Asset Building: Catholic Social Thought and a New Strategy for Helping the Poor Catholic University of America February 15, 2007 Asset Building: Catholic Social Thought and a New Strategy for Helping the Poor Catholic University of America February 15, 2007 Ray Boshara New America Foundation Washington, DC

What is Asset Development? Public and private strategies to enable low-income persons to save and accumulate long-term assets – a home, post- secondary education, investments, land, a small business, and a nest-egg for retirement. Public and private strategies to enable low-income persons to save and accumulate long-term assets – a home, post- secondary education, investments, land, a small business, and a nest-egg for retirement. U.S. field has been savings-based and account-based – like 401(k)s for all and savings accounts at birth for all – but other means to asset accumulation (such as expanding Pell Grants) matter, too. U.S. field has been savings-based and account-based – like 401(k)s for all and savings accounts at birth for all – but other means to asset accumulation (such as expanding Pell Grants) matter, too. Historically, includes the Homestead Act, GI Bill, and various homeownership programs in the 20 th Century. Historically, includes the Homestead Act, GI Bill, and various homeownership programs in the 20 th Century. Informed by Amartya Sen – assets as the economic proxy for Sens notion of capabilties Informed by Amartya Sen – assets as the economic proxy for Sens notion of capabilties

Why Assets? Michael Sherraden, Assets and the Poor (1991): Michael Sherraden, Assets and the Poor (1991): 1.Economically, assets are the key to economic security. 2.Asset ownership is associated with positive social, civic, behavioral and psychological effects not necessarily associated with income. Lack of income means you dont get by. Lack of assets means you dont get ahead. Lack of income means you dont get by. Lack of assets means you dont get ahead. Assets have not been part of the solution to fighting poverty – for adults or children. Assets have not been part of the solution to fighting poverty – for adults or children. Imagine your or your familys life without assets – savings, a home, an education, a small business, investments, and a nest-egg for retirement. Imagine your or your familys life without assets – savings, a home, an education, a small business, investments, and a nest-egg for retirement.

Why Assets, continued With asset lens, 4 distinct public policies: With asset lens, 4 distinct public policies: Asset DevelopmentAsset Development Asset DenialAsset Denial Asset DiscriminationAsset Discrimination Asset DeprivationAsset Deprivation - Public policy bundles asset ownership opportunities for some, not for others - The key goal is inclusion Who Owns America? Who Owns America? Quintile IncomeWealth Bottom 40%10%1% Bottom 60%23%4.5% Top 20%56%83% - The U.S. distributes income progressively, but assets regressively Expand asset ownership because it is: Expand asset ownership because it is: Its fair: we do it for the non-poor, we should do it for the poorIts fair: we do it for the non-poor, we should do it for the poor Its good for the poorit will help them escape povertyIts good for the poorit will help them escape poverty Its good for the nation, budget and economyIts good for the nation, budget and economy

What Have We Learned? The poor can save and build assets. The poor can save and build assets. Savings and asset accumulations is less of function of preferences and more a function of access to structured savings mechanisms. Savings and asset accumulations is less of function of preferences and more a function of access to structured savings mechanisms. Asset effects are in fact supported by research, are earlier, and are often more powerful than predicted. Asset effects are in fact supported by research, are earlier, and are often more powerful than predicted.

Research on Asset Effects Summarized by Sherraden, 2005 Holding assets at 23 is associated with later positive outcomes such as better labor market experience, marriages, health and political interest. (Bynner & Paxton, 2001) Holding assets at 23 is associated with later positive outcomes such as better labor market experience, marriages, health and political interest. (Bynner & Paxton, 2001) The presence of the asset appears to matter more than the monetary value of the asset. (Bynner & Paxton, 2001) The presence of the asset appears to matter more than the monetary value of the asset. (Bynner & Paxton, 2001) The presence of small wealth at critical times can have transformative effects on the life course. (Shapiro, 2004) The presence of small wealth at critical times can have transformative effects on the life course. (Shapiro, 2004) Parental wealth is positively associated with cognitive development, physical health, and socio-emotional behavior of children – even in very poor families. (Williams, 2003) Parental wealth is positively associated with cognitive development, physical health, and socio-emotional behavior of children – even in very poor families. (Williams, 2003) Wealth seems to be a better predictor of well-being as children grow older, while income is a better predictor when they are younger. (Williams, 2003) Wealth seems to be a better predictor of well-being as children grow older, while income is a better predictor when they are younger. (Williams, 2003) Low-income, single mothers assets are positively associated with childrens educational attainment. (Zahn and Sherraden, 2003) Low-income, single mothers assets are positively associated with childrens educational attainment. (Zahn and Sherraden, 2003) Income is associated with educational achievement when assets are not in the model. However, income becomes non- significant when assets are included. (Zahn and Sherraden, 2003) Income is associated with educational achievement when assets are not in the model. However, income becomes non- significant when assets are included. (Zahn and Sherraden, 2003) Assets lead to positive attitudes and behaviors, and positive attitudes and behaviors lead to assets may be a glimpse of a virtuous cycle wherein household development is a reinforcing feedback loop. (Yadama and Sherraden, 1996) Assets lead to positive attitudes and behaviors, and positive attitudes and behaviors lead to assets may be a glimpse of a virtuous cycle wherein household development is a reinforcing feedback loop. (Yadama and Sherraden, 1996)

Where Are We Now? $383.8 billion in budget resources for asset building activities in 2007, $366.9 billion are tax expenditures that primarily benefit families earning above the national median income. The budget includes $16.9 billion in asset building direct expenditures for 2007, down $608 million from Multi-billion dollar asset-building policies have been introduced in the U.S. Congressbut none have passed. More and more Congressional leaders and Presidential candidates support this agenda. Roughly 500 Individual Development Account and hundreds of other asset-building programs Asset building policies and projects in Canada, UK, Uganda, China, Taiwan, South Korea, Mexico

U.S. Policy Agenda Two track agenda Two track agenda Getting defaults right, making saving easy and automatic Getting defaults right, making saving easy and automatic Federal and state Federal and state Accumulate and protect Accumulate and protect Account-based and program-based Account-based and program-based Macro trend toward individual asset accounts – will the poor be included?Macro trend toward individual asset accounts – will the poor be included? Must make accounts work for the poor.Must make accounts work for the poor. When do risks need to be pooled?When do risks need to be pooled? Balanced portfolio of programs and accounts.Balanced portfolio of programs and accounts.

Detailed Policy Agenda Universal KIDS Accounts at birth Universal KIDS Accounts at birth Various Auto Save plans – auto 401(k)s, Auto IRAs, Universal TSP, etc. Various Auto Save plans – auto 401(k)s, Auto IRAs, Universal TSP, etc. Matched savings for the working poor Matched savings for the working poor Connecting tax refunds to assets / Split Refunds Connecting tax refunds to assets / Split Refunds Expansion of state-based 529 college savings plans Expansion of state-based 529 college savings plans Improving access to mainstream financial services Improving access to mainstream financial services Improving financial education Improving financial education Revising asset limits in public assistance programs Revising asset limits in public assistance programs Reviving Savings Bonds Reviving Savings Bonds Improving established micro- enterprise, post-secondary education, homeownership, and retirement security programs Improving established micro- enterprise, post-secondary education, homeownership, and retirement security programs Improving laws to protect assets and reduce consumer debt Improving laws to protect assets and reduce consumer debt

Childrens Savings Accounts Childrens Savings Accounts Existing Policies UK: Child Trust Fund Singapore: Baby Bonus & Child Development Accounts Canada: Education Savings Program Hungary: Baby Bonds ` Proposed Policies / Current Projects Current Projects Korea: Child Development Accounts U.S.: Various universal CSAs policies proposed; SEED demonstration proiect New Zealand: KiwiSaver Plus Australia: Nest Egg Accounts Uganda: Child Development Accounts demonstration project

Future Generations Any nations economic success, and the security it offers for retirees, depends on the economic success of its children. Any nations economic success, and the security it offers for retirees, depends on the economic success of its children. Budget deficits, aging populations, and ballooning entitlements greatly reduce their chances for economic success. Presently a $28,000 per child birth tax, and $8 spent per senior on every $1 per child – these numbers will increase. We need a birth bonus. Budget deficits, aging populations, and ballooning entitlements greatly reduce their chances for economic success. Presently a $28,000 per child birth tax, and $8 spent per senior on every $1 per child – these numbers will increase. We need a birth bonus. Record inequality – economies are growing, but not everyone is sharing in that growth. Record inequality – economies are growing, but not everyone is sharing in that growth. Great societies promote equal opportunity for each generation. Not equal outcomes, but equal opportunities. Great societies promote equal opportunity for each generation. Not equal outcomes, but equal opportunities. With CSAs, we can help ensure that inequality of outcomes in one generation does not become inequality of opportunity in the next. With CSAs, we can help ensure that inequality of outcomes in one generation does not become inequality of opportunity in the next.

Assets and Economic Justice for All Participation We judge any economic system by what it does for and to people and by how it permits all to participate in it. (p. ix) We judge any economic system by what it does for and to people and by how it permits all to participate in it. (p. ix) All people have a right to participate in the economic life of society…..it is through employment that most individuals and families meet their material needs… (p. x) All people have a right to participate in the economic life of society…..it is through employment that most individuals and families meet their material needs… (p. x) Option for the Poor All members of society have a special obligation to the poor and vulnerable….From Scriptures and church teaching, we learn that justice is tested by the treatment of the poor. (p. x) All members of society have a special obligation to the poor and vulnerable….From Scriptures and church teaching, we learn that justice is tested by the treatment of the poor. (p. x)Structures Time for a New American Experiment….which can create new structures of economic partnership and participation. (p. xii) Time for a New American Experiment….which can create new structures of economic partnership and participation. (p. xii)