CFED’s Scorecard of the States: Making the Case for Assets Reform

44 percent of American households live in liquid asset poverty. That’s the key takeaway from CFED’s 2014 Assets & Opportunity Scorecard, which was released last week. Liquid asset poverty is defined as a household’s inability to survive at the poverty level in the event of a job loss or other emergency because of a lack of savings. That the American public is so financially vulnerable should come as no surprise, though, as the liquid asset poverty rate remained unchanged from CFED’s 2013 Scorecard.

However, not all the information in the Scorecard is quite so easily pinned down. In addition to providing national economic statistics, the scorecard rates the states in terms of their asset-building policies and outcomes. This is where a more nuanced picture emerges. For instance, good state policy and good state outcomes are not always correlated. A state like Maryland, which CFED ranks number one in terms of effective policy, falls right in the middle of the pack (number 23) when it comes to outcomes for its citizens. Or New York, which comes right behind Maryland in the comparative quality of its state policies, comes below average among the states (number 30) in terms of state outcomes. Although the organization’s extensive research shows that in some states, like Minnesota and Indiana, policies are highly correlated with outcomes, the divergence of these two measures in many states shows the need for concerted action at the federal level to level the playing field for all families throughout the country, as well as at the local level through grass-roots organizing in states where policies are sub-par.

The Scorecard’s authors identify certain factors that may contribute to successful outcomes in states that nevertheless have poor policy climates: low cost of living, minimal income inequality, a strong economy. But not all states have the advantage of these same blessings rooted in geography and history. In those states without these luxuries, it is imperative that a favorable policy landscape is developed at both the state and federal levels, one which fosters economic mobility and asset building for all families.

The high liquid asset poverty rate across the entire nation shows that the low savings rate isn’t a problem of a lack of personal responsibility, but rather indicative of the systemic barriers to saving that exist in all 50 states and at the federal level. If over four in ten American households cannot subsist at the poverty level for three months in the absence of income because of the lack of liquid assets, but only one in four households is considered asset poor, it should be clear that the system for incentivizing savings is opposite to the preferred strategy. As Justin King said last week in a blog post, “You need to walk before you can run, and you need to have emergency savings before you have retirement savings.” The difference between the asset poverty rate and the liquid asset poverty rate shows that a large number of households have a significant percentage of their assets in non-liquid locations like home equity and automobiles. But this is the opposite of an ideal financial strategy. Having sufficient emergency savings is an essential foundation from which families can then build other kinds of assets like home equity, retirement savings, and college savings.

Unfortunately, current federal policy offers no incentive for families to build the kind of savings they need most, even while it funnels earnings into long-term retirement accounts through inefficient tax policies. Yet what we have in this country, and what CFED’s data reveal that we have, is a savings crisis, not just a retirement savings crisis. This is true, even in spite of the hugely disproportionate attention placed on retirement savings by policymakers, which comes at the expense of encouraging other kinds of savings. What we need at the federal level is a universal, flexible saving incentive like the Financial Security Credit, which would promote emergency savings while not leaving out savings for retirement, education, and a home.

CFED’s project of collecting and presenting the massive amount of data in the Scorecard is an admirable one. It raises attention about the importance of assets for economic and social mobility and can serve as an agenda-setter for state policymaking. But what it can say about the urgent need for smart federal asset-building policy that can help those families in states without supportive policies and without the benefit of favorable geographic and economic conditions cannot be underestimated. We know what good asset-building policy looks like, but both federal and state policies have a long way to go.