Poverty

We Need to Fix How We Measure Poverty

Erin Drankoski — Tue, 13 Oct 2009 11:19:00 -0400

From climate change to redistricting, New York City Mayor Michael Bloomberg and Gov. Arnold Schwarzenegger have teamed up on a number of issues. It's time to add another to the list -- updating the antiquated and misleading way we measure poverty.

It may seem like an odd concern for the Republican duo. But Bloomberg took the lead on the issue last year when conditions in New York City were similar to those California faces today: The economy was down; need was rising; and public resources were constrained.

California’s Food Banks Go Locavore

Erin Drankoski — Sun, 11 Oct 2009 03:37:00 -0400

Once a month a tractor-trailer rolls up to the Family Early Learning Center, a one-room preschool in East San Jose, Calif., that doubles as a food pantry for poor families with young kids. On a bright Friday in August, a dozen or so women from the neighborhood gathered for the truck's arrival. Volunteers as well as customers, they had come to help unload the monthly delivery of groceries from the local food bank.

A New Agenda for Tough Times

Erin Drankoski — Thu, 03 Sep 2009 08:26:00 -0400

It has been 13 years since a Democratic president's signature on the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 eliminated a flawed program that also provided the only protection against destitution. Yet that act also brought an end to the welfare wars, a long and debilitating period in which poor people were the focus of political conflict and racially loaded demagoguery, exemplified by former Sen. Phil Gramm's image of a society divided between those "pulling the wagon" and those "riding in the wagon." Even

Keeping Down With the Joneses

Erin Drankoski — Mon, 24 Aug 2009 06:04:00 -0400

What's In Your Bank? | Examiner.com

Cecille Isidro — Tue, 18 Aug 2009 02:13:00 -0400

According to New America Foundation, 38% of all households are in a state of asset poverty, in that they lack liquid financial resources to support their ...

Savings-Linked Conditional Cash Transfers

Asset Building — Mon, 20 Apr 2009 04:18:00 -0400

ABSTRACT: This policy brief makes the case for linking conditional cash transfers to savings as a two-pronged poverty reduction strategy of supplementing income and building productive assets, while increasing effective financial inclusion of a given population. While conditional cash transfer (CCT) programs and policies have proven effective in achieving certain poverty alleviation goals, such as better health and education, only recently have we begun to explore the potential of CCTs to enhance economic inclusion and poverty reduction through wealth accumulation.

A Better Measure of Poverty Needed

Cecille Isidro — Wed, 28 Jan 2009 13:19:00 -0500

The tanking economy is putting local governments in a double bind. As the ranks of the poor and jobless swell, authorities have dwindling funds to help them. Incredibly, officials in San Francisco and other cities can't even prioritize who to help because they don't know who their poorest citizens are. The problem lies with an obsolete federal measure of poverty that will only make hard times harder in San Francisco until it's changed. Mayor Michael Bloomberg has spearheaded just such a revolution in New York City, allowing officials to better

Breaking Asset Poverty

Cecille Isidro — Tue, 16 Sep 2008 08:50:00 -0400

In standard U.S. policy-speak, “poverty” is an income concept. The “poverty line” is an income measure, access to social programs is largely related to income, and when policymakers examine distributional effects of a policy, they turn to income quintiles.

Income, however, provides an incomplete picture of family well-being. Income measures a household’s flow of funds, but that flow can be interrupted. In his recent book High Wire, Peter Gosselin presents disturbing evidence that income volatility in the United States--measured by the percentage of households experiencing a 50-percent decline in income over any two-year period--has increased from 5 percent in the 1970s to 9 percent by 2006. This trend has affected families at all income and education levels.

The volatility trend highlights the need for more than income. Assets, such as equity in a home, a savings account or investments, or a stake in a business provide a cushion that can smooth income, a base to leverage additional assets, wealth to pass on to the next generation. Research into the effect of savings strongly suggests that, even at relatively modest levels, asset ownership creates a future orientation that encourages an individual or family to act to enhance that future, such as by getting more education or saving for a specific goal.

Yet at least a quarter of Americans are asset-poor: They do not have sufficient financial or other liquid assets to live at the poverty level for three months if their stream of income were interrupted. The numbers double in the black and Hispanic populations. Among working families with children who earn up to 200 percent of the federal poverty level, 30 percent have zero or negative net worth and barely half have a bank account—with a median balance of $800.

Traditionally, homeownership has been the path to building assets. In 2004, the median net worth of homeowners was $184,400, compared to only $4,000 for renters. Homeownership has meant financial stability and automatic saving through a self-amortizing fixed-rate mortgage, family stability (generally in a more stable community), and the opportunity of price appreciation. Moreover, because of the leverage involved in buying a home, the benefit of any price appreciation is significantly magnified: 10 percent down on a house whose price appreciates by 10 percent yields a 100-percent return on investment. Few other opportunities for financial leverage have been available to those of modest means.

But there’s also a dark side to homeownership. Financial leverage means that modest price depreciation can wipe out even a sizeable down payment. Adjustable-rate mortgages, with no or negative amortization and big fees, are unstable and can strip rather than build equity. Heavy or unexpected maintenance costs and increases in property taxes or the price of energy can destroy a family budget.

Abandoning homeownership as an asset-building strategy makes no sense. Rather, the next administration needs to pursue three alternative strategies simultaneously: bringing back “good homeownership,” supporting quality affordable rental housing so people who don’t want or are not ready for homeownership aren’t forced into it, and developing other ways to help families of modest means invest for themselves and their future.

We know how to do “good homeownership.” We did it during the 1990s, when we substantially expanded homeownership safely and sensibly. The important elements are quality counseling and fixed-rate self-amortizing mortgages, underwritten based on the borrower’s ability to pay the loan for its full life and with escrows for taxes and insurance.

In this new world of ever-increasing energy prices, good homeownership also requires paying attention to both the energy efficiency and the location of the home near jobs and transportation.

Second, the next administration must reverse the policies of the past 30 years and support quality affordable rental housing. Renting may not sound like asset-building, but good rentals buy people the time and means to save, whether for a down payment on a house or to build other assets.

Third, the next administration needs to promote asset-building policies other than homeownership. There are easy and inexpensive wins, like actively supporting savings bonds. Other policies, like children’s savings accounts, will require more money. Finally, there’s a need for new ideas, such as investment plans for more than retirement, for those of modest income, characterized by easy enrollment and automatic additions, economies of scale and opportunities for diversification, and maybe even some leverage.

For 50 years, we’ve had an effective federal assets policy for the well-off. It’s time for everyone else.

Child Savings Accounts: A Primer

Asset Building — Fri, 01 Aug 2008 05:28:00 -0400

Executive Summary

Poverty reduction strategies increasingly focus on the importance of creating financial assets. Child Savings Accounts (CSAs) are a novel and promising tool that builds on that focus by promoting savings starting at a young age. Child Savings Accounts (CSAs) exist as policies, products, and programs, and are being offered by governments, financial institutions, and non-profits for a variety of purposes.

Global Savings, Assets and Financial Inclusion

Asset Building — Wed, 30 Jul 2008 06:14:00 -0400

Foreword

In 2000, 196 Member States of the United Nations committed themselves to halve extreme poverty in the world by the year 2015. Since then, broad availability of well-designed and appropriately delivered financial services and products, including those that lead to savings and productive assets, has become increasingly recognized as essential to alleviating poverty and fostering economic security and opportunity. Yet eight years later (and with less than eight years remaining to reach this goal), some three billion people worldwide lack access to basic financial services. Much remains to be done.

For three days in June 2007, the Global Assets Project (a joint venture of Center for Social Development at Washington University and the Asset Building Program of the New America Foundation), the National University of Singapore, and the Financial Access Initiative of New York University convened 100 leaders from diverse fields at a Global Symposium on Savings, Assets, and Financial Inclusion. Sponsored by the Citi, Levi Strauss, and F.B. Heron Foundations, the purpose of this first-of-its-kind symposium was to illuminate and inform strategies for universal inclusion in savings and asset-building products, programs, and policies around the world. We paid particular attention to the needs of people with limited resources in developed and, especially, developing countries.

At the Symposium and throughout this document, we commonly use the term "asset building" to refer to efforts to build savings and productive assets, including education, homeownership, land, small businesses, livestock, investments, and pensions. While this term has become commonplace in some countries and fields, there are now a variety of terms - including asset accumulation, asset development, wealth building, etc. - used internationally to describe the concept and efforts emerging from it.

The symposium was organized around three goals. First, we wanted to harness the experience and brainpower of leading practitioners, scholars, policymakers, advocates, corporate leaders, and funders. The idea of asset building has emerged as a major theme in many parts of the world, but this is a relatively young discussion with theory, evidence, policies, and products developing in uneven, often haphazard ways. In bringing together many of the key persons leading this work, we sought to provide some coherence and structure to this emerging field and to capture the lessons and best thinking worldwide. Second, we hoped symposium discussions and results would inform future directions in participants' diverse but overlapping fields. Finally, we aimed to build bridges between the leaders in the savings, assets, and financial inclusion fields, so that they, along with us, could advance savings, asset-building, and financial inclusion efforts around the world.

As an organizing team, we chose an unconventional symposium format - one that eschewed PowerPoint presentations and long speeches by just a few people. Instead, we gave a broad range of leaders from around the world an active role. This report provides a glimpse into the wealth of information - trends, insights, lessons, and challenges - provided so candidly and generously by our participants at the symposium in Singapore. The report also includes possible next steps that symposium participants and the rest of the diverse range of actors working within these fields should take to move this emerging body of work forward.

Introduction

There is a growing consensus that all people in the world - the poor as well as the rich, people from all countries, people from all backgrounds and characteristics - should be included in saving and asset-building opportunities. The reasons for this growing consensus are both moral and practical. The moral reasoning is that people should have a fair chance, an opportunity to develop their capacities to lead a stable and satisfying life. The practical reasoning is that we, as individuals, communities, and societies, are all better off when people accumulate assets, invest in themselves and their children, and become more productive and engaged in society and the global economy.

While increasing income that helps the poor to get by day-to-day is important, it is often not enough to pull them out of poverty. Individuals and families typically get ahead by accumulating small surpluses of savings and assets with which they make small investments that increase their economic well-being. Accumulating assets has many positive economic and social development outcomes for families, communities, and nations. For families, holding assets provides a way to smooth consumption, provides stability in the event of unforeseen costs and income fluctuations, and serves as a stock of resources to invest for increased future income and long-term development. It is primarily through accumulating and investing assets - in education, homes, enterprise, etc. - that individuals and families do better over the long-term. This is especially true across generations.

Multiple strategies for asset accumulation are possible, although saving typically plays a central role. Public policies, financial products, and related services play important roles in supporting efforts of poor households to save and grow their wealth. Around the world, policies that encourage saving, specialized savings services, tailored loan products, innovative insurance policies, and secure money transfer systems offer poor and low-income people an opportunity to change the economic outlook for their children, their families, and their communities. In particular, more governments are evaluating the benefits of asset-building policy as a way to promote wealth creation for their citizens.

All of this may seem like a well-worn and rather obvious understanding, but savings and asset building have often been underemphasized in economic and social development. This is underscored when looking at the massive global wealth inequality, not only between nations, but within them. A groundbreaking UNU-WIDER study on the World Distribution of Household Wealth has found that approximately half the world's population owns only about one percent of the world's wealth. Moreover, policies in many countries exacerbate these disparities. Welfare systems in many developed countries penalize asset accumulation. Around the world, underdeveloped financial and regulatory systems make financial services inaccessible, either by distance or cost, to the majority of the population. Indeed, only a fraction of the world's population is included in the formal financial system at all. By preventing the poor from accumulating assets, these policies and systems present a major impediment to economic and social advancement.

If we address such inequalities through the underlying philosophy that everyone ought to be included and receive similar life opportunities, then access to public subsidies and financial services should also be equitable and not neglectful of people at the bottom of the economic strata. As demonstrated throughout the symposium, efforts to increase financial inclusion and opportunities for asset building are proliferating around the world. It is through creativity and innovation in these two fields - and their increasing cross-fertilization - that we will find new solutions with the potential of reversing past exclusions.

Following the Introduction, this Report contains the following sections:

Emerging Trends in Asset Building and Financial Inclusion
Key Lessons: Policies, Services, and Products for Savings, Assets, and Financial Inclusion
Key Challenges to Savings, Assets, and Financial Inclusion
Next Steps Toward Global Asset Building and Financial Inclusion
Conclusion
Appendices