ASPIRE-ing to lifetime savings and building assets

For many of us, the economic events of the past two years have eroded our savings and heightened our sense of economic fragility. Yet for many low- and moderate-income households, savings have long been out of reach. The 2009-10 Assets and Opportunity Scorecard, which OK Policy released in partnership with CFED, revealed that in 2006, more than one in five Oklahoma households was in “asset poverty”, meaning that it had insufficient net worth to subsist at the federal poverty level for three months if income were interrupted, such as due to a job loss. Without savings, any minor setback can turn into a full-fledged crisis. More importantly, perhaps, without access to savings to attend college, buy a home, start a business, or retire, the pathway out of poverty and towards economic security is blocked.

It is for this reason that an important and growing movement of anti-poverty advocates have focused in recent years on ways to support savings among low and moderate-income families. As we discussed in our issue brief, “More than Just Getting By, ” public policies in this country have long encouraged savings, ownership and wealth creation through such mechanisms as the home mortgage deduction and preferential tax treatment of capital gains and college 529 plan contributions. The problem is that most low-income households are not in a position to benefit from the asset building policies embedded in the tax code. As a result, one study found that 45 percent of the benefits from federal asset development policies went to the richest 1 percent of households, while less than 3 percent of the benefits went to the bottom 60 percent of households.

Led by national organizations such as CFED, the New America Foundation and the Aspen Institute, a wide range of policies have been promoted in Congress and the states in recent years  to spread the advantages of savings and asset development across the income spectrum.  One promising initiative aims to provide every child born in America (who is a US citizen or legal resident) a savings account at birth seeded with a modest public contribution. Modeled on Child Trust Fund accounts established in the United Kingdom in the early 2000’s, these child savings accounts are intended to allow every child and every family the opportunity to build up savings that can be used for college, home ownership or retirement. They build on research showing that asset ownership in the early years can have important benefits in shaping life expectations and helping children succeed.

In late February, the  America Saving for Personal Investment, Retirement and Education (ASPIRE) Act was re-introduced in Congress. The ASPIRE Act, authored by Rep. Patrick Kennedy (D-RI), Tom Petri (R-WI), and Rep. Jim Cooper (D-TN), would create a “lifetime savings account” (LSA) for every American child at birth. The Act would seed each LSA with a one-time $500 contribution. Children living in households with incomes below the national median income would be eligible for both a supplemental contribution of up to $500 at birth and the opportunity to earn up to $500 per year in matching funds. Withdrawals from the account could be made interest-free and without penalty for post-secondary education between age 18 and 25, and to buy a home and for retirement after age 25. You can see a detailed discussion of the 2009 version of the bill prepared by the New America Foundation. You can ask your U.S. Representative to become a co-sponsor of the 2010 ASPIRE Act by clicking 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.

While some view the idea of child savings account funded with initial public contributions as expanding the scope of government, the concept also has appeal for conservatives, who can look favorably on a public program that promotes private wealth and that would ultimately ease the reliance on government.  Some also raise concerns about the cost of these initiatives. The Aspire Act carries a price tag of $37.5 billion over 10 years, which the sponsors commit to paying for with offsets from other programs.

Child savings accounts would create an innovative mechanisms for savings and investment and encourage children to set goals and plan for their futures. That is something all children should be able to aspire to.