Savings (for Retirement & College) in the State of the Union

 

“Now, the price of college tuition is just one of the burdens facing the middle class.  That’s why last year I asked Vice President Biden to chair a task force on middle-class families.  That’s why we’re nearly doubling the child care tax credit, and making it easier to save for retirement by giving access to every worker a retirement account and expanding the tax credit for those who start a nest egg. “

 

In addition, President Obama tackled the recession’s impact on the ability of families to afford and students to complete college, saying that the economy has “compounded the burden… of being unable to save enough to retire or help kids with college.” The speech laid out a series of reforms designed to lower higher education costs and ease the debt burden that many students are facing upon graduation. The President said:

 

“In the 21st century, the best anti-poverty program around is a world-class education. And in this country, the success of our children cannot depend more on where they live than on their potential.”

 

While the SOTU is great reading, if you want to understand more about where the President is coming from, the thing to do is to look at the reports released by the Administration leading up to the SOTU. The Vice President’s Middle Class Task Force put out a report this past fall on the effectiveness of 529 college savings plans. Though not explicitly mentioned in the speech, the Administration has proposed (and the House has passed) a $2.5 billion, five-year incentive fund for states to help students access and complete college, which we believe could be used to create and enhance savings innovations on the state level.
 

Monday, the Department of Commerce released another report for the Vice President’s Middle Class Task Force, “Middle Class in America.” The report was prepared under the direction of Dr. Rebecca Blank, and those that know her and her work will see her fingerprints all over it. The report attempts to quantify what it is that characterizes a family as middle-class, and acknowledges that the term encompasses a vast variety of families and situations, but identifies the common hopes and aspirations that define a middle class family in America. This is an ambitious task, but there’s a lot of good work done here and the conclusions drawn are realistic and sober. The report offers a picture of the spending and saving decisions that families are faced with and concludes that planning and saving is a major part of what it takes to make it as middle class.

 

That focus on planning and saving is something that we’ve tried to emphasize for years, and its rewarding to hear that message echoed in an official publication from the government. Here’s one of the five principal findings of the report (italics added):

 

“Planning and saving are critical elements in attaining a middle class lifestyle for most families. Under the right circumstances, even lower-income families may be able to achieve many of their aspirations if they are willing to undertake present sacrifices and necessary saving.”

 

The idea that low-income families can save, will save, and can make it into the middle class through sacrifice and saving is something that has been controversial for many years, though it is a core principal of the asset building field. The key to further proving the salience of that point is to help put into place the “right circumstances” to allow families to achieve their aspirations.

 

Promoting college savings, the Auto-IRA, and the Saver’s Credit expansion is a very good start. We’d prefer to see the Saver’s Credit scrapped and replaced by, or simply accompanied by, the Saver’s Bonus, a more targeted and flexible approach to long-term savings. We’d also prefer to see universal savings accounts begin at birth–starting the process of developing retirement security 20 years or so ahead of what is now envisioned would give so many a leg up on lifelong financial security. However the mere fact that the Administration has embraced the idea that savings are a core feature of middle class life and begun the process of putting into place policies that support those middle class families is a big step forward.