Asset Protection and Asset Building at the California Working Families Policy Summit

This Wednesday, I had the great fortune of attending the 8th California Working Families Policy Summit, a rare opportunity for practitioners, policymakers, and advocates to discuss innovative programs and public policies that promise to improve the lives of low-income families across the state. Sunaena Chhatry, EARN’s Policy Manager, spoke on a panel called “Asset Protection and Asset Building” -- admittedly not the most thrillingly named, but well-attended and chock-full of essential information for anyone interested in promoting upward economic mobility  in California.

For those of you who missed the panel, here’s a write-up summarizing the main talking points of each speaker, including Olivia Calderon of the New America Foundation, Sarah Brennan of Councilmember Richard Alarcón’s office, and Leigh Phillips, Manager of San Francisco’s Office of Financial Empowerment.

Olivia Calderon
Most of us tackle poverty from an income perspective. However, 30% of Californians are asset-poor, meaning that if they lost their income due to job loss, illness, or another unforeseeable event, they couldn’t get by on their savings for more than three months. Meanwhile, the social safety net is eroding; for that reason, this conversation about building assets becomes more important than ever before.

Families need access -- access to savings accounts, access to pathways. And the data shows that working families -- particularly low-income families -- can and do save when they’re given the incentives that upper-income families have. There are three important ways that we can help these families create prosperity: through expanding their inclusion in the financial mainstream, through eliminating barriers to building savings, and through improving their ability to save for retirement.

Expanding Inclusion
1.5 million Californians are unbanked, meaning that they don’t have a checking or savings account. And it’s nearly impossible to build savings without one of these accounts. Through the wildly successful Bank On movement, New America and its partners are bringing people into the financial mainstream. The premise of Bank On is that a city and its foundational and nonprofit partners join with existing financial institutions, like banks and credit unions, to provide financial access to low-income customers.

But as successful as Bank On has been in cities like San Francisco, some communities don’t have banks or credit unions, so their residents are forced to use check cashers. In places like that, we can look to successful programs from other areas of the country to create incentives for banks and credit unions to open new branches. These “banking developments” create economic opportunities, credit opportunities and basic savings opportunities for low-income families.

Eliminating Barriers
Currently, workers in CA are penalized if they want to build their savings. For example, families can’t grow more than $2,000 in savings to participate in CalWORKs, the state’s welfare-to-work program. On the other hand, the assets test has been eliminated for SNAP, otherwise known as food stamps, and it doesn’t exist for Medi-Cal, either. The CalWORKS assets test must be removed so that workers can build personal safety nets as cushions to absorb crises.

Retirement
A key idea that could help low-income families save for retirement is the automatic IRA. Workers would be automatically enrolled in an IRA to save for retirement, with a standard deduction leaving their paycheck each pay period. This would not be a panacea for retirement savings, but it’s an important first step.

Sarah Brennan
Councilman Alarcón believes that asset-building supplements other important anti-poverty tools like food stamps. Not only do people need better jobs and financial support, but they also need personal savings. After all, as Michael Sherraden famously said, “No one spends their way out of poverty.” We know that building assets makes people more future-oriented; for example, kids of every income background are seven times more likely to attend college if they grow up having a savings account in their own name.

There are three key asset-building policies that the Councilman is emphasizing this year: Banking development districts, increasing the take up rate on current benefit programs, such as EITC.  
 
Creating banking development districts
Currently, several neighborhoods lack banks, and their residents turn to cash checkers to conduct their personal finance. Unfortunately, the average underbanked person spends $40,000 in fees to cash checks and pay bills, money that could be put to far more productive use if banks and credit unions were easily accessible to all LA residents.

Increasing the take-up rate on current benefit programs
 The Earned Income Tax Credit (EITC) relieves much of federal tax burden on low-income families. It’s one of the most successful anti-poverty programs in nation, yet 1 in 4 people who could claim it fail to do so. Alarcón hopes to enact a program that would increase the percentage of Los Angeles residents claiming the EITC.

Promoting responsible banking
 This idea stems from the fact that Los Angeles has countless contracts with large financial institutions, but its leaders have never asked what sort of community development activities these institutions are involved in. Many of them, especially banks, do have best practices and regularly help out with IDA programs and EITC programs. But there’s no systematic way to monitor what these institutions are doing in communities. If current legislation passes, all banks with city contracts will give a brief summary on their development activities in LA. This process will be similar to that mandated by the Community Reinvestment Act, or CRA, which calls for each bank ensured by FDIC to meet the needs of the community it serves.

Leigh Phillips
San Francisco’s Office of Financial Empowerment (OFE) is looking at how the Treasurer’s Office can use its unique role as the finance arm of the local government to provide financial empowerment to low-income residents. The Office is focused on decreasing the expenses and debt and increasing the savings of San Francisco’s residents. Its primary goals are improving access to financial services, advancing financial education, encouraging asset building and protection, and promoting and providing tax-time benefits.

Bank on SF
One of OFE’s key successes is Bank on San Francisco, a program it launched in partnership with the New America Foundation and EARN. At the time, one in five San Franciscans did not have access to checking or savings accounts; for African-Americans and Latinos, that figure climbed to 1 in 2. So OFE joined with partner organizations and the Federal Reserve Bank of San Francisco, convened the CEOs of banks of credit unions, and asked them to open up their services to low-income residents. A year later, fifteen banks and credit unions had joined the program. Bank on San Francisco’s advertising campaign was blunt and hard-hitting; billboards around the city read, “Check cashers rip you off.” Over the last four years, the program has opened over 70,000 checking accounts for unbanked San Franciscans. The Bank On movement has spread to 70 cities and states, including Los Angeles, Fresno, Sacramento, Oakland, and the state of California as a whole. In 2010, President Obama announced that Bank On would go national, and he placed a $50 million budget request for Bank On USA.

Kindergarten to College
As mentioned earlier, a child with a savings account in her name will be seven times more likely to attend college. Taking this statistic to heart, San Francisco, and especially Gavin Newsom, took the lead on creating a city-wide child savings account program, in partnership with Citi, the New America Foundation, EARN, and CFED. Kindergarten to College, or K2C, is a college savings program for every kindergartner entering the public school system. Each child gets $50 in his name from City. Low-income kids, as proven through participation in the free or reduced-price lunch program, receive an extra $50. Families are then given their children’s account information and an account card so that they can deposit additional savings on their own accord. EARN has raised additional money to match the first $100 that families save on their own during the first year of the program. The City will continue monitoring K2C’s impact on savings, school performance, and college achievement.

Why is the City so primed to launch these and other efforts? First, it holds the power of elected office, making convening diverse groups of people a relatively simple endeavor. Its leaders are used to speaking with the media, traveling, and recruiting support for public policy and programs. Notably, the City has the ability to create and pass legislation. Plus, the City is San Francisco’s largest employer and a huge customer of banking services. It can lead to service integration and scale programs through peer-to-peer learning with other governments.

Sunaena Chhatry
EARN is the nation’s leading provider of matched savings programs. Since 2001, EARN has helped tens of thousands of low-income families through a portfolio of financial products and programs. EARN takes a unique approach to catalyzing prosperity that integrates direct service and applied research and organizes key stakeholders to drive scalable policy change.

California’s facing an extraordinary budget deficit; this means there is a finite and shrinking pool of public funding to expand policies that open doors for low-income working families.  Given this reality, local efforts need to be tested rigorously so that only the best ideas are lifted up to scale.

Leveraging Strengths
In a resource-constrained environment, it’s essential that we fully leverage the unique strengths of nonprofits and public agencies. For nonprofits, this may mean breaking away from the traditional model of the nonprofit receiving public funding to deliver a service. Instead, through strategic partnership, we can be more innovative and effective.

In fact, some of the early victories of Bank On SF and K2C can be attributed to both programs being led by the local government, not by a nonprofit. EARN then brought a unique set of offerings to the table. As a direct service provider, we were able to offer expertise on what motivates people to save and what barriers to building wealth stand in their path. Research shows that providing a savings match is an extremely effective financial incentive that, when combined with financial education, can have a transformative effect. This research helped inform our decision to match the first $100 saved by families in K2C.

Another area of EARN’s strength is in fundraising. As a nonprofit that’s existed for almost a decade, we have a database of donors who are excited about matching the savings of low-income families. Last spring, we raised a large amount of money to match the savings of K2C participants. Furthermore, when K2C’s government funding was threatened during budget negotiations, EARN was able to mobilize constituents and clients quickly to urge their representatives to support funding for the K2C program.  In their appeals, our clients were able to provide personal testimony of how matched savings programs changed their lives for the better. This strategy, combined with the Mayor’s influence, proved successful, and the funding was passed.

A Social Movement
As a social movement, the asset-building is missing a groundswell of grassroots public support. To a large extent, efforts to advance asset building programs and policies have been limited to a small community. In order to propel asset-building efforts to the next level, both in program and in policy, we need a strong grassroots constituent base. Accordingly, EARN has recently launched a long-term, statewide constituency-building effort to build a policy and research agenda driven by, an engaged and active, constituent base. Through listening sessions, EARN is currently learning from people who represent the diversity of California, especially those who lack access and opportunities to basic financial services. From these listening sessions we hope to more directly understand the challenges keeping families from financial success. But we also expect to hear stories of hope, some of which will spark ideas and solutions for reducing asset poverty and creating long-term financial security.  

To learn more about the role of public and nonprofit agencies in advancing the assets agenda, click here.

Until next week,

Charlotte Hill
Social Media Fellow