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