Family Financial Well- Being: The Role of Assets Research Evidence and Policy Applications for Asset-Empowered American Families

Asset Poverty in American Families More than half of all American families are unable to replace one month of their incomes from savings. Low-income families lack enough savings to survive even two weeks. Wealth is even more inequitably divided than income, with the bottom three quintiles gaining little wealth over the past 20 years. 61% of households of color and 80% of low-income are asset poor (44% of all households) Public policies exacerbate these disparities. Asset limits in means-tested programs Debt-dependent financial aid School finance formulas ‘Unfriendly’ financial services, high barriers to entry Upside down asset-building budget, where more than ½ of the $400 billion in investments goes to the top 5% of earners

Why Assets Matter Financial Security Economic Mobility Educational Attainment

Assets and Financial Security Assets provide a critical measure of financial security, cushioning families from increasingly common income shocks. Pew analysis finds that 43% of households experience at least 25% change in income within two years. The typical worker saw only 2% wage growth between 1999 and 2009, and many families’ fortunes have not rebounded even in recovery. Household consumption today is below 1990 levels, as families have had to rein in spending to cope with income shortfalls. Still, almost half of families are ‘income-constrained’, spending more than they make most months. Even when income is limited, assets can: Prevent reliance on fringe financial services by providing reserve Reduce costs associated with income volatility, to smooth consumption Facilitate financial planning

Assets for Economic Mobility Assets provide a foundation for upward mobility, particularly in today’s labor market. It is difficult for any American to work his/her way up the ladder in today’s economy. As a result, economic mobility rates in the U.S. are, today, lower than in Canada and much of Europe. Forty-three percent of Americans raised in the bottom fifth of the income ladder remain there a generation later. Most anti-poverty programs only designed to lift people just above the poverty line, not to true security. Educational attainment correlates strongly with economic advantage; the college completion gap between wealthy and poor students is actually widening, and, today, the highest-achieving poor students attend college at roughly the same rate as the lowest-achieving wealthy. As tools of ascent, assets: Increase the productive potential of income flows and the return on additional asset accumulation Change how people think, particularly regarding future orientation Connect households to the financial mainstream Increase the return on degree by reducing student debt

Assets and Education Assets can improve educational attainment, the greatest driver of upward mobility and the primary way poor children exit poverty. Assets work to increase educational attainment: Before college, by improving achievement (particularly in reading and math) and building parents’ and children’s expectations At the point of enrollment, by bridging affordability and cultivating college-saver identity By increasing persistence to degree and improving completion rates Within communities and school systems, by changing patterns of expectations and ‘college-going cultures’ (research still in infancy here)

Leveraging Assets as Catalyst for Prosperity: What the Research Says During school Assets associated with greater math and reading achievement, largely through the mechanism of increased expectations (even stronger than effects of increased income). College access Forty-five percent of low or moderate-income students with no account but 65% with school savings from $1 to $499, and 72% of students with school savings of $500+ enroll in college. Postsecondary completion Five percent of students with no account, 13% who have school savings less than $1, 25% who have school savings from $1 to $499, and 33% of students who have school savings of $500+ graduate from college. Post-college financial foundation Assets can instill habits of savings, reduce the long-term cost of financing, and connect young adults to financial institutions. Compared to children without accounts, those who save are more likely to own accounts, hold more diversified asset holdings, and accumulate higher net worth.

An Asset-Empowered Policy Agenda Eliminating savings barriers Access to savings opportunities Universal enrollment in account structure Elimination of asset tests Progressive incentives Savings matches Benchmark deposits Vehicles for wealth transfers Initial deposits

Asset Innovations Leveraging income supports as asset investments HUD Family Self-Sufficiency Program Child Support Savings Initiatives Repurposing Pell Grants and scholarship programs Tax-time Savings Elimination of asset limits Children’s Savings Accounts Universal enrollment Integration into school systems Inclusive 529s Other Progress Congressional movement: ABLE Act and Prize-linked Savings Financial sector reforms: technological advancements

Melinda Lewis, LMSW Associate Professor of Practice and Assistant Director Center for Assets, Education, and Inclusion School of Social Welfare University of Kansas