New Federal Policies Could Reduce Racial Wealth Gap While Helping Families Build Savings

Posted January 20, 2016
By the Annie E. Casey Foundation
Newsrelease investinginthefuture 2016

The Annie E. Casey Foun­da­tion rec­om­mends fed­er­al pol­i­cy changes to nar­row the wide gap in sav­ings between white fam­i­lies and fam­i­lies of col­or. The Casey Foun­da­tion says those changes could help reverse his­toric trends and cre­ate path­ways for many more chil­dren to go to col­lege and even­tu­al­ly own a home.

The Foundation’s new brief, Invest­ing in Tomor­row: Help­ing Fam­i­lies Build Sav­ings and Assets,” reports that mod­est fed­er­al invest­ment in uni­ver­sal children’s sav­ings accounts could reduce the wealth gap among young white, black and Lati­no house­holds by about 20 to 80%. Research sug­gests that sav­ings accounts can change children’s behav­ior and make it sub­stan­tial­ly more like­ly they will attend college.

The brief under­scores the impor­tance of sav­ings in help­ing low-income fam­i­lies weath­er finan­cial crises and move toward self-suf­fi­cien­cy. Fam­i­lies of col­or, in par­tic­u­lar, have faced his­tor­i­cal obsta­cles in reach­ing these goals, result­ing in a per­sis­tent racial wealth gap that has widened since the Great Reces­sion. Between 2010 and 2013, the net worth of white fam­i­lies increased by 2% while black and Lati­no fam­i­lies saw their assets plum­met by 34% and 15% respec­tive­ly, accord­ing to the brief.

If fam­i­lies don’t have a finan­cial cush­ion to han­dle every­day emer­gen­cies, achiev­ing dreams such as going to col­lege or a own­ing a home becomes near­ly impos­si­ble,” said Patrick McCarthy, pres­i­dent and CEO of the Casey Foun­da­tion. Build­ing a secure base of assets, how­ev­er mod­est, is a big step toward improv­ing the eco­nom­ic pic­ture for the mil­lions of fam­i­lies and their kids who need it most.”

Research shows that a family’s assets — includ­ing a col­lege fund, emer­gency sav­ings or a home — strong­ly cor­re­late with indi­ca­tors of child well-being such as years spent in school, aca­d­e­m­ic per­for­mance and self-esteem. Some lev­el of fam­i­ly assets also help chil­dren avoid neg­a­tive con­se­quences such as behav­ioral prob­lems and teenage pregnancy.

Invest­ing in Tomor­row” rec­om­mends the fol­low­ing fed­er­al policies:

  • Build sav­ings from birth by cre­at­ing uni­ver­sal sav­ings accounts from the moment a child is born, seed­ed with mod­est deposits. A young per­son could then use these funds for tuition, train­ing, start­ing a busi­ness or buy­ing a home. This pol­i­cy could reduce the racial wealth gap among young adult house­holds by as much as 50%, in addi­tion to rais­ing the wealth lev­els of all groups, accord­ing to the brief.
  • Allow fam­i­lies receiv­ing pub­lic ben­e­fits to save mon­ey by rais­ing asset lim­its so that fam­i­lies most in need of a finan­cial cush­ion can become more finan­cial­ly secure as they work to end their reliance on such pro­grams. Fed­er­al pol­i­cy should allow fam­i­lies to have at least $12,125 in sav­ings — the equiv­a­lent of three months’ income for a low-income fam­i­ly of four.
  • Increase access to home­own­er­ship through the U.S. Depart­ment of Hous­ing and Urban Development’s Fam­i­ly Self-Suf­fi­cien­cy (FSS) pro­gram. Home­own­er­ship is a cen­tral mile­stone for Amer­i­can fam­i­lies — and one that remains out of reach for many. FSS, which Con­gress has tem­porar­i­ly expand­ed, helps indi­vid­u­als with hous­ing vouch­ers or in pub­lic hous­ing increase their income, improve their finan­cial sta­bil­i­ty and build assets, includ­ing sav­ing for a home. While mil­lions of fam­i­lies are eli­gi­ble for FSS, only a frac­tion are ben­e­fit­ing from it.
  • Expand access to retire­ment sav­ings by mak­ing the fed­er­al My Retire­ment Account (myRA) pro­gram more acces­si­ble. MyRA offers starter retire­ment accounts to peo­ple who oth­er­wise would not have access, and these after-tax dol­lars could be with­drawn with­out penal­ty for emer­gen­cies. More wide­spread use of this pro­gram could reduce the black-white wealth gap by 5% and the Lati­no-white gap by 7%, the brief’s analy­sis shows.

Read our online pol­i­cy brief

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