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The Ladder

A Blog from New America's Asset Building Program

Supporting Savings Should be the Rule - Not the Exception

Published:  November 21, 2013
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On Tuesday, we featured a great guest post from Ben Landy of The Century Foundation about how asset limits in public assistance programs create a “poverty trap,” and prevent low-income families from making financial decisions in their best interest. The piece centered around the story of James Brady, a homeless New Jersey man who lost his public assistance after finding $850, which he turned over to the police despite his own financial need. When the money went unclaimed, Brady got it back – but lost his health insurance in the process.

The article Landy cited, as well as many of the comments from its readers, reflects understandable dismay that someone already struggling financially would be punished for making a responsible decision. Yet this is precisely what asset limits do – and on a much larger scale. Brady’s unique story and admirable honesty make his story easy to sympathize with. But the fact is, under current policy in nine states, a family that worked hard and saved up $1000—just $150 more than Brady found—would likewise be kicked off of cash assistance, with no equivalent “outpouring of public support.” It’s great to see that the local government where Brady lives is seeking to make an exception to ensure that his benefits continue without a gap – but this is not enough. A system in which one of these scenarios is found objectionable while the other is ratified as standard practice signals a need for broader policy reform that consistently embodies the principle of encouraging responsible behavior.

Identifying this parallel is not to suggest that saving is a “moral” issue – it’s not. But it’s a practice that we know has significant, long-term and cross-cutting benefits, which is why we already provide over $548 billion through the tax code to help families save and build wealth. While these subsidies currently accrue almost exclusively to higher-income families, we know that those at the bottom of the income ladder have the most to gain. A new study from Pew, for example, found that someone with $10,000 in liquid savings is 6.5 times as likely to experience upward mobility as someone with $1000 in savings.

Rethinking our public assistance system to support saving, rather than actively discourage it, is a long-term process. Little by little, states are removing explicit barriers, which is a major step in the right direction; you can check out detail about each state’s policies on our new asset limits website. In time, however, we need to develop a more proactive and inclusive savings agenda that gives everyone the support they need to climb the economic ladder.

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