Asset Building

...must come down--or so the saying goes.  And in the case of the personal savings rate, this month's data seems to prove the maxim. The Bureau of Economic Analysis (BEA) is out with this month's data. The personal savings rate for June came in at 4.6%, down significantly from May's 6.2%.  And so, thus ends the nation's new found infatuation with savings.

Well, not really. As the BEA reported, and Alejandra Lopez-Fernandini explained, May's extremely high personal savings rate wasn't so much the continuation of a new trend in personal savings (rich people discovering coupons, that sort of thing) but the result of some large, though short-term, changes in public policy:

We have just released a paper by Michael Johnson, recently of the UK think tank Institute for Public Policy Research, which analyzing the state of play for savings policy in the United Kingdom. There are many interesting initiatives going on over there which the paper describes, including giving every newborn a savings account. We have been tracking this Child Trust Fund effort for a number of years and have used its insights to inform the development of the ASPIRE Act.

However, the interest which has built up around asset-based welfare over there has also produced several other groundbreaking efforts, such as Savings Gateway which is a national policy to match the savings of targeted households and a major effort to reform the provision of pensions so almost everyone has access to this savings opportunity through their employers. Michael does a great job of describing these policies individually and summarizing the state of knowledge for each one. But what is particularly noteworthy is how these efforts collectively form a policy continuum which spans the life course.

He writes:

Andrew Sullivan points out this really terrific piece from the Economist, charting major forces in the American economy (Government Spending, Personal Savings, Consumption, Exports) from World War II until the present day. It's a really interesting short piece that highlights the role of personal savings in the US economy--particularly in the last 25 years. 

That's a favorite topic of ours.  It's great to see the importance of savings highlighted in this way, and always great to see new tools and applications pushed forward to improve people's understanding of public policy and interests.  Kudos to the folks at the Economist for pushing this piece out, I recommend it highly. We'll keep a close eye for future installments.

From the UK to Singapore, children's savings accounts programs are gaining traction around the world.  And that's because studies have shown-- from Uganda to the United States-- that beginning savings and asset-building habits at a young age has a multitude of economic and psycho-social effects on a child.  The Global Assets Project has a hand in some of these (most recently, with our work in developing a  multi-country youth savings account pilot).  And now, it looks like Nigeria is catching on.

In light of yesterday's post about ASPIRE--and the op-ed from Newt Gingrich, Peter Ferrara and Emily Renwick--I wanted to highlight resources for those that might have questions about ASPIRE.

We maintain a webpage devoted entirely to our proposal for universal children's savings accounts, here. As this year has moved forward, we have updated the relevant materials that serve as background documents for ASPIRE. As time marches forward and our understanding of the issues involved in the legislation has evolved, so too has the proposal.  While the basics remain largely the same, we've issued new versions of the ASPIRE Summary, as well as the ASPIRE Citizen's Guide.

Most recently, we've issued an updated ASPIRE Questions and Answers document.  Check it out.

My favorite entry:

Senator Chuck Schumer (D-NY) has long been a champion of universal children's savings accounts, so it should surprise no one when Senator Schumer sent out a press release announcing his intention to introduce the ASPIRE Act in the 111th Congress.  After all, Sen. Schumer first sponsored ASPIRE way back in 2005, and reintroduced the bill himself in 2008. In the release, Senator Schumer said:

"At a time of record college prices and financial uncertainty, providing seed money so our children start to save early is more important than ever," Schumer said.  "Providing these lifetime savings accounts will take some of the burden of paying for college off the shoulders of struggling middle class families, make it easier for account holders to buy homes, and promote long term savings. Having a savings account will ensure that children have resources to draw on when they turn 18, and will provide them with confidence and increased opportunities."

The Senators release was picked up in a variety of news sources, many across NY State, and was even picked up by the San Francisco Chronicle.

This just in from our good friend and colleague Leslie Parrish. Her new report reveals the large extent to which the payday loan industry relies on churned loans from repeat customers who get caught in a debt trap as opposed to ones that help borrowers meet unexpected needs.

She writes: 

With payday lending stores sprouting up like weeds over the last ten years, you’d be excused for thinking there was an urgent and growing need for quick cash before payday. Because of the large number of loans originated each year, even some critics of the payday lending industry’s practices and 400%+ APR rates grudgingly consider these loans a “necessary evil,” filling a demand for short-term credit.

This week, the Asset Building program released The Assets Report 2009, a survey of asset-building policies and proposals in President Obama's Fiscal Year 2010 budget. We identify recently enacted laws with asset-building provisions, proposed programs and changes to the tax code, and requested funding for existing programs that are collectively worth $422 billion.

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.

The Personal Savings Rate (PSR) once again made headlines recently when the Department of Commerce released the May 2009 figure, which was a whopping 6.9%. For some perspective, April's 2009 rate was only 5.6% and the last time the PSR rate was this high was back in April 1993.

But what does a PSR of 6.9% actually mean?  Are Americans really saving more than they have in over a decade? 

The PSR measures personal savings as total disposable personal income less personal outlays (expenses). A lot happened in the last couple months that has pushed up personal income and pushed down personal outlays, which drove up the PSR.