The Asset Building News Week is a weekly Friday feature on the 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 young adult unemployment, student loan debt, banking products, asset building at tax time, and the racial wealth gap.
Young Adults: Student Loan Debt and Unemployment
Student loan debt is on a lot of people’s minds recently. The National Association of Consumer Bankruptcy Attorneys (cited here in the Washington Post) are concerned about a possible student loan debt bubble that could burst with consequences similar to the housing bubble burst. The Post had to issue a seemingly major correction to that story, which raises questions about the premise. Moody’s Analytics was not alarmed; in a January report, they wrote, “Despite its rapid growth even as credit quality weakened during and after the recession, student lending is not likely to turn into the next subprime crisis.” Reassuring to analysts, but perhaps not to the estimated quarter of 18- to 34-year-olds who “don’t make enough money to cover basic needs such as rent, car payments and food.” Retailers are concerned too – companies like Gap and Urban Outfitters are finding it harder to make profits from their target market. The Wall Street Journal quotes analysis from the Economic Policy Institute that shows the “average inflation-adjusted hourly wage for male college graduates aged 23 to 29 dropped 11% over the past decade to $21.68 in 2011. For female college graduates of the same age, the average wage is down 7.6% to $18.80.” This is in line with the concerns raised in a piece at the The Atlantic that describes student debt as “an economic parasite” that is acting as a “tax” on future wages and curtailing the potential of young people to enter the middle class and stay there. All of these economic factors have contributed to the rise of a group described by some as “the privileged poor” – young people working low-wage service jobs who were raised in middle class (or higher) homes and had aspirations of college and beyond and now find themselves struggling to make minimum wage. This Tumblr account – Minimum Ragers – illustrates some of the stories of this demographic group.
Banking Products and Technology
As I wrote about earlier this week, payday lending is a complicated problem for low-income consumers who simultaneously need access to credit but may be burdened by the often onerous terms of payday loans. This report from the Alabama Asset Building Coalition and the South Regional Asset Building Coalition looks at payday lending as a potential barrier to economic growth in predominantly black neighborhoods. As the report notes, “businesses that capitalize on the social and economic disadvantage of such neighborhoods face little resistance although their practices may be economically harmful to local residents.” However, the Federal Reserve has a report out that suggests that the rise in mobile technology might help curb this trend. As the report explains, “mobile phone usage is particularly high among younger consumers, minorities and low-income Americans, the same groups that are more likely to use nontraditional banking products such as payday loans and check-cashers.” Therefore, the hope is that the “prevalence of mobile phone access among underserved populations could help expand financial options for them.” Things like easy balance checking, online bill pay, and money transfers are made simple with smartphones. And, the Fed notes, “nearly all of the underbanked consumers, 91%, have a mobile phone, and 57% have a smartphone.” But is technology really enough to promote true financial inclusion for lower-income consumers? Eric Tyler from our Global Assets Project argued that mobile technology is overhyped as a solution to similar challenges in the developing world, begging the question, is the U.S. really so different? A multi-pronged approach including better financial education, targeted regulation and better product design might be more promising.
Asset Building at Tax Time
With about a month left to file 2011 taxes, advocates are continuing to highlight the tax filing process as a potential opportunity for people to build up their assets. The Bowling Green Daily News reports that about two-thirds of taxpayers expect a refund, offering an opportunity to pay off debts or put money into savings. Tax filers beware, though: the Chicago Tribune reports on a lawsuit, filed by Attorney General Lisa Madigan of Cook County that “accuses the company [Mo’ Money Taxes] of slapping taxpayers with at least $800,000 in hidden fees and filing inaccurate tax returns without consumers' authorization.” Play it safe and do your research at IRS.gov before filing with a company like this one. Somewhat relatedly, the New York Times has a useful infographic up that illustrates the benefits that accrue to Americans at different income levels through the tax code and through direct spending. The difference is striking, so take a look.
A couple quick hits on economic mobility. A new study from ICF International demonstrates the way affordable car ownership can aid in families’ economic mobility. The study showed that recipients of car loans through a low-income car ownership program “reported increased incomes, wages, educational levels and access to traditional financial services, such as bank accounts.” Additionally, 82% of 445 surveyed loan recipients were able to get off welfare. These findings make a lot of sense given that public transportation takes the proverbial back seat to the car in our country. With car-oriented infrastructure dominating most parts of the U.S., it’s no surprise that owning a car is a ticket to upward mobility. That’s why it’s such good news that 18 states completely disregard the value of vehicles when determining eligibility for TANF (as of 2010) and 33 states do so for SNAP (as of 2008.) Meanwhile, Gallup has a new poll up looking at how different Europeans envision economic mobility. Specifically, participants were asked if they could get ahead by working hard in their country. The poll compares 2008 and 2011 data so the change in responses reflects some of the broader trends in the global economic crisis.
Black Wealth and Homeownership
At the American Prospect, Bob Herbert looks at the erosion of black wealth during the financial crisis as black ownership of businesses has struggled. This struggle predates the financial crisis, Herbert warns. He notes that “studies have consistently shown that black-owned firms experience higher rates of loan denial and pay interest at higher rates than white-owned businesses, even after credit worthiness and other factors are taken into account.” Therefore, a legacy of racial discrimination stacked on top of broader financial distress has left black-owned businesses in the lurch. This is part of the story that explains statistics like those reported in the Huffington Post about the disproportionate rate of homelessness among black Americans. “In 2010, 1 in 141 black family members stayed in a homeless shelter, a rate 7 times higher than for white families. Black people in families make up 12.1 percent of the U.S. family population, but represented 38.8 percent of sheltered people in families in 2010.” Unemployment, foreclosure, a rise in poverty all help explain this trend, but so does a lack of affordable rental housing. The National Low Income Housing Coalition reports that while the average renter makes $14.25 an hour, they’d need at least $18.25 an hour to afford a market-rate two bedroom apartment and still have money left over for other expenses.