11/09/2010 01:50 pm ET Updated May 25, 2011

Crafting a Response to the Incredible Rise in Child Poverty

Take a look at the poverty numbers recently released by the Census Bureau. Almost 44 million Americans were reported to live in poverty last year. That's the highest number (with the largest yearly increase) since the Census Bureau began tracking poverty in 1959. In some ways, these numbers are depressing, but not necessarily surprising. After all, 2009 was a bad year. Scores of workers dropped out of the labor force, unemployment reached 10%, almost 3 million families lost their homes, and over 4 million people lost their health insurance. These numbers tell us about the breadth of the recession, but here's a chilling fact: over 1 in 5 children spent the year in poverty.

Unlike employment, wages, or productivity figures, child poverty isn't just an indicator of how the economy is doing at a moment in time. It is a forecaster of things to come. Children, after all, grow up.

Not only is poverty affecting a growing and diverse set of families, but the social costs of child poverty will rise substantially over time. These costs are real. Georgetown professor Harry Holzer estimates that child poverty costs the economy almost $500 billion a year in lost productivity, increased health expenditures, and other factors. The recession is expected to extend these losses further. That's because too often children born into poverty grow up to become adults living in poverty. According to the Pew Economic Mobility Project, 42% of children born to poor parents become poor adults. What's more, The Urban Institute finds that kids who experience persistent poverty have lower rates of educational attainment, higher rates of non-marital childbearing, and lower rates of employment as adults.

While the recession may be officially over, we're still far from recovery. In fact, the Congressional Budget Office projects that the rate of child poverty will reach 1 in 4 (25%!) before declining, yet remain above 20% through the rest of the decade. This sustained level of elevated child poverty will create ripples through the economy for years to come, especially if we don't see a concerted policy response.

So what should our policymakers do? For starters, they should not concede investments in policies that target child poverty to concerns over the deficit. Given the long run costs of inaction, this is a false choice.

Then, they can learn from recent history. The Recovery Act passed early last year helped mitigate the impact of the recession for many families and infused badly needed capital into the dwindling economy. Investments in targeted programs like SNAP (food stamps), unemployment benefits, and refundable tax credits offered resources to cover immediate needs and bolstered the economy as they were immediately spent. It turns out that what was good for poor people was also smart for the economy. The success of this approach was reflected in the 2009 poverty data, which actually could have been much worse. The Center on Budget and Policy Priorities estimates that the Unemployment Insurance program alone, bolstered by the Recovery Act and subsequent extensions, provided resources which kept 3.3 million people out of poverty. These provisions must be extended to support the economy and keep households from falling further behind.

But we also need a long-term strategy to confront the limits of opportunity, information, and resources that allow poverty to pass from one generation to the next. Families rely on income to provide for their daily needs, but they often draw upon a stock of assets in the form of savings, investments, and access to other resources to move forward in their lives. This underscores the necessity for a complementary set of policies that promote savings and asset building over the long term.

Fundamentally, we should be focusing on ways to help families gain economic stability by rebuilding their balance sheets. This means reducing levels of debt, overcoming barriers to savings, and connecting with safe and appropriate financial products. One way to start is by reforming the eligibility rules governing public assistance programs which require families to spend down their savings before qualifying for critical services and support. Asking families to jettison their savings runs at cross purposes with the goal of providing stability in times of need. Given the breadth of the recession, this makes more sense now than ever. The Obama Administration has proposed substantially raising the asset limits for the primary federal safety net programs and Congress should implement the administration's proposal.

In the future, we should combine social insurance policies with ones that create long-term pathways to economic security and social development. Savings-based policies can help families increase the resources they have to withstand future crisis, whether systemic or personal, and build ladders of opportunity so poverty isn't a default that's set at birth. Fewer children in poverty will strengthen the economy over time. In this economic climate that's a return which more than justifies the investment.

Reid Cramer is director and Rachel Black is a policy analyst with the Asset Building Program of the New America Foundation, a nonpartisan think tank based in Washington D.C.