Some families struggle to support themselves and save for tomorrow. Yet, this work of acquiring assets — such as emergency funds, a college fund and homeownership — is especially critical to helping families build and sustain the American Dream.
The Great Recession Hit Families of Color Hardest
The Great Recession was devastating for U.S. families, causing a collective $16 trillion loss in net worth. This loss disproportionately affected low-income families of color, perpetuating a racial wealth gap even as the racial income gap has narrowed.
Case in point: The median net worth of white households was more than 10 times greater than that of African-American or Latino families in 2013. Whereas white families’ net worth rose by 2% from 2010 to 2013, Latino and African-American families’ net worth fell markedly — by 15% and 34%, respectively.
A Flawed Approach
For the majority of its history, the U.S. government has provided incentives to help families save and build assets. However, these policies — from retirement savings tax breaks to the home mortgage interest deduction — disproportionately benefit families with assets while doing little for those with low incomes and minimal savings. This regressive pattern creates particular disadvantages for families of color, who are less likely to have savings or inherited resources. A home, for example, is a primary driver of net worth, making homeownership an important milestone for many American families. Yet systemic prejudice in zoning, building code enforcement, residential restrictions, mortgage practices and home insurance account for stark differences by race in homeownership and, therefore, net worth. Although home values among households of color took a much harder hit during the recent recession — especially in some communities — home equity remains an essential long-term asset that all families should be able to access.
A Widening Racial Wealth Gap
Against this backdrop, many people of color have a far greater hill to climb to build assets, and this disadvantage can reap consequences that persist for generations. Family assets strongly correlate with indicators of child well-being — such as academic performance and self-esteem — and help children avoid negative consequences such as behavioral problems and teenage pregnancy. Yet, despite the importance of family assets, 47% of Americans cannot handle a $400 emergency let alone pay for college or a home. The absence of savings also prevents Americans from launching businesses that stimulate our economy. And living without a savings net exacts additional costs, with payday loans costing cash-strapped families $8.7 billion in interest and fees annually.
This brief explores the prevailing financial landscape for American families, articulates how financial instability impacts child well-being and offers policy recommendations aimed at closing the nation’s devastating divide in assets, savings and opportunities.
A four-part approach to helping families achieve financial stability
Findings & Stats
How States Can Help
While changes in federal policies can provide equal access to savings and credit on a broad scale, states are important in making those policies work. Three moves that states can make to help maximize gains for families include: 1) curbing predatory lending; 2) opening a universal 529 account for each child born in their state; and 3) offering prize-linked savings options.
The Race Factor in Family Savings
Across America, the typical white household has slightly more than one month’s income in easily accessible savings. In comparison, the typical Latino household has 12 days of savings support while the typical Black household has just five.
The Power of 529 Programs
To ensure that every child has savings, the federal government should establish a universal savings account for each child born and seed it with modest deposits until they reach adulthood. Depending on funding and participation, these accounts could reduce the racial wealth gap by about 20% to 80% while raising the wealth levels of all groups. Fully enacted, this approach could also reduce dependence on public benefits, increase consumer buying power, boost investments in businesses and homes and move the United States country to greater equity.
Statements & Quotations
Investing in families allows families to invest in themselves — to imagine and confidently act upon opportunities for their children while cushioning against the financial setbacks that inevitably arise.
An uneven financial foundation causes daily family stress that harms children’s development and hinders their ability to grow into successful adults.
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