Asset Building and the Wealth Gap

Since joining the RESULTS team in March, I’ve spent a good deal of time analyzing some bad ideas coming out of Congress – from changing the structure of the Supplemental Nutrition Assistance Program.

That’s why I’ve been excited to discover a whole new community of advocates and practitioners working on some pretty great ideas for ending poverty in a long-term way – through what’s known as “asset building.”

Asset building is based on the simple basic idea that you need to think about not just income levels when fighting poverty, but also how families can prepare for and weather financial emergencies. This means that on top of policies and programs aimed at alleviating immediate financial hardship, we need ones that create meaningful opportunities for families to move forward in their lives.

“Assets” include money in the bank, savings bonds, mortgages on a home, retirement accounts, and other forms of personal capital.  Even the most basic forms of savings can have a transformative effect on low-income families – whether it’s to weather financial emergencies, to allow a greater degree of stability from which to advance, or to plan for a child’s future. For example, children with a savings account in their name, regardless of the amount in the account, are six times more likely to attend college than those without an account.

To get a more thorough introduction to this field, RESULTS Director of US Poverty Campaigns and I attended Saver’s Bonus, though the conference made it clear that we’ve got a lot more work to do! Here are a few of my big-picture takeaways from the conference: 

–          The racial wealth gap is huge and growing. Current policy in this country is making the gap between the rich and poor worse and worse, and specifically, the gap between whites and people of color. For example, Tom Shapiro at Brandeis University, presenting a forthcoming paper, highlighted that, between 1984 and 2009, the gap between the wealth of a typical white family and a typical black families grew by $76,000. Additionally, over this time period, white families in the upper third income tier amassed wealth at 15 times the rate of other families. Overall, the racial wealth gap between whites and blacks is 20:1, and it is 18:1 for whites and Latinos.

Part of the problem is the inequitable access to safe, secure, and fair savings tools for low-income families. Several of the presenters also demonstrated the ways communities of color have been and continue to be targets of exploitative financial practices – like bad mortgages or high interest rate lending. The same working paper found that for each dollar increase in income translates into about 5 dollars of wealth for a typical white family and only 70 cents for African Americans. It’s clear that advocates need to think seriously about more equitable access to financial services and about how to design savings vehicles that work for low-income families. Otherwise, that gap will only continue to widen.

–         Federal policy can and should play a role in reversing the gap. The federal government spends over $400 billion a year through policies and programs that promote savings and wealth, yet an overwhelming majority of that goes towards the highest income brackets, while an average of $5 each went to the bottom 60% of tax payers. Part of the reason this happens is that much of that asset and savings-promotion happens through tax breaks and write-offs; low-income folks tend not to earn enough to genuinely benefit from a reduced tax liability in the way wealthy folks do.

In a closing presentation, Assets and the Poor author Michael Sherradan himself pointed out the gravity of this reality, explaining that this massive, active, and ongoing transfer of wealth to the top through tax and other asset building policies as they stand is simply bad governance. As he explained, investing in home ownership of the wealthiest, rewarding the accumulation of wealth at the top, is not only inequitable; it’s simply not a good investment with our public dollars.

I’ll be blogging more on why asset building matters and the kinds of policy change that we hope to see – stay posted!