Ownership and Debt: Minding the Balance Sheet

For the last 20 years, I’ve been part of a field called “asset building,” a clunky name for a game-changing idea. That idea is that the poor need assets—such as savings for college and retirement, or a small business or home of their own—and not just income to thrive. This may seem like common sense, but for most of the twentieth century, academics and policy-makers framed and thus tried to solve the poverty problem in terms of income and consumption, leaving savings and assets out of the equation. When Michael Sherraden launched the assets field in 1991 with the publication of Assets and the Poor, most poverty experts assumed the poor could not save and build wealth because they were poor. Asset advocates believed they were poor because no one had offered them the chance to save and build wealth.

To go from belief to proof, we spent the better part of the 1990s organizing research and pilot projects to demonstrate that the poor, if offered the opportunity, would save. They did, including the poorest of the poor. And when they did, more demonstration projects, new research centers, and bold legislation were launched in the United States and worldwide, including President Clinton’s $500 billion proposal to build retirement savings for low-income workers through Universal Savings Accounts. By 2000, while few public dollars for building assets had been secured, thousands of minds had been changed—with the field proudly taking some credit for getting wealth, and wealth inequality, on the map.

In the 2000s, the field shared President George W. Bush’s vision of an “ownership society”—a stance that caused many already suspicious progressives to worry that the assets field was being co-opted by the far right to dismantle the welfare state. But the field did not fully share Bush’s policy agenda to realize that vision, especially his proposal to privatize Social Security. We wanted to complement the social safety net, not replace it.

New research and partners also began to change the movement’s approach. The field got smart about scale and got religion about behavioral economics; our best policy thinkers began to figure out that tweaking tax returns, IRAs, and default settings (opt-in vs. opt-out) could generate new savings without new subsidies from Congress. We tried to help companies do good (help the poor) and do well (make money) at the same time, albeit not always successfully. Research was also starting to demonstrate that asset building is a lot like education, nutrition, and music: The earlier in life you start, the better.

With these lessons in mind, asset-building advocates managed to get Senators Jon Corzine, Rick Santorum, Chuck Schumer, and Jim DeMint to stand together in 2005 to introduce the ASPIRE Act, which offered a progressively funded savings account at birth for every child in America. Bush senior adviser Michael Gerson and reportedly the President himself loved the idea, but it wasn’t enough to overcome the resistance of the Bush economic team and a skeptical Congress. But Tony Blair took note and that year made the “Child Trust Fund” a reality for the 700,000 babies born in the UK every year—until the new coalition government ended the promising program in 2010 largely due to the opposition of the Liberal Democrats and Britain’s turn toward austerity.

The British example gets at the current straits of the asset-building movement. Just two decades after its inception, the field faces the challenge of advancing its agenda in the wake of the worst economic crisis since the Great Depression. In fact, asset-building advocates face a perfect storm of fiscal austerity, weak economic growth, and political paralysis—which means that those with the greatest need to rebuild their wealth will have the hardest time doing so, and that government at all levels may be unwilling or unable to restore household wealth exactly when families need it the most. Can we meet this challenge?

Yes, but it won’t be easy. To get there, our analysis must include but go beyond savings and assets. Our argument for why assets matter must be clear, powerful, and consistent. And our strategy must heed the lessons arising from the Great Recession—namely, that we need to take downside risk as seriously as the upside of encouraging working families to save and build wealth.

That downside risk is now painfully apparent. The economic crisis didn’t just devastate the labor market; it also eviscerated the wealth of millions of struggling households. According to the Federal Reserve’s Survey of Consumer Finances, between 2007 and 2010 (the latest data available) the median net worth of American households shrank by nearly 40 percent. Only the top 10 percent managed to grow their wealth over that period. Everyone else’s tanked—including the bottom 40 percent, the assets field’s target population. The bottom 20 percent lost 27 percent of their net worth, leaving them about where they were in 1992. The next 20 percent, the working poor, started seeing their net worth decline in about 2001 and then suffered a 35 percent crash after 2007—leaving them nearly 40 percent below where they were in 1992. In other words, in the two decades since Sherraden introduced his breakthrough idea, the very poor have made no gains while the working poor have actually lost significant ground.

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