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 financial security, housing, gender equality, the safety net, and workforce and consumer protection.
The findings of a new report by the Consumer Financial Protection Bureau (CFPB) show that despite the strong condemnations of payday loans that have been offered on this blog and elsewhere, the actual effects of the payday lending debt trap may be even worse than we thought. Many news agencies reported on the findings including one local paper from Cleveland, Ohio, which identified an important lesson from the report: “From a consumer's perspective, . . . there's little difference between a payday loan issued through a storefront or a ‘deposit-advance’ loan issued by a growing number of banks.” In an accompanying infographic, CFPB compares consumers’ reliance on payday loans to taking a taxi on a cross-country trip. While the CFPB issued a report, the FDIC and the OCC issued proposed guidance that would limit deposit-advance products. Jennifer Tescher, CEO of the Center for Financial Services Innovation provided important context in a well done NBC News piece on unbanked households, comparing holding a bank account to holding a passport or a driver's license: “It's a kind of access device.” So while a driver’s license would provide a better option than a taxi for a cross-country trip, a bank account provides a better way to make ends meet than a payday loan.
PBS’s Frontline aired an episode on the “Retirement Gamble” that explored whether IRAs and 401(k)s are sufficient to ensure a secure retirement. In its review of the episode, Time magazine identified one of the key conclusions for the consumer: “Stick with index funds” to avoid the often damaging fees of managed funds. This is yet another example that proves how much defaults matter. Another option for solving the retirement crisis is to implement the new Australian system, which makes personal finance a requirement throughout its school system and requires employers to “fund every worker’s [retirement] account with 9% of pay, rising to 12% of pay in 2020.”
Until we adopt the Australian model, however, workers in the U.S. can little hope to get ahead on their retirement savings unless they also secure access to housing, which, it seems, is not becoming any easier. Despite well-intentioned government efforts to alleviate the foreclosure crisis, homeowners are continuing to default on their mortgages at high rates even while receiving help from loan modification programs. People of color are more likely to have received subprime mortgages in the first place, according to MinnPost, so they are also the most likely to default on a mortgage, thereby putting their finances at risk. Even if homeowners of color can afford to stay afloat on their mortgage payments, though, they will still be paying more each month because of the risky quality of subprime loans. Yet these same households will not only be paying more for the loan as a result of the discriminatory lending by big banks in the early 2000’s, but they are also more likely to pay more for the house itself. According to a new study by researchers at Duke University, black and Hispanic homebuyers pay more than whites for houses, even controlling for income, wealth, and access to credit. One explanation offered by the researchers is that “black and Hispanic buyers were more likely to be first-time homebuyers” and thus are less experienced at negotiating prices. Whatever the cause, homebuyers of color face a double disadvantage when trying to build assets: they pay more upfront for the cost of the house and pay more later in the cost of their mortgage.
In a somewhat contradictory story, the Washington Post reports that, whatever the state of modified mortgages, foreclosures and delinquencies in general are on the decline. In the context of continued foreclosures for homeowners receiving loan modification support, the findings suggest that the most distressed homebuyers are not part of this trend towards stability in the housing market. Indeed, the Atlantic reports that “expensive cities are even worse for the poor than you think,” and, because of rapidly rising prices for housing in desirable city centers, the availability of affordable housing near workplaces is quickly dwindling. As if to provide a case study of this phenomenon, the Washington Post tracks a low-income resident of suburban Washington, D.C. as he struggles to afford housing in the same county that he has lived in for his entire life.
While many Americans are struggling to find affordable housing, at least we can take heart in the growing proportion of single women who are able to buy houses on their own. As part of its “Changing Lives of Women” series, NPR follows a few women in D.C. to illustrate the change in housing trends from just a few years ago when “it was difficult, if not impossible, for a woman alone to take out a mortgage,” to the present day when single women’s share of the housing market “is second only to married couples.” One explanation for this evolution could come from a recent report from the National Bureau of Economic Research on “Women's Emancipation through Education.” Though the report focuses on the educational gains of women, its finding that “the divorce law reform of the 1970s played an important role in all of these [educational and workforce] trends” is applicable to homeownership, especially since the study also found that this reform contributed to “one-half of the rise in labor supply for married women.”
One powerful impact of this transformation is that it will likely fuel economic growth as “an estimated 1 billion more women will enter the formal workforce,” supported by a growing number of college degrees and assets through “single-lady” homeownership. It’s still important to remember, however, how recently these gains have been made and how tenuous they may still be. A recent article by two researchers at Drexel University identified the increased risk of violence against women due to low food security in the country and The Billfold featured a heartrending interview with a single mother struggling with finances and debt in a down economy.
The word “welfare” has taken a lot of heat lately, a fact that prompted Marketplace to examine its history and current context. Publications like Marketplace prefer “safety net,” as evidenced by the title of the series in which the “welfare” story is included (“Show Us Your Safety Net”), but whatever it’s called, the truth is that it is facing a decline in public support and funding. Part of this is because of our current social mores that elicit a personal sense of shame at the prospect of receiving government support in times of need. Outreach workers in places like Florida now actively work to help people overcome their aversion to government assistance when they are truly in need and to apply for the SNAP benefits that will help them through tough times. Meanwhile, in Michigan, lawmakers have passed legislation to attach drug screenings and child truancy prevention measures to TANF eligibility requirements. The state’s executive agencies have already been implementing the policies, but the laws would codify the requirements for future administrations.
In better news, the Asset Building Program’s Aleta Sprague applauds the official elimination of the TANF asset test in Hawai’i and explains that such a change helps “low-income families move toward self-sufficiency.”
Workforce and Consumer Protection
If Felix Salmon’s findings for Reuters are any indication, a strong safety net is likely to remain an indispensable support for many Americans for a long time to come. While initial unemployment claims are down sharply, the long-term unemployment rate remains at “massively unprecedented levels.” Unfortunately, because long-term unemployment puts strain on family balance sheets and can lead to increased debt, workers in this situation may see their chances for employment decline as more employers use credit checks to screen job applicants. The New York Times Editorial Board identifies a bill before the New York City Council that would restrict the ability of employers to use credit histories as a qualification for employment.
For all the employment and financial advice offered to people who are currently unemployed, Charles Kenny for Bloomberg has a quick rebuttal: luck has something to do it. At the international level, that luck is manifested in geography: rich countries are blessed with resources and a fertile climate. At the individual level, a good financial outcome has a lot to do with a privileged background and access to education. Even for those fortunate enough to be employed, however, the AFL-CIO calculates that the ratio between their income, that is, the income of the average worker, and the average CEO is 354 to 1, meaning that it would take 354 years for a worker to earn what the average CEO makes in one. If any more evidence of massive inequality in the labor force is needed, new research from Pew shows that the net worth of the top 7 percent rose by 28 percent during the first two years of the recession, while it dropped by 4 percent for the bottom 93 percent. Though it would be nice to point to the groundbreaking legislative victories for consumer protection in Maryland as a sign of improving conditions for working families in the near future, they seem to be swimming against the larger tide.