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The asset building movement has grown rapidly over the past 20 years. It is focused on increasing the financial security of working families through practical strategies and public policies that encourage low and moderate-income people to save, invest, and preserve their financial assets. Asset poverty, not income poverty, is a true measure of poverty in the United States. Asset poverty is defined as insufficient net worth (including savings, home equity, and other investments) to survive for 3 months without income at the federal poverty level. The federal income poverty rate is 12.7 percent, but the asset poverty rate in the United States is 25.5 percent.
The gap in wealth is most pronounced among people of color and women. Assets, much more than income, are distributed unevenly across the United States. According to Compass Working Capital, more than twice the percentage of households of color (40.7) are asset poor compared with the 18.7 percent of white households in the same predicament. In Massachusetts, the net worth of Caucasian households is 37 times higher than that of minority households. The fight against poverty lies within asset development with strategies like acquiring assets (i.e., a house, a small business, an investment account, or a college education).
Home ownership is associated with higher property values, improved property maintenance, enhanced social participation, enhanced civic participation, and lower residential mobility. Asset ownership increases household savings and investment, helps single-parent families stay above the poverty level, reduces the duration of unemployment, and lowers families’ subjective sense of economic hardship. Owning assets also improves educational outcomes for children, results in higher high school and college graduation rates, decreases intergenerational poverty, and creates a more hopeful and positive view of the future.
Financial decision making has become more complex. The average consumer lacks the necessary knowledge, skills, and resources to make informed decisions. Financial education has a strong impact on families and quality of life. A solid foundation in financial matters and a clear understanding of financial actions (e.g., poor credit scores) are critical to maintaining and expanding assets. In 2010, the Center for Financial Services Innovation, a national organization that conducts research, found that the types of educational efforts that are most effective in improving outcomes and changing behaviors for customers are immediately relevant, coincide with life changes, assist consumers in turning knowledge into action immediately, and help clients acquire and preserve assets. Designing an education program starts with the family and an understanding of the community. The most pressing financial needs are of utmost importance.
Individual Development Account (IDA) programs have been increasing in the past decade. IDA programs provide financial education and a matched savings account for the low-income individual. Savings are typically applied to home ownership, building a business, or education. IDAs have begun to expand to include second-generation asset building services and products for the poor. Examples of this include universal children’s saving accounts and increasing low-income earners’ access to savings and investment products such as individual retirement accounts, 529 college savings plans, and products linked to the earned income tax credit.
While in an IDA program, participants establish a pattern of saving and must attend financial education and asset-specific education classes. The classes teach participants about different aspects of finance, such as how to establish credit, decrease expenses, set goals for savings, and overcome barriers. Most IDA programs are delivered by community-based organizations and can be particularly effective in rural communities. Often, community members feel that IDA programs are too good to be true. Families in rural communities typically already have a relationship with nonprofits or other organizations within the community that will administer the program. The benefits of the program can also be spread by word of mouth by the residents of a rural community. The Office of Community Services in the U.S. Department of Health and Human Services provides competitive grants for IDAs. The federal grants are the largest single source of matching funds. In 2011, the office had $19 million to dispense to 60 projects. Each project must raise nonfederal cash contributions in an amount at least equal to the grant. Since the asset building movement began in the mid-1990s, it has grown to include local, state, and national nonprofits; elected officials; public agencies; financial institutions; foundations; regulators; and the Federal Reserve.
There has been increasing awareness of the importance of financial assets to help families move toward economic security. Other areas of increasing awareness include concerns about the increasing wealth gap. Before the Great Recession, the gap was greater than at any time since the Great Depression. Most working families had concerns regarding home ownership, education access, health insurance, and retirement security. In 2010, the Barack Obama administration revealed a strategy to guide federal and private efforts to ensure that all Americans have the financial skills to attain economic security and stability. The strategy focuses on four main areas: (1) increasing awareness of and access to financial education, (2) improving the delivery of financial education, (3) identifying core financial competencies, and (4) sharing best practices. The plan, developed by the Financial Literacy and Education Commission, included 22 federal agencies, including the Federal Reserve Board. The administration also created the President’s Advisory Council on Financial Capability, which is responsible for implementation of the plan. The primary goal of the council is to coordinate federal activities with resources at the community level.
A policy promoted by the New America Foundation is to advance financial education using an employer-based approach. The workplace is an effective place to deliver important financial education and services. This may be especially true for low and moderate-income employees, who may not be inclined to seek advice from a financial institution and are much less likely to have the funds available to pay for professional advice. Employees who have low levels of financial stress are more productive—an incentive for employers to provide financial educational services. Because of the recession, financial education is more relevant than ever before. Nonprofits, philanthropic organizations, and the government have embraced programs that educate people about their finances.
Cooperatives have emerged to bridge asset building and shared ownership. There are 29,000 cooperatives in the United States, with more than $3 trillion in assets. Members include farmers, ranchers, fishers, and co-op workers. Cooperatives are educating asset building supporters about wealth building in cooperatives. Rural cooperatives, for example, could bring new skills and resources to rural communities while building members’ individual assets and strengthening the long-term sustainability of the cooperative.
In 2008, the Annie E. Casey Foundation convened a meeting of national leaders of the asset building and shared-ownership movements to build a bridge between the movements in order to identify and advance common goals. In 2009, the Casey Foundation sponsored two national working groups that encouraged collaboration in the areas of research, practice, information sharing, and public policy. The foundation continues to support efforts to educate people through media outreach, presentations, workshops, webinars, and conferences. Asset building coalitions are now operating in 40 states. County and regional coalitions are increasing in number.
Rural Texas As An Example
The state of Texas has made great strides in the asset building movement. In 2009, almost one in six people living in a U.S. rural area were below the poverty line. Of the nearly 3 million Texans who lived in a rural area that year, 19.5 percent were below the poverty line. Employment rates and the highest education levels achieved were also below par. In 2008, an acre of land was valued at $2,247. In 2009, the value had dropped to $2,086, a 7-percent decline. Texas typically experienced multigenerational growth before the recession. Oil, natural gas, and cotton continue to experience growth in a few counties. However, rural jobs typically pay low wages and do not offer educational reimbursement, medical benefits, or retirement benefits. Average earnings in rural areas are $20,000 lower than in urban areas. Rural families who do have assets generally have them invested in livestock, land, and farm equipment. All these are hard to quickly convert into cash. In 2010, IDA participants in Texas spent almost $4.4 million on asset purchases and received $9.8 million in match money.
Local and state governments in Texas are facing budget shortfalls created by the recession. Public programs that are funded that might assist rural communities may get cut or never be created. School districts are also facing concerns. The Center for Public Policy Priorities has estimated that school districts may see a decrease of 80,000 in staffing to offset a $10 billion state deficit. Furthermore, another 110,000 related jobs could be lost from the education cuts. Education quality most likely will suffer, as well.
Rural Texas has undergone a profound economic transition. The shift away from an agriculture-based economy has resulted in smaller communities because of loss of workers and decreasing population. Only 13 percent of jobs in rural Texas are agricultural in nature. The number of full-time farmers has decreased significantly. Rural manufacturing has also seen the outsourcing of jobs to other regions of the world. Since 2000, 90 percent of the population growth in Texas occurred in five regions (nearly 4.5 million): Dallas, Houston, San Antonio, Austin, and the Rio Grande Valley. Over the same period of time, the population decreased in 79 of the 254 Texas counties, which were mostly rural areas. Rural areas are increasingly relying on urban areas for jobs. Demographic trends indicate that rural residents are older than urban residents. They also tend to be poorer and less educated. This can translate into heavier demands on the already strained systems of health care and other supports.
In the past 10 years, asset building became a specific policy agenda in Texas. Policy makers, nonprofit organizations, and business leaders have come together to strengthen and connect community wealth–building strategies, identify new approaches, and implement public policies to increase opportunities for working families. Texas asset building efforts appear to favor community tax centers, financial education, and small-business development as nonprofits, financial institutions, and municipalities are the primary driving forces. The initiatives also focus on developing policies to promote saving and investing in education, home ownership, retirement, and small-business development. Another focus is identifying tax-based saving incentives and making them accessible to lower income families. Yet another focus is on increasing access to financial education, including the idea that credit is an asset. Families are encouraged to establish a relationship with a bank or credit union and to avoid high-cost payday and auto title lenders.
In 2010, the Federal Reserve Bank of Dallas, RAISE (Resources, Assets, Investments, Savings, and Education) Texas, Texas Rural Innovators, and community partners met to build on the work begun in 2008 and 2009 to expand asset building resources. Six Rural Asset Building Forums took place in the cities of Corpus Christi, Midland, Tyler, Silsbee, Bryan, and Plainview. More than 250 practitioners, service providers, policy makers, and bankers came together in these forums. Local perspectives and rural initiatives were primarily discussed. The topics included financial education, small-business development, earned income tax credit, payday lending, and college savings programs. New initiatives were launched in Plainview and Midland, while existing coalitions were reinvigorated. Corpus Christi and Bryan focused on expanding and reaching out to the surrounding rural areas with community tax centers.
- Compass Working http://www.compassworking capital.org/why-asset-poverty-matters (Accessed October 1, 2015).
- Lopez, Roy C. “Asset Building Taking Root in Rural Communities.” Dallas, TX: Federal Reserve Bank of Dallas. http://dallasfed.org/assets/documents/cd/ bcp/2011/bcp1101-1.pdf (Accessed August 2014).
- McCulloch, Heather. “Why the Asset-Building Movement Matters for Rural Co-Op ” http://www.rd.usda.gov/files/CoopMag-nov10.pdf (Accessed August 2015).
- Page-Adams, Deborah and Michael Sherraden. “Asset Building as a Community Revitalization Strategy.” Social Work, v.42/5 (1997). http://sw.oxfordjournals. org/content/42/5/423.abstract (Accessed August 5, 2015).
- Schreiner, Mark and Michael Sherraden. Can the Poor Save? Saving and Asset Building in Individual Development Accounts. Piscataway, NJ: Transaction Publishers, 2007.
- Survey of Income and Program Participation, 2008 Panel, Wave 10. Washington, DC: U.S. Department of Commerce, Census Bureau, 2013. Data calculated by Haveman Economic Consulting.