The purpose of this report is to outline a public policy agenda to broaden savings and asset ownership opportunities for people who have limited resources at their disposal. In developing our thinking on the subject, we have drawn on the research and expert analysis of many others in the field. The agenda we present here includes calls for new structures and policies at the federal level, as well as changes to existing tax systems, government programs, and financial products. Some of these policies are well developed, others need more seasoning, but all of them have the potential to contribute to the economic well-being of millions of American families. If we are to successfully broaden savings and asset ownership, our policy efforts must be expanded, strengthened, and directed toward those with the greatest need.
The terrain we cover is necessarily broad. We aim to highlight the potential of new forms of incentives, institutional support structures, and delivery mechanisms that can be created to support the savings and asset development process. The presentation of these ideas is organized around eleven main categories, covering such areas as savings policy, access to financial services, housing and homeownership, entrepreneurship, and financial education. Specifically, the innovative policies we describe are aimed at targeted populations that have often been left out of past efforts; however, they often have impact for families up and down the income scale and in multiple contexts. Policies to promote savings can be pursued across multiple levels of government, legislative, and regulatory structures and within industry.
Our agenda is expansive but not exhaustive. It is designed to reflect the most innovative and promising ideas, whether they are large or small, close to the finish line or in need of more incubation in an engaged policy development process. We also intend to capture much of the productive work that has occurred, both in terms of policy development and experience in the field, since we last published our policy agenda in the fall of 2008. During that time, a number of our colleagues working in organizations far and wide have made significant breakthroughs in their work that we strive to capture here. Concurrently, the policy process has unfolded with the arrival of the Obama administration and an active Congress that has passed legislation likely to remake the financial services landscape.
Not only has a new consumer watchdog been created with a mandate to promote access to fair and transparent financial services, but the administration has already implemented a number of savings provisions outlined previously and has proposed to incorporate others. Today, tax filers are able to split their tax refunds into multiple accounts and purchase savings bonds when they file their returns. It has been a dynamic time for the policy process, but much work remains to be done. Perhaps tomorrow, families with lower incomes will be able to be automatically enrolled in a savings plan and offered a targeted incentive to jump-start the savings process.
This policy agenda to promote savings and asset development is informed by the recognition that people have multiple savings needs, which become manifest at different moments in time across the life course. Accordingly, a range of policy supports is required. Most households can anticipate a need to draw down on assets in retirement and would benefit by having access to savings plans designed to facilitate asset accumulation over the long term. Much attention in policy circles has focused on restricted-use savings such as 401(k) accounts as a means to build wealth and promote retirement security. But families have intermediate and short-term needs as well. When there are insufficient levels of savings that can be tapped without restrictions, it can lead to costly economic choices. Households may forgo necessary purchases, rely on overdraft coverage (i.e. a loan made through their checking account), borrow from their employer or social network, or take on a high-cost loan. This underscores the need for policies that can fill this gap to support shorter-term and more-accessible savings.
This agenda is also informed by recent insights from the field of behavioral economics, which help to explain why individuals under-save as well as offering ways to increase savings outcomes. We have seen the potential of creating automatic mechanisms that support positive outcomes without requiring active participation. However, the best policy designs may be ones that take advantage of the power of defaults, or preferred choices at the same time that they trigger levels of engagement that can maximize impact. This is one of the sweet spots a policy agenda should strive to meet.
The Great Recession has been debilitating for many households, and yet families that entered the downturn with savings at their disposal were in a stronger position to weather the storm. That many households did not have access to these resources was one of the factors that made the crisis so devastating. To be sure, the loss of wealth continues to weaken the economy and the extent of the recovery remains uncertain. But the ability to build up household savings will go a long way toward enhancing how families navigate future economic uncertainties and ensuring that they can seize opportunities as they arise. This agenda is needed now more than ever.
Click here to read the Assets Agenda 2011.