July/August 2012 The Asset Agenda

Signature policy ideas for building the wealth of ordinary Americans.

By Reid Cramer

Revamp Public Assistance so It Is a Safety Net and a Springboard Back to Independence. The Great Recession has made clear the value in having a network of public assistance programs that catch families facing hard times and help them get back on their feet. Yet the confusing array of eligibility rules and requirements undercut the effectiveness of these safety net programs. Many states still employ rules that ask families to spend down all of their resources before they are able to receive assistance. Some of these asset limits were set decades ago, before welfare added work requirements and time limits, and were never raised with inflation. Instead of maintaining policies that discourage savings and financial planning, we should raise the asset limits for many public assistance programs to $10,000 for households. Public assistance programs should encourage families to save and develop sound financial practices that promote self-sufficiency and long-term economic stability through asset building.

Furthermore, everyone getting support should be connected to a bank account where they can build up resources to facilitate their move back to independence. For instance, all families receiving rental housing assistance should have an asset account where a portion of their rent can be diverted. Currently, as their earnings rise, so does their rent; this decreases work and work effort. An alternative approach, called the Rental Assistance Asset Account, would allow them to build up savings as their earnings increase. Promote Responsible Homeownership. For many families, homeownership is a key wealth-building strategy. It forces savings by paying down a mortgage, and opens up opportunities for appreciation, leverage, and access of neighborhood amenities. But homeownership is not for everybody and also brings risk, especially when conjoined with predatory lending.

The answer lies not just in more rigorous regulation of mortgage markets and underwriting practices. It also requires fostering networks of support organizations dedicated to opening up pathways to responsible homeownership. Such organizations provide financial education and connect families to appropriate mortgage products in a fair and transparent manner. An important example is the Community Advantage Program in North Carolina described here. Such programs help make homeownership work for a broad range of American families, even those with low incomes and few resources.

Save to Win. In 2009, eight Michigan credit unions collaborated on a novel idea: combine the excitement of the lottery with the certainty of saving. The credit unions declared that for every $25 someone saved, the saver would earn an entry into a drawing for a $100,000 prize one year later. Meanwhile, credit unions gave out lesser monthly prizes of up to $100, all the while protecting the principal deposits and offering modest interest rates. The results were stunning. At the bottom of the recession, more than 11,000 residents of one of the country’s hardest-hit states opened accounts through the contest, collectively saving $8.6 million in 2009.

Wouldn’t it be wonderful if state lotteries, to help undo the tremendous damage they cause to the savings of ordinary Americans, offered similar “save to win” programs? As my colleague Anne Stuhldreher has written, “Imagine going to the corner store, picking up a quart of milk, and buying a ticket that would let you save $20 while still scratching it off to see if you won big.” This isn’t a pie-in-the-sky idea. Such a lottery is up and running in many countries around the world. I have a cousin in Britain who recently won, and she used her winnings to buy a home.

[Return to The Future of Success in America]

Reid Cramer is director of the Asset Building Program at the New America Foundation.


  • Wacinque Amistad Kaizen BeMende on July 25, 2012 7:01 AM:

    Back to the Future!! Knowledge lost: The Mutual Savings Movement came to America in 1816 and landed in Massachusetts. It so inspired practical action that three separate Civil War Generals from MA. created Military Savings Banks for their troops by 1864. Today troops have as a legacy the Thrift Savings Plan. In school bank accounts i.e. child savings accounts were becoming popular by the late 1890's and peaked in the 1920's. Clearly the numerous practical points of this article have been mostly forgotten since most kids no longer have savings accounts. A 21st century revival is needed applying lean sixth sigma wisdom and CFPB oversight. The key is today these accounts must not involve tax dollars. Join me in unveiling a new solution.

    Wacinque Amistad Kaizen BeMende