Assets, Poverty, and Public Policy

Transcription

1 Assets, Poverty, and Public Policy Michael Sherraden, PhD Benjamin E. Youngdahl Professor of Social Development, USA International Year of Microcredit Conference Melbourne, Australia August 30, 2005

2 Why Assets? Key to Family Development Income and consumption are essential, but are not the keys to development (reaching potential). Development occurs over the long term through asset accumulation and investment -- in education, career, home ownership, and business capitalization. This applies to all families, rich and poor alike.

3 Why Assets? Millions in the US Have Little or None In 1999, the net worth of the poorest 10% of US households was negative $1,800 (Caner and Wolff, 2004). Between 1983 and 2001, the average net worth of the poorest 40% of US household declined by 44%, falling to $2,900 in 2001 (Wolff, 2004).

4 The Goal Should Be Inclusion in Asset Building Bring everyone into asset building. Make policy progressive, with greater subsidies for the poorest families. Make asset building life-long and flexible. Seek adequate levels of asset accumulation for social protection and economic development.

5 Definitions of Welfare or Well-Being in Social Policy Welfare States have used primarily an income definition of well-being in social policy. Singapore s Central Provident Fund is the most notable example of a country using an asset definition of well-being in social policy (Asher, 1991; Sherraden et al., 1995; Vasoo & Lee, 2001).

6 Two Theoretical Perspectives 1. Saving and asset accumulation are shaped by institutions, not merely individual preferences. 2. Assets have multiple positive effects, not merely deferred consumption.

7 1. Institutional Factors that Affect Saving and Asset Accumulation Incentives Information Expectations Access Facilitation Restrictions Security (Beverly and Sherraden, 1997; Sherraden, et al., 2003; Sherraden and Barr, 2003)

8 2. Effects of Assets Improve household stability Create orientation toward the future Stimulate enhancement of assets Enable focus and specialization Provide a foundation for risk taking Increase personal efficacy Increase social connectedness and influence Increase civic participation Enhance the well-being of offspring (Sherraden, 1991; Page-Adams and Sherraden, 1997; Scanlon and Page-Adams, 2001)

9 Examples of Asset Effects from Basic Research

10 The Asset Effect (Bynner and Paxton, 2001) Methods: National Child Development Study, longitudinal, OLS regressions. Findings: (1) Holding assets at age 23 associated with later positive outcomes: better labor market experience, marriages, health, health behaviors, political interest. (2) Presence of the asset appears to matter more than the value of the asset.

11 Wealth and Transformative Assets (Shapiro, 2004) Methods: Panel Study of Income Dynamics, longitudinal, OLS regressions; and qualitative interviews. Key finding: The presence of small wealth at critical times, especially for home ownership and being in a better neighborhood for schooling, can have transformative effects on the life course.

12 Impact of Wealth on Child Developmental Outcomes (Williams, 2003) Methods: Panel Study of Income Dynamics, longitudinal data, OLS regressions Key findings: (1) Wealth positively associated with cognitive development, physical health, and socio-emotional behavior. (2) Effects occur even among very income-poor families. (3) Wealth seems to be a better predictor as children grow older (income is a better predictor when younger).

13 Assets, Expectations, and Educational Performance (Zhan & Sherraden, 2003) Methods: National Survey of Families and Households, Longitudinal data, logistic and OLS regressions Findings: (1) Single mothers assets are positively associated with children s educational attainment. (2) Results occur in part through expectations of the mother: assets are associated with expectations, which are in turn associated with educational attainment. (3) Income is not associated with educational achievement when assets are in model.

14 Assets and Positive Outcomes (Yadama & Sherraden, 1996) Methods: Panel Study of Income Dynamics, longitudinal data, simultaneous equation modeling. Test of three competing explanations. Focal explanation: (1) Assets lead to positive attitudes and behaviors. Alternative explanations: (2) Positive attitudes and behaviors lead to assets. (3) Income leads to positive attitudes and behaviors. All explanations are supported, but focal explanation (1) has the strongest support.

15 Toward Policy

16 Increasing Questioning of Income as Sole Definition of Poverty and Well-Being Amartya Sen (1993, 1999) and others are looking toward capabilities. This may also be thought of as social investment approach to development (Midgley, 1999). Assets can be seen as part of this discussion: one measure of long-term capabilities, and a strategy for social investment.

17 Can Policy Aim for Asset Accumulation? US already has large asset-based policies Operate mostly through the tax system The poor are left behind

18 Examples of US Asset-Based Policy Home ownership tax benefits Investment tax benefits Retirement accounts with tax benefits: 401(k)s, 403(b)s IRAs, Roth IRAs Other asset accounts with tax benefits: Individual Training Accounts Educational Savings Accounts State College Savings (529) Plans Medical Savings Accounts Others...

19 Asset-Based Policies in the US: Growing Rapidly Individual account policies all since 1970; more of these all the time Tax expenditures for asset building in homes and investments also growing rapidly

20 Asset-Based Policies in the US: Large and Regressive Over $300 billion annually in tax expenditures for assets (homes, investments, accounts) Over 90 percent of this goes to households with incomes over $50,000 per year (Sherraden, 1991; Howard, 1997; Seidman, 2001; Corporation for Enterprise Development, 2004)

21 The Poor Do Not Have the Same Opportunities and Subsidies for Asset Accumulation The poor are less likely to own homes, have investments, or have retirement accounts, where most asset-based policies are targeted (Haveman and Wolff, 2005). The poor have little or no tax incentives, or other incentives, for asset accumulation (Seidman, 2001). Asset limits in means-tested transfer policies discourage saving by the welfare poor, and probably also the working poor (Powers, 1998; Ziliak, 1999).

22 Why not asset accumulation by the poor?

23 One Policy Strategy for Asset Building: Individual Development Accounts (IDAs) (Sherraden, 1988, 1991) Special savings accounts Started as early as birth Savings are matched for the poor, up to a cap Multiple sources of matching deposits With financial education For homes, education, business capitalization

24 Research on IDAs: American Dream Demonstration (ADD) First major demonstration of IDAs Fourteen IDA programs around the country ADD from 1997 through 2001, research through 2005 Organized by Corporation for Enterprise Development Research designed by Funded by twelve foundations (Ford was the major supporter, with partnerships from CS Mott, Citigroup, Fannie Mae, EM Kauffman, MetLife, FB Heron, Levi Strauss, Rockefeller, and other foundations)

25 ADD Research Agenda: Multiple Methods, Productive Research methods in ADD have included: Account monitoring research Cross-sectional survey of participants Survey of programs In-depth interviews Experiment (three waves of data) Detailed cost studies... Each research method makes unique contributions.

26 Income and Savings Outcomes in ADD (Schreiner, Clancy & Sherraden, 2002) Method: Account monitoring research Key Findings: (1) Income is only weakly associated with savings outcomes. (2) The poorest IDA participants save a much higher proportion of their income than less-poor participants.... Institutions matter in saving and asset accumulation.

27 Uses of IDA Savings in ADD: Matched Withdrawals ( Large site at end of ADD, March 2004, CSD data) Method: Account monitoring research In March 2004, 268 of 472 participants (57%) had taken a matched withdrawal ( purchased an asset ). Of these: 29% for home repair 26% for retirement 25% for home purchase 14% for post-secondary education 6% for microenterprise Home purchase and repair continue to be popular (54%). When offered, retirement is a popular option (26%).

28 Perceptions of Security and Control in ADD (McBride, Lombe, and Beverly, 2003) Method: Cross-sectional survey Because of IDAs, more likely to: Percent Agree (1) Feel more economically secure 84 (2) Feel confident about the future 93 (3) Feel in control of life 85

29 IDAs and Future Orientation in ADD (Margaret Sherraden et al., 2004) Method: In-depth interviews with IDA participants and controls Key finding: Greater future orientation: (1) IDA participants say they can see more clearly and better visualize a future than before IDAs. (2) IDA program said to create goals and purpose. (3) IDA program said to provide way to reach goals.

30 Impacts of IDAs in ADD (Mills et al., 2004;, research in progress) Methods: Experiment, IDAs and controls randomly assigned, three waves Key findings: (1) IDAs have positive impacts on home ownership, durable goods, education, self-employment (2) Positive home ownership impacts appear to be stronger for blacks than for whites. (3) Evidence of positive social outcomes in marriage and household relationships.

31 Impacts of IDAs and ADD Research in US Increases in welfare asset limits in nearly all states during 1990s IDAs included as a state option in 1996 welfare reform Act (Boshara, 2003) Federal Assets for Independence Act in 1998, first public IDA demonstration (Boshara, 2003) Over 40 US states have some type of IDA policy (Edwards & Mason, 2003)

32 A Small Beginning: To Date, IDAs in the US Are All Community-Based Projects Although defined by public policy, IDAs in the US are in a demonstration phase. All are community-based projects. All have some combination of public, non-profit, and/or private support. In total, the presence of IDAs is quite modest, with no more than 500 IDA programs and 50,000 accounts nationwide. There is as yet no large-scale, inclusive IDA policy.

33 A Long Way to Go: Reflection on US Policy Progress IDAs are leading a change in thinking about poverty and policy Inclusion in asset building is now much more common in US policy discussions. Proposals for: Expanded IDAs: Savings for Working Families Act Universal Savings Accounts (Clinton, 1999) Children s Savings Accounts: ASPIRE Act (New (American Foundation, 2004).... But today far short of a large, inclusive policy.

34 Global Trend toward Asset Accounts The shift to individual asset accounts in social policy is occurring in many countries around the world. It is possible, maybe likely, that asset accounts will become a primary social policy instrument during the 21 st century. As in the US, most of these new policies do not include the poor and are regressive. The challenge is inclusion. In this regard, there may be much in common among all developed and developing nations.

35 Impacts of IDAs and ADD Research: Toward Inclusion Internationally Saving Gateway and Child Trust Fund in the United Kingdom (Kelly and Lissauer, 2000; Blair, 2001; H.M. Treasury, 2003; Paxton, 2003; Kempson et al., 2004) Family Development Accounts in Taipei (Cheng, 2003) IDAs and Learn$ave demonstration in Canada (Kingwell et al., 2003) Matched saving in Australia (Russell and Fredline, 2004)

36 Asset-Building in Developing Countries Uganda: Development accounts for HIV/AIDS orphans (CSD s AssetsAfrica initiative) Colombia and Peru: matched savings (International Fund for Agricultural Development) China: IDA pilot projects by Chinese Academy of Social Science} Indonesia: IDA pilot projects being planned

37 Advantages of Asset Building Simple and clear Easy to communicate Widespread appeal and acceptance Flexible and adaptable A large proportion of aid can reach the poor Provides clear accountability

38 Asset Building as a Development Strategy Relatively easy to measure, can know if it is occurring Positive social and economic outcomes are likely Outcomes are testable Knowledge can readily inform policy

39 Promising Direction: Universal and Progressive Accounts for Children Sherraden (1991), Lindsey (1994), Goldberg (2005) Child Trust Fund in United Kingdom (Nissan & Le Grand, 2001; Paxton et al., 2003)) SEED demonstration (Ford Foundation) and ASPIRE Act (2004) in the United States

40 Children s Savings Accounts (CSAs): Potential in the United States Average children s allowance in Western Europe is 1.8% of GDP. US has no children s allowance and under invests in children. Even 0.1% of US GDP would be enough for a $2,500 start in life account for every newborn. (Curley & Sherraden, 2000)

41 Global Vision and Potential Why not, some day, an account for every newborn on the planet? Although this may seem a remote possibility today, the world is not far from technological capacity to do this. What is required is vision and political will. Consider the possibilities of worldwide CSAs: As a development initiative As a vehicle for philanthropy As a framework for global social policy As a foundation for conflict reduction and peace

42 Looking to the Future: Prospects for Asset-Based Policy Asset accounts may be ideally suited to the 21st century economy and labor markets: greater control, choice, and portability. Information age financial services will be a key to feasibility and risk reduction. Asset accounts may be the chief instrument for regional and global social policies (due to ease of portability). The greatest challenge will be inclusion.

43 References Asher, M. (1991). Social adequacy and equity in the social security arrangements of Singapore, occasional paper no. 8. Singapore: Centre for Advanced Studies, National University of Singapore. Beverly, S.G., & Sherraden, M. (1999). Institutional determinants of saving: Implications for low-income households and public policy, Journal of Socioeconomics 28, Blair, T. (2001). Savings and assets for all, speech. London: 10 Downing Street, April 26. Boshara, R. (2003). Federal policy and asset building. Social Development Issues 25(1&2), Bynner, J.B., & Paxton, W. (2001). The asset effect. London: Institute for Public Policy Research. Caner, A., & Wolff, E.N. (2004). Asset poverty in the United States. Levy Economics Institute, Bard College. Cheng, Li-Chen (2003). Developing Family Development Accounts in Taipei: Policy innovation from income to assets. Social Development Issues 25(1/2), Clinton, W.J. (1999). State of the Union address. Washington: US Executive Office of the President.

44 References (cont.) Corporation for Enterprise Development (2004). Hidden in plain site: A look at the $335 billion federal asset-building budget. Washington: Corporation for Enterprise Development. Curley, J., & Sherraden, M. (2000). Policy lessons from children s allowances for children s savings accounts, Child Welfare, 79(6), Edwards, K., & Mason, L.M. (2003). State policy trends for Individual Development Accounts in the United States, Social Development Issues 25(1&2), Goldberg, F. (2005). The universal piggy bank: Designing and implementing a system of savings accounts for children. In M. Sherraden, ed., Inclusion in the American dream: Assets, poverty, and public policy. New York: Oxford University Press. H.M. Treasury (2003). Details of the Child Trust Fund. London: H.M. Treasury. Haveman, R., & Wolff, E.M. (2005). Who are the asset poor? Levels, trends, and composition, In M. Sherraden, ed., Inclusion in the American dream: Assets, poverty, and public policy. New York: Oxford University Press. Howard, C. (1997). The hidden welfare state: Tax expenditures and social policy in the United States. Princeton: Princeton University Press.

45 References (cont.) Kempson, E., McKay, S., & Collard, S. (2003). Evaluation of the CFLI and Saving Gateway pilot projects. Bristol, United Kingdom: University of Bristol. Kingwell, P., Dowie, M., Holler, B., & Jimenez, L. (2004). Helping people help themselves: An early look at Learn$ave. Ottawa, Canada: Social Research and Demonstration Corporation. Kelly, G., & Lissauer (2000). Ownership for all. London: Institute for Public Policy Research. Kochhar, R. (2004). The wealth of Hispanic households. Washington: Pew Hispanic Center. Lindsey, D. (1994). The welfare of children. New York: Oxford University Press. McBride, A.M., Lombe, M., & Beverly, S.G. (2003). The effects of Individual Development Account programs: Perceptions of participants, Social Development Issues 25(1&2), Midgley, J. (1999). Growth, redistribution, and welfare: Toward social investment, Social Service Review 77(1), Mills, G., Patterson, R., Orr, L., & Demarco, D. (2004). Evaluation of the American Dream Demonstration, final report. Cambridge, MA: Abt Associates.

46 References (cont.) New America Foundation (2004). ASPIRE Act summary. Washington: New America Foundation. Nissan, D., & LeGrand, J. (2000). A capital idea: Start-up grants for young people, policy report no. 49. London: Fabian Society. Oliver, M., & Shapiro, T. (1995). Black wealth/white wealth. New York; Routledge. Page-Adams, D., & Sherraden, M. (1997). Asset building as a community revitalization strategy, Social Work 42(5), Paxton, W., ed. (2003). Equal shares? Building a progressive and coherent asset-based welfare policy. London: Institute for Public Policy Research. Powers, E.T. (1998). Does means-testing welfare discourage saving? Evidence from a change in AFCD policy in the United States, Journal of Public Economics 68, Russell, R., & Fredline, L. (2004). Evaluation of the Saver Plus pilot project. Australia: RMIT University. Scanlon, E., & Page-Adams, D. (2001). Effects of asset holding on neighborhoods, families, and communities. In R. Boshara, ed., Building assets, Washington: Corporation for Enterprise Development.

47 References (cont.) Schreiner, M., Clancy, M., and Sherraden, M. (2002). Saving performance in the American Dream Demonstration, research report. St. Louis: Center for Social Development, Washington University. Seidman, L. (2001). Assets and the tax code. In T. Shapiro & E.N. Wolff, eds., Assets for the poor: Benefits and mechanisms of spreading asset ownership, New York: Russell Sage Foundation. Sen, A. (1993). Capability and well-being. In M. Nussbaum & A. Sen, eds., The quality of life, Oxford: Clarendon Press. Sen, A. (1999). Development as freedom. New York: Knopf. Shapiro, T. (2004). The hidden costs of being African-American. New York: Oxford University Press. Sherraden, M.S., McBride, A.M, Hanson, S., & Johnson, L. (2004). The meaning of saving in low-income households, paper at annual meetings of Eastern Economics Association, Washington, February Sherraden, M. (1988). Rethinking social welfare: Toward assets. Social Policy, 18(3), Sherraden, M. (1991). Assets and the poor. Armonk, NY: ME Sharpe.

48 References (cont.) Sherraden, M., & Barr, M.S. (2003). Institutions and Inclusion in Saving Policy, paper at Building Assets, Building Credit Symposium at the Joint Center for Housing Studies, Harvard University, November Sherraden, M., Nair, S., Vasoo, S., Ngiam T.L., & Sherraden, M.S. (1995). Social policy based on assets: The impact of Singapore's Central Provident Fund. Asian Journal of Political Science 3(2), Sherraden, M., Schreiner, M., & Beverly, S. (2003). Income, institutions, and saving performance in Individual Development Accounts, Economic Development Quarterly 17(1), Vasoo, S., & Lee, J. (2001). Singapore: Social development, housing, and the Central Provident Fund. International Journal of Social Welfare 10(4), Williams, T. (2003). The impact of household wealth and poverty on child outcomes: examining asset effects, doctoral dissertation,. Wolff, E.N. (2004). Changes in household wealth in the 1980s and 1990s in the United States, working paper no Levy Economics Institute, Bard College. Yadama, G., & Sherraden, M. (1996). Effects of assets on attitudes and behaviors: Advance test of a social policy proposal, Social Work Research 20(1), 3-11.

49 References (cont.) Zhan, M., & Sherraden, M. (2003). Assets, expectations, and children s educational achievement in single-parent households, Social Service Review 77(2), Ziliak, J.P. (1999). Income transfers and assets of the poor, discussion paper no Madison, WI: Institute for Research on Poverty, Univ. of Wisconsin.

50 CSD Reports and Working Papers on Asset-based Research and Policy Campus Box 1196 Washington University St. Louis, MO USA

51 Other Resources on Asset-based Research and Policy Corporation for Enterprise Development Institute for Public Policy Research New America Foundation

52 Forthcoming Books Sherraden, M., ed. (2005). Inclusion in the American dream: Assets, poverty, and public policy. New York: Oxford University Press. Schreiner, M., & Sherraden, M. (forthcoming, 2005). Can the poor save? Saving and asset accumulation in Individual Development Accounts. New York: Aldine de Gruyter.