2014 Main Findings
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Treading Water in the Deep End: Findings from the 2014 Assets & Opportunity Scorecard
Five years into the economic recovery, most American families no longer live in fear of losing their jobs or their homes. Yet, these families continue to exist in a state of persistent financial insecurity, making it difficult to look beyond immediate needs and plan for a more secure future. While indicators like unemployment, foreclosure and credit card debt show a slow but steady decline, the percentage of people who do not have a personal financial safety net hasn’t budged. Nearly half (44%) of households in the United States are “liquid asset poor,” meaning they have less than three months’ worth of savings—conservatively measured as $5,887 for a family of four, or three times monthly income at the poverty level.
Liquid asset poverty means there is no “slack” in a family’s budget. If a liquid asset poor family faces an unforeseen expense, such as a broken down car or a medical bill, they have to borrow to cover the tab. For the 56% of consumers who have subprime credit scores, the only option may be to take out a high-cost—often predatory—loan, which can create a cycle of debt and worsen financial insecurity.
Liquid asset poverty also means deferring future financial security—whether that is saving for retirement or investing in a home or college education. The percent of employees participating in employer-provided retirement plans continued to decline from 45% in 2010 to 44% in 2012. The homeownership rate also continued to drop, moving from 65% in 2010 to 64% in 2012. Although the overall college attainment rate increased—perhaps to be expected during a period when jobs were harder to find—so too did college debt. The average college debt for students graduating increased 8% from $27,150 in 2011 to $29,400 in 2012.
Who are the liquid asset poor? The makeup of this financially vulnerable group confounds the stereotypes. One quarter (25%) of middle class households (those earning $56,113 to $91,356 annually) have less than three months of savings. The majority of the liquid asset poor are white (59%) and employed (89%), and nearly half (48%) have at least some college. Among liquid asset poor families with children, roughly half (51%) are headed by two parents.
And yet, those with low incomes and people of color are disproportionately affected by liquid asset poverty. Approximately four out of five (78%) of the lowest-income households (those earning less than $18,193) are liquid asset poor. So too are two out of every three (61%) households of color. This lack of savings corresponds with long-term financial insecurity. Households of color have approximately one-tenth the median net worth of white households ($12,377 and $110,637, respectively) and are considerably less likely to own a home. The homeownership rate for households of color is 26 percentage points below the rate for white households (46% and 72%, respectively).
Liquid asset poverty is also more pervasive in the South. All but one of the 10 states with the worst liquid asset poverty are in the South: Alabama, Mississippi, Georgia, Nevada, Kentucky, Arkansas, North Carolina, Tennessee, Louisiana and Texas.
The Policy Response
In the wake of the recession, policymakers at all levels of government adopted policies aimed at hastening the recovery and increasing financial security and opportunity. Cities, counties and states created programs that connected the “unbanked” to the financial mainstream, raised the minimum wage and even encouraged poor children to save for college—significantly increasing the likelihood that they will attend and graduate. States led the way in adopting education policies to build the financial capability of youth. Federal regulators reined in the financial industry and increased consumer protections. Each of these policies helped mitigate the recession’s damage to household finances and, in states and localities where positive policies were adopted, positioned families to become more financially secure.
However, the adoption of policies varied, often dramatically, from state to state. Which states showed the greatest policy commitment to supporting residents? This year, the Assets & Opportunity Scorecard provides a comprehensive answer. In addition to ranking states on 66 outcome measures spanning five issue areas—Financial Assets & Income, Businesses & Jobs, Housing & Homeownership, Health Care and Education—the Scorecard also assesses and ranks states on 67 policies.
For the first time, these rankings allow us to draw a line in many states between the strength of policies and outcomes for family economic security. The data show that policies aimed at decreasing poverty and creating more opportunities for low-income families can make a real difference. For example, Minnesota, which has adopted the 7th-highest number of policies critical to economic security, also has the 7th-best outcomes for families; Vermont ranks 10th for polices and 1st for outcomes; and Maine has the 4th-best policies and 13th-best outcomes.
Conversely, many states with poor outcomes have adopted few policies to support family financial security. Mississippi, which ranks dead last for outcomes for families, is tied for last place for the low number of policies the state has adopted. Similarly, Tennessee ranks 43rd for the number of policies adopted, and 44th for outcomes, while Alabama ranks 48th both for policy adoption and outcomes.
Policies are critical in setting the rules of the game, in encouraging and discouraging certain behaviors, and in leveling the playing field. Yet, policies are clearly not the sole drivers of outcomes for families. Even with strong policies, it is more difficult to improve outcomes in states that have high levels of income inequality, a high cost of living and substantial demographic diversity. For example, states like New York, Connecticut and New Jersey all have policy ranks in the top 10, yet their outcomes ranks trail by more than 20 places. Further, policies are often adopted only after a problem has reached a crisis level, and there can be a substantial lag between when a policy is put in place and when a change in outcomes can be measured. For example, in 2010 New York adopted a foreclosure policy that is considered the strongest regulation of mortgage servicers in the nation. Since then, the huge number of foreclosures has fallen, yet the state’s foreclosure rate still ranked 49th in 2013.
On the flip side, improving outcomes is less difficult in states with low cost of living, minimal income inequality, homogenous populations and strong economies (often fueled by abundant natural resources), such as Wyoming, Alaska and South Dakota. Those factors, combined with a libertarian streak that eschews government intervention, help explain the comparatively better outcomes for families in spite of having adopted few policies that promote economic security.
As millions of Americans today struggle to save for emergencies, investing in their futures is increasingly out of reach. Flagging homeownership rates, declining retirement savings and increasing college debt all contribute to the worst wealth inequality in generations. Without improved policies at all levels of government that help families earn more, save more and build assets, the yawning income and wealth inequality gap in the United States will widen, rather than narrow. Inaction consigns millions to persistent financial insecurity, dimming their economic future and the future of the nation as a whole.