If there's one thing we can count on in life, it's to expect the unexpected. We head out to work in the morning and find that the car won't start. A child is sent home from school with a fever, and we rush to pick her up, taking off work for that day and perhaps the next as she recovers. We return from a holiday visit to discover a burst pipe and water dripping from the ceiling.
For some, these emergencies end up being small in the scheme of things, and soon forgotten. We pay for the car repair from the emergency savings the experts tell us to have. Paid sick leave ensures that we don't have to choose between staying with our sick child and keeping our job. Insurance covers the water damage.
But for families already struggling to make ends meet, families whose every dime goes to today's expenses, these emergencies can be life-changing. With no money to repair the car, a father or mother may not be able to get to work. The bill for the emergency room visit leaves this month's rent unpaid. Without savings or assets, low-income families often have no cushion -- even though we know life requires one.
The long-term impact of this financial instability is that children in these families are unlikely to realize their potential. Without savings and assets, a college education may be out of reach, along with the employment, homeownership and secure retirement which often accompanies it.
It is critically important that we help low-income families establish a minimal level of savings and assets so that they can handle emergencies, plan for the future and take initial steps on the path to self-sufficiency. The good news is that we can help families invest in themselves and in their children's future.
These policies are particularly important to families of color, who are at a deep disadvantage in building assets. A typical white household has more than one month's income in easily accessible savings. Compare that to just 12 days' worth of savings for a Latino household -- and only five days' worth for an African-American family. This racial wealth gap has persisted for generations between white families and families of color. And the gap has only widened since the Great Recession, which already had a devastating effect on family net worth. We can narrow that gap.
These patterns of inequality weaken our families and derail the futures of far too many American children. As a nation, we can and should invest in parents who are working toward a brighter future and dream of owning a home, having a secure retirement or supporting their child's education.
"Investing in Tomorrow: Helping Families Build Savings and Assets," a new policy brief from the Annie E. Casey Foundation, offers four practical policy recommendations designed to help all families build their savings and assets, protect themselves against financial crises, reduce the wealth gap for families of color and open up opportunities for their children:
Raise the asset limits for public benefit programs. Today, depending on the state, $1,000 in savings can disqualify a family in distress from accessing temporary public assistance, trapping them in a cycle of financial instability. Changing federal policies would allow families seeking government assistance to have at least three months' income on hand at 200 percent of the federal poverty level, or about $12,125.
Expand access to homeownership. While lawmakers can increase homeownership through tax and housing policies, they should also promote a promising but underused option -- the U.S. Department of Housing and Urban Development's voluntary Family Self Sufficiency (FSS) program. The program helps those who have housing vouchers or live in public housing place a portion of their rent payment in a savings account that can be used to purchase a home.
Provide portable, safe accounts for retirement and emergency savings. Employers can voluntarily establish no-fee starter accounts for their employees through the federal government's new My Retirement Account (myRA) program, helping them make long-term savings a habit. Because myRAs are funded with after-tax dollars, participants can draw from these accounts without penalty to deal with emergencies. While myRAs are already available, Congress needs to make them permanently accessible and more aggressively promote their use.
Build savings from birth. While it is important to help parents save, a more ambitious recommendation would give all children a stronger financial start. To make sure every child has savings, federal policymakers should create universal savings accounts, seeded with modest deposits, from the moment a child is born. Early research suggests such savings accounts make it far more likely that a child growing up in a low-income family will attend college. Analysis also shows this policy could reduce the racial wealth gap by 80 percent.
We must work together to finally reverse generations of unfair policies and practices that have intensified racial divides -- and focus our efforts to give all families the chance to achieve financial stability. When we invest in and support families who work every day to move forward in their lives, they can begin to invest in themselves. And that means they can open the doors of opportunity not just for their children, but for generations to come.