Making Bank: Asset Building Program Fellow Tim Fernholz Examines Savings Accounts as Anti-Poverty Tools

Tim Fernholz’ recent article in The American Prospect focuses on the possibility that savings accounts and financial literacy education for low-income Americans could be a key first step towards combating poverty in the U.S. Tim, a financial regulation expert, is a staff writer at TAP and a New America Fellow in the Asset Building Program, focuses much of his article on recent pilot savings and financial counseling programs implemented in New York City. Many of these programs were developed in 2006 when Mayer Bloomberg commissioned a group of poverty experts and key philanthropic and business leaders to develop innovative solutions for eliminating poverty within the City.

<p>Out of the commission’s findings came the <a href="http://www.nyc.gov/html/ofe/html/home/home.shtml">Office of Financial Empowerment</a>, housed within the City’s Department of Consumer Affairs and tasked with developing sound policy and programs to educate New Yorkers about financial matters and promote asset building and savings strategies for low-income city residents.</p>    <p>Besides highlighting some of the innovative programs OFE is implementing in New York City, the article also touches on several other pilot programs and policy proposals worth noting including the Bank On initiative. Bank On began in <a href="http://bankonsf.org/">San Francisco</a> in 2005 and has spread to several different cities across the country (including recently <a href="http://dcbiz.dc.gov/dmped/cwp/view.asp?a=1365&amp;q=610627&amp;PM=1">Washington, DC</a>), gaining national attention with the inclusion of funding for a “Bank On USA” initiative in President Obama’s 2011 budget proposal. Tim also touches on what he calls the “now-defunct” conditional cash transfer program Opportunity NYC that I discussed in a recent blog post. (You can read that entry discussing the somewhat controversial nature of the program and its recent findings <a href="http://assets.newamerica.net/blogposts/2010/conditional_cash_transfers_in_the_united_states_maybe_they_can_work_after_all-30548">here</a>.)</p>    <p>Also mentioned in the article is the <a href="/downloads/Savers_Bonus_Two_Pager_FINAL_070209.pdf">“Saver’s Bonus”</a>, a policy proposal put forth by the Asset Building Program that would reward low- and moderate-income families and individuals who save at tax time. Under the Saver’s Bonus, for every dollar a family saved in an approved savings product, the federal government would match it, up to $500. Tim proposes the Saver’s Bonus as a policy to scale up NYC’s $aveNYC matched-savings accounts to a national level. The $aveNYC savings matches are made with private donor dollars which, for obvious reasons, would not be feasible at the federal level but a savings match program linked to tax reimbursements, just like the Saver’s Bonus, could work on a national level.</p>    <p>A policy like the Saver’s Bonus would help low- to moderate-income families capitalize on the tax filing process as a way to build savings. Unlike the majority of other tax-linked asset building opportunities, which typically go to the middle class and the wealthy, high income earners, the Saver’s Bonus promotes savings in amounts that are feasible for low-wage workers to achieve and provides a savings incentive for families with little tax liability due to their low-incomes. See the <a href="http://assets.newamerica.net/publications/policy/the_assets_report_2010">2010 Assets Report</a> for more information on the current structure of the tax code which favors the middle and upper classes and for information on current policies that promote asset building opportunities at tax time.</p>    <p>Additionally, the article, through a series of interviews with OFE officials and representatives from banks participating in these programs, highlights a much larger need that goes beyond making savings accounts accessible to under- and unbanked households—the need for financial empowerment for all Americans, especially low-income individuals along with the creation of sound financial products and availability of easily-comprehensible financial information. Tim focuses on the often-complicated and even at times, predatory nature of many financial services offered by both the alternative financial sector as well as mainstream banking institutions.</p>    <p>Here, the article shifts to focus on the complexity of the financial banking system and myriad of products offered by traditional banks, credit unions and the alternative financial sector alike- again citing actions taken by OFE and the NYC Dept. of Consumer Affairs as a model for potential federal policy and regulatory change. &nbsp;</p>    <p>Tim concludes by making a pitch for a Consumer Financial Protection Agency (CFPA) with the ability to not only police and monitor consumer financial scams and predatory practices but also to define a set of criteria for sound financial products that consumers could as a tool to find financial products that meet their savings and investment needs. This capacity coupled with the ability to promote financial literacy and provide opportunities for consumer financial education would, according to Tim, make for an agency that not only constrains predatory banking practices but works in partnership with banks to offer sound financial products and educational services as an effective anti-poverty strategy.&nbsp;&nbsp;</p>