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The Ladder

A Blog from New America's Asset Building Program

Asset Building News Week, December 10-14

Published:  December 14, 2012
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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 the social safety net, inequality and wealth gaps, housing, and financial institutions.

Safety Net

Nicholas Kristof’s controversial piece criticizing Social Security’s Supplemental Security Income this past Sunday reignited the debate over the robustness of welfare eligibility criteria and elicited several strong rebuttals. Shawn Fremstad for the Center for Economic and Policy Research calls into question Kristof’s reliance on anecdotal evidence and his sensational claims that parents willfully prevent their children from pursuing an education in order to qualify for SSI assistance. Kristof alleges that parents face an incentive to encourage learning disabilities in their children so that they can collect SSI checks, but Fremstad and Rebecca Vallas for the Institute for Public Accuracy respond that this is patently untrue: “Academic performance is just one evidentiary factor considered in evaluating a child’s eligibility for SSI.” Sarah Parnass for ABC concurs, quoting a benefits lawyer: “Illiteracy is NOT and has never been a ground of eligibility to obtain SSI child disability benefits.” Instead of abandoning SSI assistance altogether as a matter of public policy simply because, as Kristof puts it, “sometimes” it doesn’t help, Fremstad advises that we should build on it and other “effective social insurance programs” as a foundation on which to build better programs to help children progress out of poverty.

Another area of public assistance, food stamps, has also seen criticism lately. Arguments against SNAP (food stamps) can sound similar to Kristof’s argument against SSI assistance: since the program can be taken advantage of even by just one underserving person, it is altogether wasteful. Newark’s mayor, Cory Booker, has faced criticism (for example, “nutrition is not the responsibility of the government”) for his support of government assistance programs, so in response he took part in a “food stamp challenge” to live on $30 worth of groceries for a week. He chronicled his experiences on Twitter here. Others shared their experiences of life on food stamps in response to Booker’s widely-publicized challenge. In a new piece for Spotlight on Poverty and opportunity, Rachel Black and Aleta Sprague of New America’s Asset Building Program follow the thread of the same argument against programs (that is, because they are open to any kind of misuse, no matter how insignificant). They look at the extraordinary case of a Michigan lottery winner who continued to receive SNAP assistance, noting that allowing outliers to dictate policy decisions is irresponsible.

Inequality and the Wealth Gap

Leaving outliers and extraordinary cases aside, the Washington Post this week published a lengthy article exploring the experiences of the rural poor in western Pennsylvania. As evidence that the experiences of the poor described by the Washington Post are not in fact uncommon, the Atlantic published a collection of digestible charts to illustrate the extent of the nation’s income inequality. That inequality, in turn, is leading to some more lasting effects on the public. A new report by the Stanford Center on Poverty and Inequality reveals that the Great Recession may have also brought about what the researchers call a “health recession.” Part of the problem, identified by The Hill, may be that healthcare costs are rising faster than wages, putting additional pressures on low- and middle-income families not only to stay healthy, but simply to make ends meet.

It is unlikely that the wealth gap will narrow without greater access to education for lower income families, especially given the increasing importance of having a college degree in the current economy. Unfortunately, more barriers to educational access are developing. Powerful lobbyists for the for-profit education industry convinced the Arizona legislature to drop a plan to offer four-year degreesin its community colleges. The effort would have expanded opportunities for attaining a full college degree to young adults from low-wage families, who would have been able to attend school for about $76 per credit hour as opposed to about $570 per credit hour at for-profit schools like the University of Phoenix. The Southern Policy Law Center identified another problem facing studentsfrom low-income families who attend failing schools: the zero-tolerance policies for rules infractions at many schools is creating a “school-to-prison pipeline.” Once in the pipeline, it becomes increasingly difficult for these young adults to get back on the right track toward educational success.

The Financial Security Project investigates the reasons that black families struggle to build wealth while whites continue to have much greater success. Part of the explanation lies in the much higher rates and higher values of bequests made to younger generations in white families, something not easily fixed by public policy, but a problem that asset building efforts can help to address.


Another explanation for the failure among black families to build wealth most certainly lies in the drastically poorer appreciation rate of houses in black neighborhoods compared to the appreciation in white neighborhoods, a problem reported by Forbes this week. Even controlling for class, the mere presence of blacks in a neighborhood reduces housing appreciation rates, which makes it much harder for black families to accrue wealth. But the trouble for black homeowners doesn’t end there. ProPublica recounts a number of housing discrimination complaints from around the country, as does HUD’s blog. For readers interested in the current state of the racial wealth gap, consider taking part in the Insight Center for Community Economic Development’s webinar next week with U.S. Representative Bobby Scott from Virginia titled “African Americans and the Fiscal Cliff: Understanding the Issues and Consequences.”

The mortgage interest deduction, which is intended to promote wealth creation through homeownership, is being called into question for its actual effectiveness at helping the low and middle classes build equity in their homes. The Atlantic reports that the deduction overwhelmingly benefits high earners and residents of high-average-income areas like San Francisco, the suburbs of New York, and the D.C. metropolitan area. Despite these pressures, over 90% of young people say they want to own a home some day, reports Business Insider, even as the opportunities for doing so are slipping away with the economy. Finally, while much of New York has returned to normal after Hurricane Sandy, some low-income residents still face dire housing situations months after the storm.

Financial Institutions

A new program in Montana seeks to engage students in financial education using interactive teaching methods, just as a public-private partnership in Illinois, spurred by the economic downturn, seeks to accomplish a similar goal. The Dallas Federal Reserve released a new app to help with financial education. It includes useful tools to calculate such things as net worth, but also provides informational chapters on financial topics. Timothy Flacke, the executive director of Doorways to Dreams Fund (D2D), discussed this week the potential long-term effects of a recent competition sponsored by the Federal Reserve in Washington, D.C., which encouraged development of ideas for new mobile apps to improve consumers’ financial capability. Flacke believes that the increasing prevalence of mobile technology, put to good use in ways such as those encouraged by D2D’s MyMoneyAppUp challenge, will be the deciding factor when it comes to improving the financial capability Americans. Until then, however, payday lenders will continue to be an inescapable option for many underbanked Americans, as regulations of the industry remain loose in states like Wisconsin. A study recently published by the Brookings Institution finds that the net effect of Individual Development Accounts (IDAs) on retirement savings behavior is minimal at best. Finally, MarketWire reflects on the successes of November’s financial literacy month in Canada.

Quick Hits

Program Director Reid Cramer presented this week at the FDIC's Advisory Committee on Economic Inclusion (ComE-IN) Meeting. Check out the agenda from the event and his powerpoint here.

The U.S. Government Accountability Office released a new report on 529 plans that shows that only 3% of American families held a 529 plan in 2010 and that these families were considerably wealthier than the average family.

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