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 unemployment, inequality, education, and homeownership.
The Bureau of Labor Statistics has their Friday jobs report out showing that nonfarm payroll employment increased by 227,000 jobs in February. Bloomberg News and the New York Times have more. While the report shows some very encouraging signs of job growth, an 8.3% unemployment rate overall masks racial disparities: unemployment for whites was 7.3% while it was 14.1% for blacks.
The focus on income inequality went local this week when the Washington Post ran a piece Thursday about the dynamics of income inequality in Washington, D.C. The Post reported on a new paper from the DC Fiscal Policy Institute which looks at the strikingly large income gap in the nation’s capital. According to the report, “The richest five percent of District households have an average income of $473,000 […while] the poorest 20 percent of District households have incomes averaging under $10,000.” These figures are largely attributable, the Post explains, to the gulf between “two vastly different economies in the District. One is populated by college graduates thriving in well-paying information and government jobs. The other is for people lacking higher education, scrambling for even low-paying work.” D.C. Councilmember Michael Brown reportedly said that “the report points to the need for more affordable housing, jobs programs, community college programs and restoring the safety net.” The trends that have given rise to inequality of this level were in place long before the most recent recession and as such have really not been fundamentally altered by the subsequent recovery. As recent work from economist Emmanuel Saez shows, “in the 2010 recovery, 93 percent of the gains were captured by the top 1 percent.” As the New York Times writes, this “killer fact” directly counters the “rising narrative of an economic elite that is under siege.” The Huffington Post adds that “Saez's findings suggest that even though the recession dealt a blow to the 1 percent, it did little to push the U.S. off the path it's been on for decades -- that of a vast and growing disparity between the richest and poorest citizens.” [emphasis mine] Bruce Bartlett expands on the undertones this rising narrative of class warfare:
“A curious phenomenon occurs during every economic crisis – the rich whine that they are the ones who are suffering most. While obviously one’s capacity to suffer under any circumstances is subjective, when we hear that the very well-to-do, under any reasonable definition of the term, seek pity, it comes across as callous and clueless. As I said, everyone’s suffering is subjective. But there does seem to be a widespread view that the poor don’t suffer as much from economic downturns because they are used to being at the bottom.”
For those seeking a deeper dive into this issue, take a look at Richard Florida’s piece at The Atlantic for a well-documented look at inequality and its correlates.
Early Education: A recent study has added weight to the idea that early education is a critical part of addressing lifelong disparities due to a childhood in poverty. Wired.com describes the work of psychologists demonstrating that while socioeconomic status explains most of the variance in mental ability among toddlers in low-income families, “the opposite pattern appeared in 2-year-olds from wealthy households. For these kids, genetics primarily determined performance, accounting for 50 percent of all variation in mental ability. For parents, then, the correlation appears to be clear: As wealth increases, the choices of adults play a much smaller role in determining the mental ability of their children.” The authors suggest that accessible, high-quality early education for all children can narrow these gaps from the get-go, giving children the opportunity to live up to their academic potential regardless of family income.
K-12 Education: This Milwaukee father has implemented a matched savings program for his eight and ten year old daughters – complete with contracts. This is exactly the kind of approach legislation like the ASPIRE Act and programs like Kindergarten to College in San Francisco take – they give children savings accounts and create a matching structure that incents savings. Alternatively, parents and educators could try introducing personal finance in comic book form. As this press release from Marvel Entertainment and Visa, Inc. explains, a free comic called “Avengers: Saving the Day” will help kids learn about money management. As Jason Alderman, Senior Director of Global Financial Education for Visa explains, “In today’s increasingly complex financial world, we must find creative ways to help parents and educators teach children the fundamentals of money management. A comic book with Spider-Man and the Avengers is the perfect device for making the sometimes dull subject of financial literacy entertaining and educational.” While I'm certainly not opposed to thinking creatively about how to teach children the fundamentals of money management, it’s worth considering that step one of that process is "don’t blow too much cash on Avengers merchandise." As my colleague Justin King wisely said, "The collectibles market isn’t what it used to be."
College and Beyond: We released a new paper this week entitled "Overcoming Obstacles to College Attendance and Degree Completion: Toward a Pro-College Savings Agenda." The paper looks at how the savings product landscape, financial aid process, and public benefits system all hamper low-income students' ability to attend college and makes policy recommendations to address these barriers. Check out Rachel Black's blog post for more. A report from the Federal Reserve of New York shows that “as many as 27 percent of the 37 million borrowers have past-due balances of 30 days or more.” Lauren Asher, president of the Institute for College Access and Success, “noted that borrowers of private student loans, which tend to have higher interest rates and fewer protections than federal loans, could now call the Consumer Financial Protection Bureau to register complaints.” With the threat of such large debt loads, incoming students are considering their options carefully before choosing a school. This piece from The Atlantic looks at the forces that might make state universities more expensive than private colleges, due to shifts in tuition, financial aid and state-level funding for universities. The Wall Street Journal reports that a surge in student loan debt has pushed up consumer credit. The Federal Reserve Bank of Boston has a new issue of Communities & Banking out that covers low- and moderate-income issues in New England. This month, they look at financial education needs in Massachusetts, among other issues.
Homeownership and Renting
Suzy Khimm at the Washington Post asks whether the U.S. is moving from a homeownership society to a rentership one. Structural changes to Fannie and Freddie could impact homeownership trends for years to come, which has some people nervous. But GOOD Magazine has a piece entitled “Don’t Pity the Rentennials: Why Not Owning a Home Is a Good Thing” that subverts the conventional wisdom that this shift away from homeownership is a bad thing. For one thing, the author thinks this trend could present an opportunity to “alter a system that is stacked horrendously against renters.” The U.S. tax system, Mark Bergen explains, is largely responsible for the preponderance of owned homes. As he remarks, “We've heaved all kinds of perks, cuts and breaks in efforts to shuttle people into owning. The biggest of these is the mortgage interest deduction, a federal tax break that is skewed spectacularly toward wealthier Americans. Overall, breaks for homeownership are roughly five times greater than those for rentals.” Meanwhile, Obama introduced a series of initiatives this week aimed at helping "millions more Americans refinance their mortgages at low rates, to reduce the debts owed by struggling homeowners and to expand existing programs to broaden the pool of borrowers eligible for government aid."
From Middle Class to Working Poor
A series of articles this week looked at the trends affecting the group of Americans who experienced a downward shift from the middle class due to the Great Recession. Many of these formerly middle class people are new to a life in poverty. For example, Marketplace interviewed homeowners Steve and Suellen who are working five part-time jobs between the two of them but have drained their retirement savings to cope. WNYC spoke with Yolanda, a mother of three with a graduate degree who hasn’t been able to find work since when she was laid off in 2009 due to budget cuts in New York’s Department of Education. With limited or negative assets to fall back on, these families are incredibly vulnerable to high-cost financial products. The Washington Post reports on the story of a man who used a payday loan to cover the cost of Christmas with financially disastrous consequences.
A friendly reminder to file your taxes. If you’re in D.C. the United Way of the National Capital Area can help you out with some resources. Also, don't forget to set your clocks an hour back on Saturday night and get some extra sleep.