For years, many Americans have been stuck below the poverty line, unable to build the kind of assets needed to propel themselves up the economic ladder. This systemic problem brought together authors, government officials and financial experts in New York City last week at an event called Opportunity Nation, hosted at Columbia University.
Assets are a key indicator of upward mobility, but things are looking increasingly grim in this respect for those on the lowest economic rungs. In a Census report out today, 49.1 million Americans now live in poverty, which exceeds the record of 46.2 million officially reported in September. The wealth gap between races is at a 25-year high, according to Andrea Levere, the panel moderator and president of the Corporation for Enterprise Development. The only economically significant asset owned by many families in the U.S. is a car. And some 20 million seniors can’t meet their basic needs, said Emily Allen, vice president of the AARP Foundation.
Several initiatives that address these issues were the focus of an Opportunity Nation seminar discussing saving and economic independence.
In San Francisco, for example, a popular program provides checking accounts to “unbanked” families — that is, those who don’t have a relationship with a conventional financial institution. Unbanked families are forced to use check cashing facitlities and payday lenders to access their money, which costs them an average of $800 to $1,000 a year in fees. “They rip people off,” says Jose Cisneros, the treasurer of the city and county of San Francisco. “We have more check cashers and payday lenders than McDonald’s and Starbucks combined.” So far, about 10,000 new accounts have been opened for unbanked customers, Cisneros said.
San Francisco has also started college savings accounts for every kindergarten student, launching each account with $50.
David John, deputy director of the Retirement Security Project at the Brookings Institute, made the case for mandated personal finance classes in U.S. high schools. “I can’t believe people can graduate high school in this country without one course in financial literacy,” John said. He also noted his support of bipartisan efforts in Washington to increase the availability of retirement accounts from 50% to 90% of Americans.
Meanwhile, Vidar Jorgensen, president and director of Grameen America, made a case for bringing to low-income families in the U.S. microfinancing programs like those that have proven successful in developing nations like India.
All the panelists agreed that building a culture of savings is crucial. Levere, the panel’s moderator, cited statistics that show that students with a savings account were seven times more likely to go to college than kids without one.
They also recognized, however, that creating that culture is no easy matter. “Savings are about your outlook,” said John from the Brookings Institute. “Talking about savings is a lot easier than doing it.”