On April 28, the Senate Finance Subcommittee on Social Security and Family Policy held a hearing to examine policies that encourage the building of assets for low-income families. Subcommittee Chair Rick Santorum (R-PA) opened the hearing, saying, “Clearly an ownership society includes at least several key elements such as an emphasis on financial education and skills, incentives for savings with special emphasis on low-income families, and empowerment through expanded choice…One-third of all Americans have no assets available for investment, and another fifth have only negligible assets.” He highlighted several legislative proposals aimed at helping low-income families save: the Savings and Working Families Act (S. 922), sponsored by Sens. Santorum and Joe Lieberman (D-CT), which would expand Individual Development Accounts (IDAs); and the America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act (S. 868), sponsored by Sens. Santorum and Jon Corzine (D-NJ), which would create a Kids Investment and Development Savings (KIDS) Account for every child at birth. Under the ASPIRE Act, every child would receive a $500 deposit at birth and voluntary contributions would be matched dollar-for-dollar up to $500. At the age of 18, the funds could be used for education, homeownership, or retirement planning.
The subcommittee heard testimony about a variety of programs aimed at building assets, including the Family Savings Account (FSA) program operated by the Women’s Opportunities Resource Center (WORC) in Philadelphia, Pennsylvania. After being in and out of prison for over 10 years, Michelle Simmons decided to start a nonprofit organization for women ex-offenders transitioning back into society. She participated in WORC’s entrepreneurship program, where she received six weeks of intensive training on how to start a business, and then she participated in the FSA program. “Through the FSA program, I saved $1007 and was matched $1007. This $2014 covered my down payment and with the help of a housing counseling agency and Habitat for Humanity, I was able to secure a $50,000 no-interest, low-down payment mortgage. The FSA program taught me money management and budgeting. It taught me simple things like writing down everything I spent and cutting out unnecessary expenses,” she said.
Dorothy Beale, also a graduate of WORC, agreed. “I joined the program in 2003 as a single mother who, like many others, had been working hard but could not get ahead. I had always dreamt of having a home for myself and my three children. I was tired of throwing my money away on rent and wanted something that I could call my own and one day pass on to my children.” Stating that the hardest part was saving, Ms. Beal said, “I saved $80 per month over a fifteen month period and even deposited a lump sum from my Earned Income Tax Credit to reach the $2000 goal. With the work I did on my credit, I was able to obtain a mortgage for $77,000, and with my $4000 in savings and match funds, I was able to purchase my family’s first home in September 2004.” Most importantly, she added, “This program has given me the opportunity to pass good budgeting and savings habits on to my children.”
Dr. Victoria Gonzalez-Rubio, principal of Delmar-Harvard Elementary School in University City, Missouri, described her school’s program, I Can Save, which provides savings accounts, financial education, and incentives to all children in kindergarten and first grade. The program is part of the Saving for Education, Entrepreneurship, and Downpayment (SEED) Policy and Practice Initiative, a multi-year national initiative to develop, test, and promote the idea of matched savings accounts and financial education for children and youth. Dr. Gonzalez-Rubio explained, “All children in two grade cohorts in my school have a savings account at Commerce Bank, located across the street from the school. When the children open their I Can Save accounts, an initial deposit of $500 is made. Thereafter, all savings deposits are matched dollar-for-dollar. Deposits are made by students, their parents, and others who want to invest in the children’s future education. Students earn money by participating once a week in the after-school I Can Save Club, where they learn financial concepts and entrepreneurship principles. Students take monthly trips to the bank where they deposit their ‘earnings’ from the club. The money is matched when they deposit it into their savings account. During the school day, teachers offer financial education to students. Parents also participate in financial education workshops where they sharpen their financial management skills and learn more about household asset building.”
Using data from the Panel Study of Income Dynamics (PSID), Dr. Trina Williams Shanks of the University of Michigan’s School of Social Work explained the impact of wealth on child development outcomes. “Overall, household wealth is a significant predictor for academic achievement test outcomes and reported behavior problems even at these young ages [ages 3-12]. In a few instances, not only does having information about household wealth over and above traditional SES [socioeconomic status] measures such as income and parental education add explanatory value, but it also reduces the statistical significance of income,” she said, adding, “Turning to the issue of racial disparities, disparities in the academic achievement domain by race go away or are significantly reduced as wealth and the other SES variables are added to the model…Of course, assets are not a panacea for all potential problems that are associated with income poverty. However, in most instances children living in households with higher levels of net worth seem to have consistently better results than those in households with little or no net worth.”
Expressing support for both IDAs and KIDS Accounts, Director of the Asset Building Program at the New America Foundation Ray Boshara said, “With the bottom 60% of the nation collectively owning less than 5% of the nation’s wealth, we believe that asset-building proposals focused on low-income, low-wealth Americans should be the starting point of our nation’s efforts to ensure that all Americans can save, invest and in fact become owners of and stakeholders in America.”
With respect to children’s savings accounts, Mr. Boshara said, “This ‘accounts-at-birth’ approach represents a social investment in every child at the same time as it gives the child a stake in broader society.” He continued, “While every child would have an account, it would especially benefit the 26 percent of white children, 52 percent of black children, and 54 percent of Hispanic children who start life in households without any resources whatsoever for investment.”
