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The Ladder

A Blog from New America's Asset Building Program

Asset Building News Week, June 4-June 8

Published:  June 8, 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 economic inequality, personal savings, and financial regulation.

Economic Inequality

Welfare critics argue that tying benefits to income discourages movement out of poverty.  Missouri is trying to do something about that.  The Associated Press reports that just passed legislation will help “parents avoid a sudden loss of child care by paying a monthly premium of 50 percent of their income that exceeds the maximum allowable to keep the benefit.”  Evidently parents had been passing on pay raises in order to maintain eligibility for the subsidy. The Senate Finance Committee held a hearing on Tuesday to examine federal efforts to reduce poverty (testimony is available here).  Peter Edelman, law professor and former advisor to President Clinton, discussed his new book on the failures of anti-poverty government policies on Marketplace Money.  Also on Marketplace this week, Joseph Stiglitz argued that income inequality erodes economic opportunity for those at the bottom.   Scientific American reports from the Bay Area that the wealth gap has created a health gap as the poor have been pushed into housing in highly polluted North Richmond, “The health gap is especially striking among low-income, non-white residents, whose homes tend to cluster around the industrial sites. ‘People of color in Richmond live on average ten years less than white people living in other parts of the county,’ Curl said.” Mother Jones summarizes a survey just released by the Food Chain Workers Alliance on wages in the food industry that found only 13.5% of those sampled earned a “living wage.” On Monday Pew released survey data on American attitudes toward a broad array of topics, including income inequality and personal wealth.  Pew found that while affluent Americans have recovered pre-recession levels of financial satisfaction, “Just 30% of those in the lowest family income category – less than $20,000 a year – say they are ‘pretty well satisfied’ financially. That is the lowest percentage of this group that has expressed financial satisfaction in the 25 years of Pew Research political values surveys.”

Savings

Over at the Economix blog of the New York Times, Nancy Folbre warns that a retrenchment in public spending on programs such as Medicare and Social Security could worsen “financial instability” among the less wealthy, as expenses now covered through social insurance would have to come from savings. Folbre explains, “If your mother needs surgery for a broken hip, and Medicare won’t cover it, won’t you feel compelled to chip in? That expenditure will reduce your ability to pay for your children’s education, as well as your ability to save for your own retirement.”  On a related note, voters in San Jose and San Diego widely approved proposals to cut public sector pensions.  San Diego eliminated their pension plan altogether, instead giving all new employees who want to save for retirement access to a 401(k).  It’s a strategy the Los Angeles Times reports will be pursued across California.  It’s also further evidence that going forward individuals will bear more responsibility for their own savings.  California policymakers are trying to help individuals manage this responsibility.  Public radio station KPCC reports that the California State Senate passed legislation aimed at encouraging retirement saving among residents earning an annual salary of $50,000 or less, essentially allowing them to establish a defined contribution account administered by a third party in which the principal and interest would be guaranteed by taxpayers.  Given the increasing prevalence of defined contribution plans, let’s hope for increased clarity in financial disclosures.  GAO issued a report this week finding that many employers sponsoring 401(k) plans are oblivious to the fees faced by participating employees:  “in several instances, sponsors of large and small plans did not know or fully understand the fees charged to their plans, because fee arrangements have become so complex and may be disclosed differently, adding to sponsor confusion about plan fees.”  Bucks blogger Ann Carrns observes that the report confers additional importance on the Department of Labor’s forthcoming rules “requiring mutual fund companies and other retirement plan administrators to disclose more information about fees.”

Consumer Protection

The Washington Post published a story Friday about the release of two new reports examining the structure, size, and disclosure of overdraft fees.  While the initial fee for overdrawing a checking account is basically unchanged, fees associated with not immediately depositing money to cover the overdraft have risen sharply.  Details on the full range of overdraft penalties are difficult to interpret and obtain, the reports find.  You can read the Pew report here and the Consumer Federation of America report here.  The New York Times reports on a set of rules issued by the Consumer Financial Protection Bureau (CFPB) that will establish strict disclosure requirements for companies facilitating money transfers, “Starting in February, they will have to disclose more to customers about transfer fees and currency exchange rates. The rules […] will also require companies to give customers up to 30 minutes after a transaction to get a full refund.”  It is common for these companies to net the difference between the exchange rate they face and the one they assess their customers.  Bloomberg Businessweek examines the implications of payday lending on Native American reservations and the controversy surrounding the steps that federal regulators and policymakers are taking to address consumer protection concerns. 

Quick Hits

  • The Center for Financial Services Innovation (CFSI) has released The Compass Guide, which proposes four values that ought to inform the design of prepaid cards and outlines strategies for developing a prepaid card reflective of those values.
  • High school economics teacher Brian Page contributes a column to the Washington Post on the importance of financial education.
  • The Associated Press outlines President Obama’s strategy for helping college graduates better manage their student loan debt, including making it easier to apply for  an income-based repayment plan.
  • The Huffington Post finds that the unusually high interest rates on savings available through prepaid cards benefit those who can avoid associated fees and satisfy a number of qualifying conditions.

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