Financial Inclusion

As any parent will tell you, mobility is a game-changer. Once junior can crawl, gone are the days of leaving him on his playmat while you step away, however briefly, and expect him to be in the same spot playing with the safe and developmentally appropriate toys you left him with. No, he'd rather be exploring the shoes you left in the corner of room with his mouth or in pursuit of the family cat. What worked before has to be reexamined to be successful once mobility enters the picture. 

What if I told you that very poor people, living in the most expensive city in America in the aftermath of a massive economic collapse, were challenged to save $500 and not touch it for a year with the promise of a 50 percent bonus if they succeeded? Do you think that some of them would be able to do it? A few?

What would you think the impact of that small amount of money would be? Equally small? Would you think that sequestering those resources would make families more likely to go into debt? More likely to skip paying their bills?

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include inequality, retirement, the workforce, and financial services.

Update 5/22/13: The original version of this post incorrectly used the term "credit score" where "credit check" or "credit history" would have been more appropriate and accurate. The post has been edited to reflect that correction. Kevin Drum at Mother Jones has a piece that explains the process by which the credit reporting agencies deal with employee screening. Specifically, employers may request prospective employees' credit histories via a credit check, but these histories do not contain an actual credit score. Thank you to Greg Fisher at creditscoring.com for pointing out the error.

The use of credit checks to inform hiring decisions has been getting some much deserved scrutiny recently. Over the weekend, Charles Ellison for the Philadelphia Tribune and Gary Rivlin for the New York Times took a look at the practice of employers evaluating a job applicant's credit as part of the employment decision-making process. Ellison chronicles recent legislative efforts to curb the practice and points out that campaign finance data shows lawmakers are receiving sums of money from major credit reporting companies. Rivlin spoke with non-profit service providers and unemployed individuals who have experienced the negative effects of this phenomenon first hand.

On the surface, using credit checks as part of employment screening may seem like a simple, data-driven way for employers to ascertain a candidate's reliability. Upon closer inspection, however, using credit checks in this way is ineffective and exacerbates inequality.

As part of their effort to reform the tax code, the House Ways and Means Committee created a series of working groups and put out a call for public comment on tax reform ideas.

It's hardly news that traditional pensions have almost disappeared from the private workforce, personal savings are low, and Social Security benefits face political and actuarial threats. But the story that needs more attention among those concerned with retirement security is how the rise of the 401(k)-type plan as a policy effort is failing in fundamental ways. Half of the workforce does not have an account and many that do still are not contributing enough to meet their expectations. Without further action, the transition to a 401(k)-based system will become a large-scale policy failure.

If we are going to rely on this account-based system of saving for retirement, at a minimum we have to make sure everyone has an account and can make steady contributions throughout their time in the workforce. The Obama administration has proposed creating Auto-IRAs to get most workers an account, but Congress has been slow to act. A number of states are considering moving ahead with their own efforts.

Last fall California took an affirmative step forward with the passage of SB 1234, a bill to create the California Secure Choice Retirement Savings Program (CSC). The law puts into place an innovative process by which California will begin to address their retirement savings crisis.

The Asset Building Program is releasing a new issue brief examining California's effort. Written by Aleta Sprague, the paper, entitled California Secure Choice Retirement Savings Program: An Innovative Response to the Coming Retirement Security Crisis, describes how the program will create an account for all private sector workers in the state who lack coverage through their workplace. This will create access for more than six million uncovered workers and enable more families to build up the resources to supplement their Social Security benefits.

Editor's note: This post was authored by Julia Arnold, a Research Fellow with the Global Assets Project, and originally appeared on the Center for Financial Inclusion's blog.

Many of the challenges to saving faced by the world’s poorest people were highlighted in the recent Washington Post article Microsavings Programs Build Wealth, Pennies at a Time.  Among others, the article articulated two especially salient points around microsavings: 1) we know the poor save, and 2) savings can help poor people withstand shocks to their income (such as unexpected medical emergencies or job loss) without going further into debt and poverty. However, low-income people tend to rely on informal methods of savings, often putting their money at risk of being lost, stolen, or ruined by floods or rodents. Having a safe, reliable place to save is both beneficial to and desired by the world’s poorest people. 

Earlier this month, President Obama released his budget for the next fiscal year. The budget can be thought of as a large set of “asks” for Congress to consider, including funding levels for existing programs and proposed changes to tax policies. It’s incumbent upon the executive branch to justify each of its proposals and make the case for reform. But the release of the President’s budget is also an opportunity to think holistically about how all of the proposals and current policies fit together as well as how they have changed over time.

In this spirit, we are publishing a paper by David Stoesz which examines the recent evolution of the policies which collectively comprise the welfare state. His 2005 book, Quixote's Ghost, offered a groundbreaking critique of how emerging philosophical battles fought between the left and right transformed the delivery of social policy, epitomized by the welfare reform efforts of the 1990s. In the subsequent years, he observes how the private sector has continued to increased its influence over welfare policy but has created new opportunities for policy reform in the process. Stoesz describes the emergence of what he calls the dynamic welfare state, which (in contrast to its more bureaucratic predecessor) is more open to policy innovations and places a greater emphasis on mobility and empowerment.

Many recent policy innovations have emanated from the nonprofit sector, which has increasingly incubated and directed demonstration projects and real world policy experiments designed to create an evidence base for policymaking. In the process, the responsibility for policy development has shifted so that it is no long an exclusive task of government. The paper explores the implications of these developments. It potentially creates a more dynamic space where multiple actors and institutions can explore alternative interventions which in turn can inform new policy efforts. The emergence of the asset-building field can be viewed in this context. Not only is this arrangement more reflective of the American experience, which historically has assigned a larger role for the private sector in the delivery of social policy than its European counterparts, but there may be a significant upside to these trends if government can be responsive to these learning and innovations. On the flip side, Stoesz introduces us to a host of new challenges, including the high-bar of an evidence-based policy standard and outsized corporate influence in the public sphere.

Beyond its excellent review of the evolution in social policy efforts, the paper argues sounds a cautious but hopeful note.

Undoubtedly, the dynamic welfare state will discomfit liberal social activists who have advocated benefits without attending to taxpayer concerns about the cost of open ended entitlements or the pernicious effects of social programs on recipients of services. But a dynamic welfare state will provide the justification for increasing investments in social capital to which conservatives have reflexively objected. Continual experimentation of social programs will prove of substantial public benefit in the long run as harmful programs are replaced by more effective interventions. Ultimately, the dynamic welfare state, which values consumer preference, optimizes program investments, and incorporates continual renewal will be more congruent with the requirements of 21^st century America.

As it turns out, consumer advocates might have underestimated the impact of payday loans on consumers. We have written pretty extensively about the debt trap or cycle of borrowing that short-term, high-cost loans have on consumers. We are now getting real data and first impressions are that it is worse than we thought. The good news is that federal regulators are poised to take action.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include housing, unemployment, financial products, taxes, and inequality.