Imagining a Post-Recession America: On 'Combating Poverty by Building Assets'
When I first came to the United States as a student in Chicago in 2004, I realized how little I knew of the contradictions within this country. From the outside, it is the wealthiest nation in the world, with the most powerful army on earth and often referred to as the land of excess and opportunity. But to many outside the US it is a little known fact that there are deep pockets of poverty, tucked away in patches of its urban and rural areas. More recently, while working on poverty reduction programs in South Asia at the World Bank, I found it ironic to see homeless persons sitting under the pristine cherry blossoms outside its shiny building in Washington DC. It made me think about the need to apply innovations and successes from ‘developing countries' right here.
Ray Boshara's recent article "Combating Poverty by Building Assets" in Pathways magazine sheds some light on this issue. Boshara calls for a ‘new era of thrift' to be ushered in a post recession America and he explicitly draws on experiences from other national contexts.
Savings, not credit, is the first step in building assets. Instead of extending toxic sub-prime mortgages and deceptive credit cards without appropriate financial knowledge, savings-led strategies should form the core of anti-poverty efforts. During each financial rite of passage - at birth, at the workplace, at tax time and while purchasing a home - people should be given a savings product. For example, every child born into a low-income household should be given a $1,000 savings account and the opportunity to earn $500 in annual matching funds until 18 years of age. Both Great Britain and Sri Lanka have successfully launched child saving accounts; every family that leaves the hospital has an account for the newborn.
Borrowing from Singapore's Central Provident Fund, an American Savings Plan should be created in which every worker in the United States would be provided with an American Stakeholder Account. This account would grow from mandatory savings of 1-2% from both employers and employees.
Income and consumption-based evaluations which then inform income-based poverty programs, do not take into account the growth of assets. As first proposed by Michael Sherraden in 1991, and now widely proven by research across the world, the key to moving out of poverty lies in sustainable asset creation. As the article points out, even prior to the economic meltdown, one in three American households had no more than $10,000 in net worth and one in six had negative net worth.
Given the challenges many confront in savings and building assets, we should be open to lessons learned from policy efforts and programs around the world. There is much to be learnt from the Peruvian woman who saves a portion of her conditional cash transfer to open a small business, or the woman from a small village in India who, with her self-help group, has moved out of poverty. Now is an opportune time to redouble our efforts to promote savings and asset building, and smooth-out some of the hard edges of wealth inequality.
Shweta Banerjee is a consultant with the Global Assets Project of the New America Foundation.