New Report: It Still Takes Money to Make Money

On Tuesday, our colleagues at the Assets and Education Initiative at the University of Kansas released a new report called Harnessing Assets to Build an Economic Mobility Agenda. The key finding? It takes money to make money.

Money making money is basically asset building in a nutshell. Think compounded interest, equity in a home, or a college degree that increases your earnings potential. These are the big pay-off, long term investments that typically define wealth building, but more and more ordinary Americans and policymakers are realizing how important savings and assets are in the day to day lives of people. Having enough cash on hand to fix a car so you can keep your job or being able to self-finance a purchase if an emergency pops up instead of having to head to a pay day lender, these are the kind of examples that characterize the decisions ordinary people have to make.

The problem, of course, is that none of this matters if you don't have money to begin with. As a result, wealth is assumed to be for the wealthy and, unfortunately, this reality is reinforced by public policy. As the report details, and as we have long argued, there is an extensive constellation of savings subsidies offered through the tax code that overwhelmingly go to higher income, higher wealth households. For families lower down the economic ladder, most federal spending is intended to supplement wages or provide for basic needs or services, like food or housing. Not only do lower-income families not have access to savings supports, they're explicitly restricted from saving by asset limits in place in these programs. This creates a two tier policy system where higher income families are rewarded for long-term planning and investment and low income families are penalized for doing so. As a consequence, acquiring the savings that can help low-income families chart a path out of poverty in the long-run are, at best, elusive, and at worst, counterproductive. 

So, what do we need to do? Well, if it takes money to make money, how about making sure that everyone starts out with some? There are multiple ways to do this: Senator Ron Wyden (D-OR) has recently voiced his support for a universal system of Children’s Savings Accounts (CSAs). Representative Joe Crowley (D-NY) has recently proposed a variation on our long-standing CSA concept, the ASPIRE Act. ASPIRE would create an account at birth for every child, endow that account with $500 (with an additional deposit for lower-income households), and provide a progressive match to make sacrificing resources now for a return in the future worthwhile. There are certainly other measures that need to take place to make sure that an approach like that is successful, like getting rid of asset limits that cast savings as a liability in the minds of low-income families, as well as helping families build a financial cushion in the form of flexible savings, as the Financial Security Credit would do.

Having where you end up not be dictated by where you start out is a basic tenant of the American Dream. Right now, where you’re born and who your parents are defines too much of what your life is going to be like. We can’t change the fact that money makes money, but we can change public policy to allow all families to save and make smart investments that give more children a shot at living that Dream.