March 2011 U.S. Poverty Action

Start Building the Political Will for Policies That Help Low-Income Americans Build Assets

Compose and Deliver a Laser Talk about Building Wealth with the Saver’s Bonus

RESULTS volunteers have a great opportunity to mobilize others in their local communities to build support innovative asset-building policies this month — on March 31, To Catch a Dollar: Muhammad Yunus Banks on America will be released nationwide. The film follows women borrowers who are participating in domestic microfinance programs here in the U.S., pioneered by Nobel laureate and RESULTS Board member Muhammad Yunus. RESULTS is a national partner in the release of this film. Our action this month is for each of us to create our own laser talk to use for outreach in our community. You can use these talking points to get your started:

  1. Introduce yourself by telling the listeners that you are a RESULTS volunteer working to end poverty in the United States. Inform the listener that one of the surest ways out of poverty is to help low-income individuals and families build up savings and wealth.
  2. Engage the listeners by telling them that asset building not only provides financial security to families, studies show that it also improves household stability, helps people look more toward the future, and helps reduce intergenerational poverty as parents have acquire resources to provide for their children.
  3. Tell them the problem is that policy allocates billions of dollars each year to asset building through things like the mortgage interest and property tax deductions, but only 3 percent of the benefits go to the bottom 60 percent of households. Compare that to the top 1 percent, who receive 45 percent of the benefits.
  4. Inform them that a creative and unique way to help low-income people build savings is the Saver’s Bonus. The Saver’s Bonus uses the convenience and opportunity of tax time, when low-income working people usually receive their largest check of the year (because of the Earned Income Tax Credit and Child Tax Credit). The Bonus would let low-income workers put all or part of their refund into a savings product, which would then be matched by the government up to $500 per year. Providing this simple, common sense option gives low-income Americans the opportunity, convenience and incentive to begin saving.
  5. Call people to action by asking them to join RESULTS’ efforts to make the Savor’s Bonus a reality. Urge them to participate with your local RESULTS group on ways they can contact the representatives and senators and bring light to the issue of low-income asset building.
  6. Thank people for their time and provide information on how they can connect with your local RESULTS group.

The EPIC laser talk is the foundation for RESULTS’ advocacy. Crafting a short, focused and powerful message about an issue is the first step in creating the political will for change. You can learn about the EPIC laser talk format on the RESULTS website at: http://www.results.org/skills_center/advocacy_how_tos/empower_yourself_activist_milestone_2/.

Why Building Savings and Assets Matter

The goal of ending poverty must not only include strategies to address the crisis of right now, it must also include long-term policies that create sustained wealth. For many years, welfare policy for the poor has primarily on income support. Federal income assistance programs such as Supplemental Nutrition Assistance Program (Food Stamps) and Temporary Assistance for Needy Families (TANF, the federal welfare program), while critical to the current well-being of many poor families, are not as effective in building long-term wealth, i.e. assets.

Unfortunately, asset-building is largely overlooked in anti-poverty policy. Aside from the obvious benefits of having money, studies have shown that assets provide families with numerous important social, psychological, and economic effects. People tend to think and behave differently when they are accumulating assets, and the world responds to them differently as well. Demonstrated benefits include:

Improved household stability: Major illness, job loss, or marital breakup can lead to sudden income shortfalls. A stock of assets helps to bridge these periods of financial need, reducing the chances of disorder in the household.

An orientation toward the future: When people are secure in the present, they tend to look toward the future. There is considerable evidence that people who own assets are, by and large, more optimistic about their ability to succeed.

Enhanced welfare of children: Given that parents pass on their wealth to their children, an effective asset-based policy for the poor could effectively reduce intergenerational poverty. Low-income families that are able to save money are more likely to have children who are upwardly mobile when they become adults. Specifically, 71 percent of children born to high-saving, low-income parents move up from the bottom income quartile over a generation, compared to only 50 percent of children of low-saving, low-income parents.

Additionally, there is evidence that homeownership and asset development is associated with improved access to credit, social and political involvement, reduced domestic violence, marital stability, and higher educational attainment.

The Wealth Gap between Rich and Poor

Unfortunately, low-income families are finding it harder and harder to acquire the assets needed to build wealth. Recent research shows just how difficult it is for these individuals and families. The Corporation for Enterprise Development (CFED) estimates that more than one out of every five American households is asset poor, i.e. if faced with a loss of income, the household would have insufficient savings and assets to live more than three months at the poverty level. In households of color, the situation is worse. According to a recent MarketWatch article, for every dollar of capital a white family owned in 2007, an African American family in owned 6 cents. In 2009, that amount dropped to two cents.

Government policies make the wealth gap worse rather than to help to close it. CFED’s 2010 report Upside Down: The $400 Billion Federal Asset-Building Budget breaks down the $400 billion spend by the federal government in 2009 to help families build wealth. The wealthiest five percent of taxpayers averaged a net benefit of $95,000 each while the bottom 60 percent of taxpayers averaged just $5 each, resulting in a huge wealth gap between rich and poor. Government asset-building initiatives must not be so lopsided. Without policies that help all Americans build and sustain savings and wealth, particularly low-income households, the chasm between rich and poor will only grow wider.

The Saver’s Bonus and Lessons Learned from $aveNYC

One such idea that can help low-income households build savings and assets is the Saver’s Bonus. The idea is to use the existing infrastructure of the annual tax filing season to help people start savings accounts. Generally, tax time is when low and moderate income taxpayers receive their largest check of the year. Many of these taxpayers receive the Earned Income Tax Credit (EITC) and Child Tax Credit, which can generate tax refunds of several thousand dollars (for tax year 2010, the maximum EITC for a family with three children is $5,666). Therefore, this can be an ideal time to start saving.

To receive the Saver’s Bonus, low-income tax filers would agree to deposit all or part of their federal tax refund into an eligible savings product right on their tax return. If the person does not have such an account, he/she would be able to open one right on their federal tax return. More importantly, what makes it effective, is that the government would match dollar-for-dolalr deposits made into the account (up to $500 per year). This match provides the incentive needed for low-income taxpayers, who generally do not have much discretionary income, to start saving. The Saver’s Bonus Act, S.3372, was introduced by Sen. Robert Menendez (D-NJ) in 2008 but did not make it out of the Senate Finance Committee before the 110th Congress adjourned. The Act was not introduced in the 111th Congress, but we are hopeful that the bill will be introduced in both the Senate and House in 2011.

In 2006, New York City launched a Saver’s Bonus-like program called $aveNYC. Like the Bonus, $aveNYC used the convenience of tax time to help low-income residents begin to save. To participate, low-income New Yorkers had to agree to deposit at least $100 of their tax refund into a designated savings account. If after one year they had maintained those savings, they were eligible for a fifty cent match for every dollar they saved, up to $250 dollars (this amount was raised in later years).

The program proved very successful. Among the 2,200 people who opened an account under $aveNYC, eighty percent maintained their deposits for a year (and received the match) and seventy percent of participants who received the match rolled over their account or participated in the following year’s program. The average $aveNYC participant saved $561 and over half contributed the maximum amount eligible for the match ($500 in 2008 and 2009, $1,000 in 2010) and in all 3 years, about 50 percent of participants saved up to the match amount. When the match was doubled (from $500 in 2008–09 to $1,000 in 2010), average savings increased from $380 to $700 without a decline in participation. When asked, the top reasons participants gave for opening an account were the ease of opening an account (67 percent) and the match on deposits (64 percent).

What the $aveNYC program shows is that when people are giving the opportunity and incentive to save, they will. It also shows that the convenience of opening the accounts when they file their taxes, as well as the account match, are critical components to its success. Essentially, it proves that the Saver’s Bonus can work.

Get the Conversation Started at Upcoming To Catch a Dollar Events

Fortunately, RESULTS volunteers will have a unique opportunity in March and April to raise awareness of permanent solutions to poverty through asset building. The March 31 release of To Catch a Dollar: Muhammad Yunus Banks on America will be a great opportunity for RESULTS volunteers to talk about solutions to poverty through building savings and assets. The EPIC laser talk you create as part of this month’s action will be a powerful tool in educating and engaging others on asset-building policy, the Saver’s Bonus, anti-poverty advocacy. For the March 31 film release, invite your local network (allies, donors, and local congressional staff) to attend the film screening. Also, look into opportunities to host a table at the theater or even using your laser talk to do a short announcement to those in attendance.

Use this opportunity to make an impact in your community. Get the process started by looking at the tentative list of local theatres screening the film on the To Catch a Dollar website (http://www.tocatchadollar.com/) and contact RESULTS Director of Domestic Campaigns Meredith Dodson ([email protected]) to get involved with the campaign – she’ll get you connected with the To Catch a Dollar campaign so your group can get involved. We will discuss upcoming outreach opportunities and our early childhood campaign on the March 2011 National Conference Call — Saturday, March 12, at 12:30 pm ET. To participate, call (888) 409-6709 with your group by 12:28 pm ET. Ted Richane, director of Cause & Effect, which is coordinating the overall campaign around the release of To Catch a Dollar, will be a guest speaker on the March Call.