Written by Kerri Rodkey, SNAP’s Financial Stability Services Director
When most people think of alleviating poverty, they think of increasing a family’s income. That’s a very important goal, but since I’ve been at SNAP (about 10 years now) I’ve been more focused on increasing the assets owned by the families we serve. Without assets, working families are one paycheck away from homelessness or other crises. At SNAP we see people every day who are struggling to figure out what isn’t going to get paid this month. They have no cushion for emergencies, and they are on a financial treadmill, never getting ahead. Increasing a family’s income enables them to get by, but assets are the key to getting ahead (Federal Reserve Board).
For example, we often hear stories from clients who felt they had to quit a decent job because the car broke down, or they were evicted. Many of us would have access to credit or would have money in savings to repair the car or pay the rent, we would probably have a home equity line of credit, and more than likely we would have a more reliable car that wouldn’t have broken down in the first place. Low-income people who are used to living day to day in survival mode are often unable to shift gears even when they begin earning more, and they find that their income is gone just as quickly as when it was lower. Heck, I’m the same way!
No one ever spent their way out of poverty (Michael Sherraden). It is only through saving a percentage of one’s income and investing in productive and appreciable assets that a family creates the ‘cushion’ that allows them to withstand the inevitable crises that we all face. This cushion creates the stability, even on a modest income, to be able to maintain a job and gradually increase earning power over time.
One in five low-income families has zero or negative assets (owe more than they own), according to the Urban Institute. Asset Building is about helping working poor families increase their wealth, not just their income.
It is possible for people of modest income to save money for emergencies, and even to invest in assets such as homeownership, business ownership, education, or a reliable vehicle. Asset building is also about protecting assets. Predatory lending, such as the sub-prime mortgages we’ve been hearing so much about, as well as payday loans, strip low-income people of what little assets they may have been able to accumulate. It is also about promoting health insurance for the working poor who don’t have it provided – medical costs are the number one cause of bankruptcy and other credit problems that prevent people from getting ahead.
Our country has long subsidized asset building, but they have typically benefited the wealthy or upper middle class – mortgage interest deductions, college tax credits, retirement savings deductions, etc. A study done by the Corporation for Enterprise Development, using 2005 data, showed that only 3% of the national budget for asset building goes to low- and moderate-income people. By investing in asset building strategies, we give hard working families a chance to move up, and leverage investment in home ownership, job creation, education and other assets, increasing the economy of the community as a whole.