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With Nothing to Lose, Declining Net Worth Means Little to Asset-poor Families

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New data on household wealth paints a disturbing portrait of the decline in net worth for American families. But those numbers only tell part of the story -- the story of households with actual assets to lose.

Last month, the two sources of national data on household wealth -- the U.S. Census Bureau's Survey of Income and Program Participation and the Federal Reserve Board's Survey of Consumer Finance -- released new data for 2010 on household net worth, which is defined as total assets minus total debts (or liabilities). Both data sources showed that median household net worth has fallen dramatically. According to the Census Bureau, median net worth has declined 35 percent since 2005 from $102,844 to just $66,740 in 2010. The Survey of Consumer Finance showed an even bigger drop of 39 percent between 2007 and 2010.

Much of that decline was precipitated by the plunge in home prices, which diminished a major source of wealth for many American families. In fact, when home equity is excluded, the Census Bureau found that median household net worth increased by 8 percent between 2009 and 2010, reflecting the general recovery in the financial sector and subsequent impact on investment and retirement portfolios.

Unfortunately, for large numbers of Americans, buying a home, investing in the stock market or building a retirement nest egg was never an option. The economic skid of the past several years has pushed their chances of creating long-term financial security further out of reach. Any decrease in net worth experienced by these families would barely register in the national data calculations since they had so little to begin with.

These households are what we at the Corporation for Enterprise Development (CFED) call "asset poor."

According to CFED's 2012 Assets & Opportunity Scorecard, 27 percent of Americans live in asset poverty, meaning they lack both savings and other assets such as a home, car or business that they could use to cover basic expenses for just three months if a job loss or other crisis leads to loss of income. (Over the next few months CFED will be analyzing the new Census data to develop a more nuanced picture of the impact at the state level and the need for critical policy responses.)

Although this is not a new problem, it has worsened during the economic downturn. The number of asset poor families has increased by 21 percent from one in five to one in four since 2006. The asset poverty rate today is nearly twice as high as the Census Bureau's official income poverty rate of 15.1 percent.

We need to pay as much attention to what people own as what they earn. Falling into poverty is an all too present possibility for growing numbers of Americans who lack the savings and assets to see them through a crisis. Policies aimed at helping these families achieve financial security should be a central focus of the presidential campaign and at the top of federal and state legislative agendas.

From our work with 61 state and local asset coalitions across the country, we believe there is much state policymakers can do to lead the way by supporting efforts that will not only help families accumulate assets, but will also set their states in a positive direction as the economy improves. These include:

  • Integrating Financial Education in Schools. Many states now recognize the connection between financial security later in life and financial education in K-12 curricula. States can require all students to complete a course in personal finance.
  • Offering Tax Credits for Working Families. Tax credits such as the EITC, Child Tax Credit, and Child and Dependent Care Tax Credit, put money in the pockets of low-wage workers and make saving possible. States can adopt these credits, building on the structure and rules for the parallel federal credits. The best-designed state tax credits are refundable, enabling even very low-income families to benefit.
  • Lifting Asset Limits in Public Benefit Programs. Many public benefit programs limit eligibility to those with few or no assets, meaning families must "spend down" savings to receive what is often short-term assistance. States can eliminate asset limits for cash welfare, public health insurance and food assistance programs.
  • Assisting First-Time Homebuyers. States can help low- and moderate-income families succeed as homeowners by offering homebuyer education, providing down-payment assistance, offering competitively-priced mortgage products and supporting programs that help renters transition to homeownership.
  • Protecting Consumers from Predatory Short-Term Loans. Predatory short-term lending such as pay-day loans strips wealth from financially vulnerable families. States can prohibit these loans outright or impose a cap of 36 percent APR or less.

These and other policies described in CFED's report, "Assets & Opportunity Scorecard: A Portrait of Financial Insecurity and Policies to Rebuild Prosperity in America," form a political platform that will bring federal dollars into local communities and help people learn the skills needed to build a personal safety net. It is a platform our political leaders should wholeheartedly embrace.