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January 28, 2006

Asset-Building

Matt's got a good post on asset equality that I urge you to read. On a related note, this month marked the publication my first feature magazine article; a bit of policy big-think on poverty. I've not spent much time plugging it becausethe Prospect's elder council has locked it behind a our subscription wall (ProspectSelect?) and I don't expect the issue has hit newstands yet. I will, however, quote my section on asset ownership below the fold, as it's relevant here:

"Assets are economic air bags. When a financial crunch comes, they inflate, softening the blow. Periods of unemployment can be endured while the wage earner searches for high-quality positions, lessening the chance he’ll accept a lower-paying or less secure job. And assets work to lift families out of poverty as well. They’re what send a child to private school or college, purchase a car so a parent can take a better job farther away, or provide the down payment on a home. Without them, these affirmative steps often can’t happen and, if they do, they carry the threat and even promise of crushing, lasting debt.

Assets also offer the starkest illustration of the country’s economic inequities. When the measure is a family’s yearly pay, whites take home $55,768, blacks net $34,369, and Hispanics make $34,262. Roughly divided, blacks and Hispanics make 61 percent of what whites make. Wealth, however, is another story: White households have an average $88,651 in assets. Hispanics have $7,932 and blacks $5,988. A quick trip back to the calculator shows that Hispanics have nine percent as much wealth as whites, while blacks command a bit less than seven percent.

The most politically attractive form of asset building focuses on the most sympathetic of entitlement targets: children. In 2005, the UK passed Child Trust Funds (CTFs) into law. CTFs are tax-free bank accounts given to all children and seeded with 250 pounds (a bit less than $450), more if the family is poorer, and yet more when the child turns seven. Families can then put up to 1,200 pounds a year into the tax-protected account, which can only be accessed by the child and only when he or she turns 18.

In the United States, the America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act is a similar piece of legislation with a fair amount of support. But some progressives want to take it even further. One way would be Children’s Retirement Accounts. Every year until age six, the government would deposit $1,000 dollars into a tax-free account. At 18, the money could be borrowed at advantageous rates for certain pre-approved purposes (down payment on a home, college tuition, etc.); otherwise, it would continue to collect interest and form the start of retirement savings.

Similar proposals range from work bonds that would give low-income families participating in the workforce for five years $5,000 toward a first home, to Individual Homestead Accounts that would incentivize various life “goalposts” via deposits into a savings account. The best of these plans also allow for emergency borrowing at low rates for certain purposes (transportation breakdowns, etc.), thus allowing the poor to avoid the predatory lending market that “serves” them.

In design, at least, all the asset programs achieve an essentially similar outcome: the creation of wealth that can be used to forge ahead in life. Since their uses are mostly restricted to investment, they aren’t very good airbags, but they’re powerful accelerators. That’s fine, because the next step is for progressives to protect all Americans from health disasters, ensuring that the most effective sort of airbags come standard with birth. "
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The next section, predictably, deals with restructuring our health care system. If you've got a subscription to the magazine (and why don't you?), give it a read. If not, keep an eye out for the February issue, marked by Barack Obama on the cover, at newsstands near you.

January 28, 2006 | Permalink

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Comments

Your 'maiden voyage' feature article was indeed very good - read by me as part of my nightly bedtime reading, post web galvanting.

And it wasn't on health care (just kidding). I'm glad you don't allow yourself to self-circumscribe your area of interest, while still applauding you deploying your word cannon on health care early and often.

Posted by: JimPortandOR | Jan 28, 2006 4:59:57 PM

this is the first i'd heard of such programs (and demo data) i'll pick up a copy of the magazine next time i fly

i like the CTF idea

thanks

Posted by: ChrisPortlandOR | Jan 30, 2006 9:29:13 AM

The major correlate of assets is home ownership. I am currently reading a real-estate book which cites census figures saying that the median assets of those who rent their home are roughly $5,000; the median assets of those who own their home are $175,000.

How much of this is cause and how much is effect is open to debate. But every mortgage payment you make goes directly to the bottom line, while rent is just pissed away.

Posted by: Mastiff | Jan 31, 2006 3:24:03 PM

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Posted by: judy | Sep 29, 2007 9:48:53 AM

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