensure that public resources did not go to “asset-rich” individuals, are a relic of entitlement policies that in some cases no longer exist. Cash welfare programs, for example, now focus on quickly moving individuals and families to self-sufficiency, rather than allowing them to receive benefits indefinitely.

Programs designed to help the poor should reward those who save.  Asset tests do the exact opposite; they discourage families from saving because recipients risk losing benefits if they begin to accumulate assets – including donations they might receive from relatives, their faith group, or some other charity.  People cannot escape poverty unless they begin to build-up savings to prepare for long-term financial security and protect themselves against unforeseen events – like medical bills, car repairs, or temporary unemployment. Nearly half of Oklahoma households (48.2 percent) and a majority of the state’s minority households (65.5 percent) do not have enough money in the bank to subsist at the poverty level for three months if they lost their income.  Low-income households are particularly vulnerable to financial emergencies, as many have trouble making ends meet and are ill-positioned to save.

Of the three main state programs that assist poor families in meeting basic needs, only the TANF program uses an asset-test to determine eligibility.  Families who are income-eligible for TANF must also have less than $1,000 in ‘assets’ (cash, savings, a vehicle) to qualify for benefits.  Up to $5,000 of a vehicle’s equity is exempt from this requirement.  The state’s Medicaid and food assistance program do not exclude families from eligibility because they’ve accumulated certain basic assets, like a car or a savings account:

Asset limits expose a fundamental tension inherent in providing basic benefits to impoverished families.  Without higher wages, or lower monthly costs, the prospects for low-income people to transition out of poverty are bleak.  Programs that are designed to provide a subsistence level of support should be sensitive to the precarious financial position of their recipients, and work to support those families in every way possible.  By threatening to withdraw the benefits that they may need desperately in the short-term, asset limits prevent program participants from ever escaping poverty by sanctioning those who are fortunate enough to be moving towards long-term financial stability.

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What’s up this week at Oklahoma Policy Institute? The Weekly Wonk is dedicated to this week’s events, publications, and blog posts.

This week OK Policy and the Corporation for Enterprise Development (CFED) co-released the 2012 Assets and Opportunity Scorecard, which showed that more than one in four Oklahoma households are “asset poor,” meaning they have little or no financial cushion to rely on in an emergency.  The Tulsa World and the Oklahoman covered Oklahoma’s Scorecard results in depth.

We pointed out that if legislators make the choice to prioritize tax cuts, they cannot pretend to be blameless when funds aren’t available for crucial services.  We hosted a debate about whether or not to require a prescription for pseudoephedrine, featuring Jessica Hawkins, the Director of Prevention Services for the Oklahoma Department of Mental Health and Substance Abuse Services, and former state Senator Ed Long.

Finally this week, the Associated Press quoted us in an article on a regional trend of GOP action to axe state income taxes. The Tulsa World presented a summary of our issue brief defending the income tax. The Journal Record cited our work on worsening poverty in Oklahoma and legislative proposals that would make it even harder to be poor. The OK Policy Blog featured a short video about ‘community schools,’ a comprehensive approach to education that makes the school the hub of the community.

Numbers of the Day

• $136 – Average tax increase on elderly Oklahoma couples with $35,000 in income under a legislative proposal to eliminate a slate of broad-based tax credits and exemptions.
• 8,100 – Number of manufacturing jobs added in Oklahoma from January to December of 2011, up 8.4 percent for the year.
• 178, 020 – Number of Oklahoma children under age 6 who need daily child care during the week because their primary caregiver/s participate in the labor force, 2009
• 6,592 – Number of Oklahomans who tested for their GED in 2009; 70.1 percent received their GED, just above the average national pass rate of 69.4 percent.
• 11^th – Oklahoma’s rank among the states in percentage of households with no computer in their home, 2010

In The Know, Policy Notes

• The Foundation for Child Development finds that states with higher taxes and greater investment in public programs score highest for Child Well-Being.
• The Economic Policy Institute points out that the massive tax cuts propose by GOP presidential candidates don’t square with professed concerns about public debt.
• Demos shows that the pay premium gained by joining the federal workforce is reserved largely for less-skilled workers, and rather than disparaging public sector pay levels, we should embrace them as standards from which the private sector has shamefully deviated over the last three decades.
• The Shriver Center examines the trend of states issuing public benefits through bankcards and the implications of card fees for low-income people.
• Bloomberg Businessweek reports on falling premiums for Medicare Advantage, a private health insurance option for Medicare beneficiaries.

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Growing numbers of Americans have almost no savings or other assets to fall back on if they lose their jobs or face a medical crisis.  Without those savings, few will be able to invest in a more economically secure future, including buying a home, saving for their children’s college educations or building a retirement nest egg.

The 2012 Assets & Opportunity Scorecard offers a comprehensive look at Oklahomans’ ability to build wealth, fend off poverty, and create a more prosperous future. The Scorecard compares states along 52 different measures of how residents fare in five issue areas: Financial Assets & Income, Businesses & Jobs, Housing & Homeownership, Health Care and Education.

Oklahoma ranks 33rd overall and earns a “D” in Financial Assets & Income, with above-average income poverty and an over-reliance on predatory lenders and subprime credit. In Health Care, the state ranks 46th in the overall uninsured rate and 47th in uninsured low-income parents. We rank 43rd in residents with two- or four-year college degrees. The one bright spot among the five issue areas for Oklahoma is in housing and homeownership. The state earned a “B” on the Scorecard and ranks 14th in overall homeownership and housing affordability.

The Scorecard also highlights a dozen policy solutions that can help Oklahoma increase opportunity and promote financial stability.  To address asset and income poverty, Oklahoma should fund a state Individual Development Account program to help its low-income population build wealth. To improve its below-average secondary and post-secondary educational outcomes, Oklahoma should increase funding to schools, especially in high-poverty districts, and match savings for college in 529 accounts. In addition, to protect assets and avoid the pitfalls of predatory high-cost loans, Oklahoma should increase access to safe financial products and limit high interest rates and other harmful practices of payday lenders.

Oklahoma Policy Institute is co-releasing the Assets & Opportunity Scorecard as part of an ongoing commitment to advance anti-poverty policies in Oklahoma that prioritize wealth creation and asset-building for low- and middle-income households.  Oklahoma Policy Institute Director, David Blatt, interprets the scorecard results to mean that, “Too few Oklahomans have a college degree and too many are living in asset poverty, without the savings to weather a financial setback or invest in their future. We need better policies that ensure that all Oklahomans are on a path to prosperity and we must protect existing policies, like tax credits for working families, that help hundreds of thousands of households make ends meet.”

The Scorecard paints a picture of a country where middle class families continue to fall further behind more than two years after the official end of the recession.  For ‘asset poor’ families, making ends meet from day to day is a constant struggle and investing in the future is all but impossible.  Locally, a new organization is committed to promoting those policies that improve the outlook for poor, near poor, and middle class Oklahomans.  The mission of Oklahoma Assets is to advocate policies and programs, like the ones just outlined, that create a more inclusive economy – one in which financial success, economic stability, and opportunity are available for all.

To download a summary of Oklahoma’s Scorecard click here.

To view all Oklahoma data from the 2012 Assets & Opportunity Scorecard click here.

To access the complete Scorecard, including data from all 50 states click here.

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The next lecture in the Practice and Policy Lecture Series, sponsored in part by the Oklahoma Department of Human Services (OKDHS), will focus on these issues and on the power of asset-building as an anti-poverty strategy.  The lectures, “Benchmarking Asset Development in Fighting Poverty,” will be held Thursday, January 12th from Noon to 1 p.m. in the Chesapeake Room of the Oklahoma History Center, 800 Nazih Zuhdi Drive in Oklahoma City.  Attendees will hear from Dr. David Blatt, Director of Oklahoma Policy Institute and Steven Shepelwich, Senior Community Development Advisor at the Federal Reserve Bank of Kansas City.

Dr. Blatt helped found OK Policy and became the Director in 2010.  He was recognized as one of the state’s leading experts on fiscal policy and is one of the Tulsa World’s five “Oklahomans to Watch” in 2011.  Steven Shepelwich leads Branch efforts to promote economic development and fair and impartial access to financial services in Oklahoma’s low- to moderate-income communities. Both Steven and David were in involved in founding Oklahoma Assets, an organization that advocates for policies and programs that can help create a more inclusive economy.

Click here for more information about the event and featured speakers.

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Access to credit has become a necessity for modern American living, touching virtually every aspect of our lives. You need credit to buy a house or a car, pay for medical expenses, even rent an apartment.  Obstacles to affordable credit can create obstacles to work.  Without a car and a place to live, a job is difficult to maintain.  Simply put, credit enables individuals and families to create the basic building blocks of a healthy and prosperous life.

Unfortunately, a number of factors, including insufficient income, existing debt, and a tainted or non-existent credit history affect low- to moderate-income borrowers’ ability to access affordable credit through mainstream financial institutions.  Credit access is also exacerbated by a paucity of mainstream financial outlets in low-income neighbourhoods.  When households with limited access to affordable credit face emergency situations that threaten their ability to work—like illness or car repairs—they often have no choice but to take any credit that they are offered, often at prohibitive rates of interest.

Storefronts advertising ‘quick-cash fast’ line the streets in commercial areas of low-income neighborhoods and market high-cost products to working-poor households.  Some states enforce usury laws and interest-rate caps that adequately protect consumers from the worst of these practices but many, including Oklahoma, do not.  One common source of short-term, high-cost credit for households facing acute cash-flow problems are payday loans.  Payday lenders began operating in Oklahoma in 2003 after the state legislature passed the Deferred Deposit Lending Act setting minimum standards for their operation.

Predatory payday lending is the practice of making several small, consecutive, short-term loans at an average APR of around 400 percent.  Opponents of the practice maintain that these loans trap borrowers in a cycle of debt.  The Center for Responsible Lending (CRL) found that out of the total volume of payday loans in 2009 76 percent were ‘churned’ loans - consecutive pay period transactions.  As the CRL describes, “This rapid re-borrowing indicates that most payday borrowers are not able to clear a monthly billing cycle without borrowing again.” To lessen the risk of a debt trap, Oklahoma law technically prohibits renewal or rollover of a payday loan.  However, since it also permits borrowers to have more than one outstanding loan at a time, the rollover provision is functionally unenforceable.

There are 404 payday-lending storefronts in Oklahoma as of June 2010.  That’s more than the number of Walmarts and McDonalds in the state combined.  A standard payday loan is made for between $100-$500 for a two-week period with consumers promising to pay off the loan with their next paycheck.  Payday lenders are disproportionately concentrated in Tulsa and Oklahoma County, two metropolitan counties containing roughly a third of the state’s population, but half the payday lenders.

There are 15 states that prohibit payday lending outright or have effectively prohibited the practice by enacting a hard cap on interest rates of 36 percent APR.  In 2007, federal law barred consumer credit products with an APR of over 36 percent from being sold to military families.  Assuming the average transaction fee ($51.93) and transaction amount ($388.12) in 2010, an Oklahoma borrower is paying an APR of 349 percent on a standard 14-day loan.

Industry representatives and defenders of high-cost short-term lending insist that churned loans are not the norm and that their products serve an important need — providing emergency cash to consumers who would not otherwise have access to credit.  However, data collected through Oklahoma’s payday loan database show that only 5.4 percent of the total loan volume went to borrowers who took out between 1 and 3 loans over the course of a year.   The bulk of the loans, 61.3 percent, went to customers who took out between 12 and 40 loans in one year.

To investigate the claim that payday loans are a temporary and helpful form of short-term credit for low-income families, a researcher at the Kellogg School of Management at Northwestern University recently analyzed survey data from over 40,000 households over several years.  Brian Melzer found no evidence that payday loans helped alleviate economic hardship. Rather, payday loan access was correlated with increased difficulty paying mortgage, rent and utilities.  The analysis concluded that:

Contrary to the view that improving credit access facilitates important expenditures, the empirical results suggest that, for some low-income households, the debt service burden imposed by borrowing inhibits their ability to pay important bills.

While it’s true that access to credit is a problem for low-income Oklahomans, payday loans are no solution.  Low- to moderate-income Oklahomans need short-term and emergency loan products on fair and reasonable terms and some banks and credit unions have successfully experimented with such products.  You can read more about mainstream financial institution innovations in Oklahoma Assets upcoming issue brief on affordable lending and in an upcoming blog post.

In addition to substitute products to serve low-income communities, we also need regulatory action.  One solution would be to enact the same interest rate cap for civilian households that military leadership felt was necessary to protect active duty households – 36 percent.  Short of a hard cap, state regulators could also do more to prevent loan rollover by extending the term of a loan from 14 days to 30.  They could also limit borrowers to a single outstanding loan at a time and limit the numbers of transactions per borrower per year, ensuring that consumers don’t get trapped on a debt treadmill that will only pull them ever-further away from financial security.

Click here for other OK Policy blog posts on assets and financial security.

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Most Americans recognize the value of savings, yet over time, American savings have declined sharply. Even before the losses incurred during the Great Recession, a large segment of the population in Oklahoma and across the nation had little or no savings with which to weather a setback or move ahead by investing in the future.  According to the 2009-10 Assets and Opportunity Scorecard, nearly one out of every four Oklahoma households (22.7 percent) lacked sufficient financial assets to subsist at the poverty level for three months. Minority households are also disproportionately prone to possess little savings – the asset poverty rate for minority households in Oklahoma exceeds 40 percent and is 2.75 times greater than for White households.

Fortunately, a growing body of research and practice is demonstrating that when barriers are removed and replaced with the right structures, opportunities, and incentives, most people, including those with low and modest incomes, are both willing to save and capable of doing so.  A wide range of new policies, programs, and products are being created to promote savings among traditionally excluded populations.

Among the many promising initiatives to promote savings are Individual Development Accounts, known as IDAs. These are special savings accounts that provide a match for the deposits of low- and moderate-income savers, provided that they participate in financial education and use the savings for targeted asset-building purposes – most commonly post-secondary education, retirement, homeownership or starting a small business.  Studies of a major IDA demonstration project with over 2,500 participants found that an average participant contributed $19 per month to their account and, with matching contributions, accumulated about $700 per year.

In Oklahoma, several successful IDA programs have been operated by non-profit organizations and tribal governments.   The IDA programs for adult and youth operated by the Citizen Potawatomi Nation is one notable example. The Citizen Potawatomis have a long-standing commitment to helping their members become more financially secure and independent. Building on programs that provide loans to native small businesses, small dollar loans to consumers, and financial education, the tribe in 2006 launched an IDA program open to Native Americans adult living in Pottawatomie County and neighboring areas.

The adult IDA program provides a 2:1 match on deposits up to $75 per month over the course of a year. Savings can be used for building and repairing credit, business development, and homeownership.  To be eligible for the match, participants must attend monthly financial education trainings.  In its first three years, 69 participants completed the program, saving an average of $936 and receiving an average of $1,689 in matching funds.

In 2008, the tribe added a second IDA program for youth aged 15 to 21 who are Citizen Potawatomi Nation tribal members living in Pottawatomie and surrounding counties.  The youth IDAs are intended solely to assist with educational expenses. In addition to bi-monthly meetings, youth participants attend cultural training and a week-long financial education camp program to learn about saving and financial matters. Along with the regular 2:1 match on savings, youth participants are eligible for additional matching funds for achieving good grades and other benchmarks. In its first two years, 36 youth have completed the program; they have saved a total of $27,000 and received some $73,000 in matching funds and bonus benchmarks.

According to Cindy Logsdon, Assistant Director of the Citizen Potawatomi Community Development Corporation, the greatest impact of the IDA programs has been to help instill a sense of confidence among the participants. “Most of our participants begin the program feeling embarrassed or insecure about their financial situations,” she said. “Participating in the IDA program gives them confidence that they can tackle their finances, develop a plan, and actually save and invest in their financial future.”

Oklahoma does not currently operate a state IDA program that provides state matching funds for IDA accounts. Twenty-one other states do, generally involving  partnerships between a state agency, non-profit service provider and financial institutions. States use a variety of funding sources – including general funds, TANF and welfare-to-work funds, community development block grants and others – to support IDAs.

IDAs are not the silver bullet for helping low-income families achieve financial security: for example, one of the largest and most heralded IDA programs in the nation, operated by EARN in California, has opened only 3,000 accounts,  and even supporters question the ability to take IDAs to scale given the strong investment they require in one-on-one financial counseling. However, as the Citizen Potawatomi experience shows, they can have a tremendously beneficial impact on participants. As we look for ways to promote financial security for all Oklahomans, support for IDAs should receive serious consideration.

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A new report from CFED and the Annie E. Cassey Foundation (AECF) calculates annual federal expenditures on asset-building policies to be $384 billion. Of this total budget, ninety per cent of benefits, or $348 billion, is delivered through the tax code, while just 10 percent, or $37 billion, takes the form of direct government expenditures. Most of the latter is in the area of scholarships and grants for post-secondary education. Conversely, the vast majority of the total federal budget in the areas of homeownership, savings and investment, retirement accounts and business developments takes the form of tax credits, deductions, and lower tax rates.

Here’s the thing. These policies to promote savings, investment and ownership primarily subsidize the wealthy, and offer few, if any benefits to low- and moderate-income households. Take, for example, homeownership. According to the report:

Federal asset-building policies allocate $137.6 billion toward encouraging homeownership, and
all but $1.1 billion of that is through tax expenditures. These policies disproportionately benefit
higher-income owners who have more expensive homes, allowing them to deduct more mortgage
interest and property tax payments and avoid more capital gains when they sell the home.

Homeowners with lower incomes often find the amount they could claim in their deduction
would not be large enough to make a difference in their tax liability. This explains, in part, why
only 27 percent of taxpayers claimed the deduction in 2008 despite the fact that 67 percent of
Americans owned homes, and two out of three of those homeowners held a mortgage. Analysis
of the data shows that nearly 80 percent of the value of mortgage and property tax deductions
accrued to the top fifth of taxpayers.

The skewing of benefits to the wealthiest households is even more pronounced in the areas of savings and investment and retirement, where most low- and moderate-income households do not own the assets that benefit from preferred tax treatment.

Using a model developed by ITEP, the report shows the distribution of tax benefits from three of the largest asset-building policies – the mortgage interest deduction, property tax deduction and preferential rates on capital gains and dividends – which together account for nearly two-thirds of the federal asset budget. The results are displayed below. Among the key findings: the wealthiest five per cent of taxpayers received 53 percent of the benefits,  while the bottom 60 percent of taxpayers received only 4 percent. The lowest fifth of taxpayers, those with incomes under $19,000, collectively received almost no benefits at all.

As the Washington Post noted in an editorial on the report: “Something is wrong with this picture” when half the benefits of a $400 billion component of the federal budget goes to the wealthiest five percent of the population.

Overall, the CFED/AECF report describes federal policies as “upside down”:

We cannot avoid the sad irony that government policy aimed at building wealth is largely helping the rich get richer.

So, what can be done? The report suggests that what we must do is “work towards creating a more equitable and transparent set of strategies for saving money and building wealth.” One component of this strategy can be refundable tax credits for savings initiatives that benefit low- and moderate-income households. Proposals before Congress to amend the Savers Credit, for example, would accomplish this on a large scale, as would the creation of accounts at birth for every child. At the state level, we have discussed ways Oklahoma could expand participation in the state’s 529 College Savings program, which primarily serves higher-income households. CFED/AECF also suggest placing caps on the values of homes and other assets that can be deducted. A similar proposal at the state level recently advanced by the Institute for Taxation and Economic Policy would involve states doing away with or capping federal itemized deductions on the state income tax, which makes our state tax system much more regressive and provides tax benefits primarily to the wealthiest. Shifting resources away from tax expenditures towards direct budget outlays could also improve fairness and provide for greater transparency and accountability.

Hopefully the “Upside Down” report will spark a renewed discussion of what we are now doing to promote assets and what we should be doing. For as the report states:

At a time when the economic downturn has left many low- and middle-income families struggling to get by, we can ill afford a federal wealthbuilding strategy that primarily helps those who are already wealthy.

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As I noted in my blog post reporting on the opening plenary, a major theme of the conference was the notion of “scale” – the need and opportunity to take policies, programs, and products that have been introduced and tested in modest ways up to now and expand them to serve a much greater number and range of individuals and families. In session after session, I learned about innovative practices that are already working at the local level or in pilot programs and that community organizations, government agencies, and financial institutions are gearing up to expand.  Here are just four of the policies, programs and products from the asset building field that seem poised for a larger impact:

• The Bank On Initiative: According to a 2008 FDIC survey,  one in four U.S. households is unbanked or underbanked, which means they do not have a checking or savings account, or rely on high-cost alternative financial services. In 2006, the city of San Francisco, in partnership with banks, credit unions and non-profit organizations,  launched the Bank on San Francisco project to make it easier for the unbanked to get into mainstream banking by providing consumers with  starter accounts and financial education. Building on the success of the San Francisco program and with the active involvement of the National League of Cities, the program has spread to over a dozen cities. The Administration has now proposed $50 million for a national Bank on USA initiative “to promote access to affordable and appropriate financial services and basic consumer credit products for households lacking such access.”
• $ave USA Initiative. For many low-income families, the Earned Income Tax Credit (EITC), which can be worth over $5,000 to a two-child household,  provides an annual lump-sum payment that can not only be used to spend on ongoing and one-time expenditures, but that can also be saved and invested.  In New York City, the Office of Financial Empowerment launched the $ave NYC Account Program to provide  opportunities for  families to invest part of their EITC  refund in savings. $ave NYC is a matched savings program operated at tax time that provides low-income households 50 cents of public match for every $1 of savings up to $1,000. An evaluation of the program found that 61 percent of program participants deposited over $500 to their $ave NYC account, despite having average households earnings of roughly $15,000.  These findings confirm the growing body of evidence showing that with the right incentives and program design, low-income families can and do save. In July, the federal government announced its financial support for the program in New York and three other cities, including Tulsa.
• Small Dollar Loan Program: Many low- and moderate-income families regularly depend on payday loans, which have APRs that can exceed 450 percent and tend to be extremely short-term, to try to make ends meet. Payday loans often lead to patterns of frequent, high-cost borrowing which perpetuate a cycle of debt and economic insecurity. In 2008, the FDIC launched the Small-Dollar Loan Pilot Program in partnership with 31 banks. All the banks committed to offering borrowers closed-end installment loans up to $2,500 with payment periods that extended beyond a single paycheck and APRs below 36 percent. Some banks coupled their loan product with financial education classes and resources.  According to a study of the program,  “most pilot bankers in the pilot indicated that small dollar loans were a useful business strategy for developing or retaining long-term relationships with consumers.” The FDIC intends to use the lessons from the pilot to work with the public, private, and non-profit sectors on strategies to expand  the supply of lower-cost  small-dollar loans.
• The Saver’s Credit. At the national policy level, the Obama Administration is promoting a broad set of tax policy changes that encourage and facilitate savings.  One proposal that is strongly backed by CFED and a coalition of corporate and non-profit supporters would expand the Saver’s Credit, which currently is claimed by less than 6 million individuals. Under the Administration’s proposal, the Saver’s Credit would provide a flat 50 percent match on deposits into qualified retirement accounts up to $1,000 per year for joint filers, automatically deposit this match directly into a designated account, and extend this benefit to households earning less than $65,000. If enacted, up to 50 million Americans would be able to use the Saver’s Credit to build up a nest egg for retirement and other eligible uses.

These four examples are from an exhaustive list, but they are representative of a field in which a growing number of partnerships are bringing together government, non-profits, and the private sector to help build assets and strengthen financial security.  The Oklahoma Asset Building Coalition is eager to be an active part of this work here in Oklahoma; whether or not you’ve been a part of the regional meetings that the Coalition is hosting around the state, we hope you’ll join our effort and help us ensure that Oklahoma contributes to bringing the assets movement to scale.

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In her opening State of the Field address, CFED President Andrea Levere laid out the case for why the assets movement  has reached a defining moment. She argued that an array of programs, policies, products, and financial strategies that the asset-building field has pioneered over the past 30 year are ready to be scaled and to lay the foundation for a more just and inclusive economy.

The theme of the 2010 Asset Learning Conference is “Creating the Save and Invest Economy”, inspired in part by a speech delivered by President Obama in 2009 on rebuilding the American economy:

We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity — a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad.

Michael Barr, the assistant secretary for financial institutions at the U.S. Department of the Treasury, spoke to the opening plenary of some of the initiatives the Administration is pursuing to spur this vision of an economy based on saving and investment. Their three-fold focus is on expanding financial education; broadening financial access, especially for the large segment of the population that is unbanked or that relies on high-cost fringe financial services; and strengthening consumer protection in the home mortgage and financial services sectors, particularly through the new Consumer Financial Protection Bureau enacted as part of this year’s financial reform law. Barr also identified a number of key policies specifically aimed at encouraging more families, especially those of moderate means, to save. These include automatic contributions to retirement accounts, lifting asset limits in public benefit programs, and making it easy for people to invest part or all of their tax returns in U.S. savings bonds. The Administration has also pushed for a major expansion of the Savers Credit, which is part of a policy agenda that hundreds of the delegates promoted during visits with their Congressional representatives on Capitol Hill.

Oklahoma is well represented at the Assets Learning Conference with some dozen participants, most of whom are operating non-profit and tribal programs aimed at promoting savings and wealth and expanding economic security. These programs include home ownership assistance, tax refund sites, matched savings Individual Development Accounts, financial education and counseling, and others. It is something of a happy coincidence that the conference  is taking place right as the Oklahoma Asset Building Coalition is convening a series of five regional meetings across Oklahoma to discuss assets and economic security. What we are learning in DC about the innovative policies, programs and products being developed across the nation will help inform the Coalition’s remaining regional meetings and our work going forward. In time, we also hope it will help lay the groundwork for a policy agenda to build assets and strengthen economic security.

The challenges the assets movement faces certainly remain daunting. The Great Recession has left more families in financial distress and led to a great loss of wealth from declining home and stock values. The movement also continues to grapple with how to communicate and organize around a central concept – assets – that remains unfamiliar and ill-defined to most of the public and many potential participants and supporters. Yet the conference also reminds us that the field is bristling with innovative ideas, committed practitioners, and proven strategies. We look forward to going back home charged up and ready to get down to work.

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As part of the conference kick-off, several organizations that are leaders in the asset building field came together yesterday to release a new report, Lessons from SEED, a National Demonstration of Child Development Accounts. The SEED project is a comprehensive initiative, combining policy, practice, and research, designed to explore a national system of savings and asset-building accounts for children and youth. Child Development Accounts, or CDAs, are intended to give children in low-income families a “financial head start” towards economic opportunity by beginning savings from as early as birth. CDAs are generally “seeded” with an initial deposit from public or private funds, after which children and parents are encouraged to contribute to the account, often with the incentive of matching contributions. The accounts provide savings that can later be used as productive investments that provide the pathways to opportunity and security, by paying for college, buying a home, starting a business, or for retirement.

The SEED National Demonstration program studied in the new report is based on the experience of more than 1,171 children of all ages and their families who participated in pioneering CDA pilot programs in 12 states and communities. Oklahoma was represented in the project through a matched college savings program for 75 Cherokee Nation high school students in Tahlequah. In addition, the report explores the SEED for Oklahoma Kids demonstration project, in which 529 College Savings accounts were opened for 1,360 Oklahoma newborn with a $1,000 initial deposit.

The new study found that families of all incomes have saved and built assets for children and youth in SEED. The savings were modest but important – participants contributed an average of $30 per quarter to their accounts over the course of the program. At the end of almost three years, the average total accumulation, including incentives, for SEED participants was $1,500. The report pointed out that if these averages were to be maintained from birth through age 18, with modest investment returns, children would save enough to cover two years of community college tuition and fees at current costs. Savings performance varied based on a number of design features of the individual programs, and the study stresses the need to recognize and overcome various obstacles if low-income families are to become successful savers.

The SEED study concludes:

One of the strongest arguments for children’s savings accounts is their potential to chart a path over time towards economic security. But this is not expected to happen quickly. Asset building is a long-term process. It takes time for potential positive psychological, behavioral, and educational effects associated with account ownership to take hold. This means that strategies to support such outcomes will have to be in place over the long term.

Various effors are underway to build on the SEED project and commit to a long-term strategy of asset building for children and youth. At the national level,  the ASPIRE Act, that would create a “lifetime savings account” at birth for every American child, has been introduced in Congress (see our discussion here). In Oklahoma, a 2006 legislatively-appointed Task Force recommended the creation of 529 college savings accounts for all children in families below the state median household income with an initial public deposit and the opportunity for matching contributions. Bills to implement the report’s recommendations were introduced in the Legislature but never advanced through the process.

As a leader in the field of early childhood education, Oklahoma has recognized the difference that investment in quality learning opportunities at a very young age can make for a child’s lifelong educational and economic prospects. The SEED National Demonstration provides promising evidence that  creating early opportunities for financial savings and investments may have similarly transformative effects.

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