Rebuilding the Balance Sheets of Low-Income Families

As we've noted over the past few weeks, Census has released figures about the state of family finances in 2009, and it hasn't been good. Household income dropped about $1,500. 1 in 5 kids lived in families making less that the federal poverty line, about $21,756 for families with two parents and two children. Looking ahead to next year, these numbers will likely get worse. While the shear scope of this hardship is daunting, there are some specific, immediate things we can do to help. Addressing the 2009 Assets Learning Conference organized by our colleagues at CFED, Michael Barr, Assistant Secretary for Financial Institutions at the Treasury Department, said that increasing savings is a critical part of helping families rebuild their balance sheets and gain financial security.

Over the last decade, the poverty rate climbed to 14.3 percent. Now, 1 in 7 Americans lives in poverty.  These families were the least prepared to handle the shock of the recession.  Low and moderate income households usually have little or no savings to fall back on when they face a personal economic crisis, such as losing a job, a medical emergency, or the need for a major car repair.  These realities are something many of you know all too well.  You have seen this first hand with the families you work with. 

Enabling low- and moderate-income families to build assets will not solve all of these issues, but it will help create greater financial stability for individuals and families. It will allow families to invest in their future by helping them build retirement savings, save for an education, or save to buy a house.  Financial stability and the ability to invest in the future is a pragmatic imperative for American families. 

I couldn't have said it better myself. 

He went on to identify financial education, financial access, and consumer protection as the pillars of that strategy and highlighted pieces of the President's FY2011 budget that would move policy according to that framework, including establishing Auto IRAs, expanding the Saver's Credit, reforming asset limits in federal means tested programs, and implementing Bank On USA to expand access to safe financial services among unbanked and underbanked households. Beyond highlighting important policy recommendations, Barr also identified steps that Treasury is already taking to leverage the tax time moment to achieve asset building objectives:

  1. Making tax time safer by licensing and examining tax preparers.
  2. Eliminating the provision of the debt indicator to banks for use in making refund anticipation loans.
  3. Undertaking a tax time account pilot that will launch in 2011, and will inform the structure and value of expanded tax time account efforts in the future.
  4. Exploring how to allow individuals to pay for tax preparation directly out of their refund with proper fraud protection.
  5. Improving the process to make it possible for people to save part or all of their tax refund by enabling direct purchase of savings bonds in the tax process.

Given the potential of tax time to bring both asset building opportunities and the asset stripping threats, we're excited to see Treasury playing offense and defense. And especially to see an approach to getting families on solid ground that recognizes the importance of savings for financial security. 

Author:

Rachel Black is the co-director of the Family-Centered Social Policy program at New America. In this role, she leads research, analysis, and public commentary around a portfolio of issues devoted to creating a more equitable public policy approach to  advancing a new vision for social policy that allows all families to thrive in an era of growing risk, uncertainty, and inequality.