Use your widget sidebars in the admin Design tab to change this little blurb here. Add the text widget to the Blurb Sidebar!
Assets and debts Archive
| Posted: July 12th, 2012
People who are disabled, living in poverty, or have little education can be particularly vulnerable to shocks that can affect their life chances. But another class of vulnerabilities has to do with where people live—for example, old housing may be more precarious as it costs more to maintain and overcrowded conditions can have adverse effects on children and parents. We took a look at this connection to ask whether personal vulnerabilities are good predictors of living in precarious housing.
We found that vulnerable people live in precarious housing more often than those without vulnerabilities, controlling for other demographic and regional factors. Some of this concentration was a result of income, some a result of personal and household traits, including race, that still hinder equal housing opportunity. Some vulnerabilities led to different precarious housing conditions. For example, blacks are less likely to overpay or live in overcrowded housing, but more likely to live in multifamily housing (controlling for other factors). Hispanics are more likely to live in overcrowded housing (controlling for other factors).
We find that income matters more than any other single factor in Americans’ ability to avoid precarious housing. Poor families stand out as especially disadvantaged. While perhaps not surprising, it is alarming because these households have the least financial cushion should something go wrong in their housing situation—say if they are forced to move or to make expensive repairs. Individuals and families at the intersection of precarious housing and personal vulnerability are most at risk. They are the households most likely to move frequently as a result of financial stress, leading to potentially damaging instability.
What can be done? Federal support for housing, neighborhoods, and transit systems is key. State and local policies and programs also matter. Regions should play a larger role, but few have developed a robust capacity to act in a coordinated way. And our findings affirm that income supports for the poor (whether in-kind or monetary) will continue to be critical for vulnerable households.
Filed under: Assets and debts, Built Environment, Government 1 Comment »
| Posted: July 11th, 2012
Who fared worse in terms of unemployment during the Great Recession—men or women? And who’s doing better in the recovery? The conclusions differ among researchers and politicians alike. So, who’s right?
Looking at the total 6 million jobs lost during the official recession period, December 2007 to June 2009, we find that 74 percent of those jobs were held by men, compared with 26 percent held by women. Men’s employment declined by roughly 6 percent while women’s employment decreased by 2.4 percent. So, it’s true that men were disproportionately affected by job loss during the Great Recession.
But unemployment peaked at different times for men and women. Men’s unemployment peaked at 11.2 percent in October 2009, when overall unemployment also peaked, roughly coinciding with the end of the recession. From the beginning of the recession to the peak unemployment level, men’s unemployment rate rose by 120 percent. Women’s unemployment peaked at 9 percent over a year later in November 2010 and represented an 84 percent increase from where it was at the start of the recession. Even though the rates peaked at different times, the conclusion is pretty much the same. When comparing unemployment rates, men were hit harder during the recession with both a higher level of unemployment and a larger percentage increase in the rate.
Unemployment Rate, by Gender, Dec 2007 - May 2012
Source: BLS Labor Force Statistics from the Current Population Survey (CPS)
Now what about the recovery period? From its peak in October 2009 through May 2012, men’s unemployment fell by 2.8 percentage points, a 25 percent decline. At the same time, the total number of men employed grew by 2.5 million, a 3.4 percent increase. As of May 2012, women’s unemployment had fallen by 1.1 percentage points, a 12 percent decline from its peak in November 2010. An additional 1.3 million became employed, a 2 percent increase from the November 2010 employment level.
Employment, by Gender, Dec 2007 - May 2012
Source: BLS Labor Force Statistics from the Current Population Survey (CPS)
Since reaching peak unemployment through May 2012, men and women have had steady increases in employment and decreases in their unemployment rates. But men appeared to bounce back earlier than women, with steadier positive employment growth and consistent declines in the unemployment rate. Women did appear to gain some employment traction beginning in December 2011 that has continued through the first half of 2012. As of May, women have experienced a net loss of 1 million jobs since the beginning of the recession, or 2 percent of jobs held in 2007. Men had a net loss of 2.9 million jobs over the same period, or 4 percent of jobs held in 2007.
A look at the employment-to-population ratios provides further insight into the labor market dynamics of each group because they take account of people who might have left the labor force because they thought no jobs were available. During the recession, men’s employment-to-population ratio fell from 69.4 to 64.6, a 7 percent decrease. For women, the ratio fell from 56.5 to 54.5, only a 4 percent change. Since the recession’s end, men’s employment-to-population ratio has roughly remained steady. Among women, the employment-to-population ratio dropped post-recession between June 2009 and November 2010 when women’s unemployment peaked; it has remained fairly steady since. Although people are no longer dropping out of the labor market in droves, both men and women are still well below their pre-recession employment-to-population levels.
Bottom line: several different measurements of labor market strength suggest that men fared worse in the recession, suffering greater job loss than women. But the numbers also indicate that men are recovering those jobs faster. We should use caution and not overstate the significance of these differences in the recovery. The industries in which the majority of women are employed are more “recession-proof” than those with higher concentrations of men; they didn’t shed as many jobs during the recession and therefore have much less ground to make up. Still, despite being overrepresented in the hardest hit industries, men appear to doing better in the recovery.
Filed under: Assets and debts, Government, Quality of Life, Urban Culture 1 Comment »
| Posted: June 27th, 2012
The availability of small-dollar credit to low- and moderate-income (LMI) households was a major focus of the 7th Annual Underbanked Forum, hosted on June 13-15 by the Center for Financial Services Innovation (CFSI). Small-dollar credit refers to consumer loans under $2,500 (and are typically less than $500). The forum’s discussions highlighted two opposing business models for offering small dollar credit—one focused primarily on profit and one focused on customers.
The first model, normally associated with “alternative financial services” providers (payday lenders, pawnshops, rent-to-own stores, etc.) but also distressingly evident among mainstream institutions, is to extract fees and charges from LMI consumers who have difficulty managing credit. Intentional choices in product design and targeting stack the deck against borrowers, making timely repayment an unlikely prospect and resulting in lender profits. A prominent example is Internet payday lending, the most rapidly growing segment of the small-dollar credit market. Recent CFSI survey data indicate that fully 40 percent of borrowers do not make timely repayment on “very short” term loans—products with repayment periods of one month or less, such as payday loans, pawn loans, and deposit advance loans (taken out against an upcoming direct deposit to one’s bank account).
A contrasting model works off the premise that loan products can be designed to enable repayment and thus avoid the debilitating cycle of loan rollover and borrower dependency. With such products, repayment is rewarded, as the borrower’s record of payment is reported to credit agencies. Structural safeguards prevent misuse, and loan terms are transparent to the borrower. Lender risk is reduced to an extent that APRs of 36 percent or lower—less than one-tenth the effective rates for payday loans—become viable. These innovative products are offered by firms such as Tandem Money, ZestCash, BillFloat, Lending Club, and Progreso Financiero. The Tandem Money product, for example, is a creatively structured line of credit, with the loan amount conditioned on a borrower using their own savings to meet a portion of their financial need.
The emergence of this customer-focused small-dollar credit paradigm is an important market development, given the large number of newly underbanked consumers. Most underbanked households (81 percent) can be found in metropolitan areas. A legacy of the Great Recession has been the number of previously banked consumers who ended up making late payments or defaulting on loans, bringing down their credit scores and shutting them out of mainstream credit products. Many of these consumers are creditworthy, as evidenced by a recent Equifax analysis showing that more than one-quarter of the underbanked consistently make on-time bill payments. Add in their consistent payment history on utility and rent bills and 18 percent of those conventionally regarded as high risk are reclassified into a lower-risk category. Many of these consumers spend less than they earn every month, but they are vulnerable to unexpected financial shocks, such as car repairs or medical expenses.
Whether the consumer-empowering business model can make headway against its predatory counterpart remains to be seen. One encouraging sign is the extent to which mobile technology may enable the emerging lenders to reduce their marketing, underwriting, and servicing costs. Equifax has found that, among the underbanked, 29 percent have used mobile banking in the past year for deposits, payments, remittances, and other fund transfers. As evidenced by the growth of Internet payday loans, however, technology is also increasingly exploited by predatory lenders. A key question is whether innovative customer-centered product development in this market can keep pace.
Filed under: Assets and debts, Government Add a Comment »
| Posted: June 9th, 2012
Last week, MetroTrends bloggers explored two critical financial concerns for metropolitan America – college students with crushing debt burdens and homeowners underwater on their mortgages.
- Margaret Simms cautions high school graduates (and their families) to make informed financial decisions as they head off to college – considering both future debt burden and the long-term financial benefit of having a college degree.
Filed under: Assets and debts, Built Environment, Government Add a Comment »
- Rolf Pendall highlights new evidence on difference across neighborhoods in the severity of the foreclosure crisis, concluding that racial segregation – as well as sprawl – plays a big role.
| Posted: May 25th, 2012
State taxes and transfers can be an important form of assistance for low-income families. But the amount of government help varies widely among the states. And, importantly, so does what happens to those benefits when such a family increases its wages.
To help understand how those tax and spending programs work, the Urban Institute has created a new interactive Net Income Change Calculator (NICC). The calculator allows users to enter information about family and work characteristics, child care expenses, rent, and program participation. The calculator then provides estimates for taxes and transfers at five income levels so users can see how taxes and transfers change as income rises.
It includes state and federal income taxes, the employee share of payroll taxes, and a wide range of subsidy programs, including Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps), the Supplemental Nutrition Program for Women, Infants, and Children (WIC) as well as subsidies for Housing and Child Care. All rules represent 2008 law.
The calculator shows how different these benefits are, depending on where a low-income family lives. For example, in 2008, a single parent with two children aged 0 and 3 with poverty level wages could have received transfer benefits ranging anywhere between $4,000 in several states and $9,200 (Connecticut) if she participated in TANF, SNAP, and WIC.
In addition, she could have received about $6,700 in federal tax credits and either owed state income taxes or received additional tax credits. For example, in Alabama her state tax bill would be over $300 while in Connecticut she would owe no states taxes. She would also have owed almost $1,300 in the employee side of payroll taxes. We assume her childcare costs, before subsidies, would increase to about $250 per month – some of which could be offset by childcare subsidies. Together, taxes and transfers could have changed this mom’s income from $17,000 in wages to between $27,500 and $32,000 in income and benefits, depending on where she lived.
What happens if that mom gets a job?
A single parent in Connecticut with two young children could have received over $18,000 in transfer benefits if she had no earnings and no income, assuming her pre-subsidy rent was $600 per month. But suppose her earnings increased to $17,000 (poverty level) – spread evenly throughout the year – increases in childcare costs (assumed to be $250 per month before subsidies) and payroll taxes would have reduced her earnings by almost $2,000. Income tax credits and transfer benefits would have then added $16,500 – for a total net income of almost $33,000. If her income increased to twice poverty, she’d have to pay almost $5,600 in subsidized child care costs, state income taxes and payroll taxes. She’d receive about $6,400 in tax and transfer benefits – for a net income of $35,000. Thus, doubling her wages from $17,000 to $34,000 resulted in a net change in income of only about $2,000.
In contrast, the same family in Alabama could have received almost $17,000 in transfer benefits if the parent had no earnings. If her earnings increased to poverty-level, she would have spent over $2,500 on childcare, state income taxes, and payroll taxes, while transfer benefits and tax credits would have decreased to under $15,000. In total, the family’s net income would rise from almost $17,000 to $29,000. If her wages doubled, the combination of declining transfers, increased taxes, and higher childcare costs would have resulted in a total net income of $33,000 – an increase of about $4,000.
The NICC provides a powerful tool to understand both how states differ with respect to taxes and transfers, and to understand how a family’s income changes as a parent increases her earnings. Try it out.
Composition of Income for Single Parent with Two Children, Connecticut and Alabama, 2008
Source: Urban Institute Net Income Change Calculator May 2012
Filed under: Assets and debts, Government 1 Comment »
| Posted: May 22nd, 2012
A recent two-day conference in Washington, DC, celebrated the 21st anniversary of Michael Sherraden’s Assets and the Poor, which first proposed individual development accounts (IDAs, savings accounts offering match funds for specified uses) and other asset-based antipoverty strategies. The Assets@21 convening brought together policy researchers and advocates to assess progress and look ahead.
A mixed story emerged. Yes, there have been legislative victories (the Assets for Independence Act, providing federal grant funding for state and local IDA projects) and behaviorally informed innovations (such as the IRS’s Form 8888, enabling low-income tax filers to precommit a portion of their federal tax refund to the purchase of US savings bonds). But research to date has yielded limited supportive evidence—enough to sustain asset-building as a field of policy development, but not enough to convince skeptics. And efforts to further advance asset-building are now more difficult in an increasingly partisan, deficit-constrained environment.
The question posed by Sherraden and others two decades ago was, “Can the poor save?” The answer depends on how poor a target population one has in mind. Those with annual incomes chronically below the poverty level have little capacity to save, as their incomes never rise enough to provide the necessary budget slack. Fortunately, among those who become income-poor, only a small fraction remains so chronically. An analysis of 1968-89 data from the Panel Study of Income Dynamics concluded that only 5 percent of those who enter a poverty spell then remain chronically poor throughout the ensuring ten years. The typical experience is episodic poverty, with 30 percent never having another below-poverty year within the ten-year horizon and another 26 percent experiencing poverty again in only one or two of the following years. For the episodically poor, the opportunity to save comes when they have above-poverty income. If they manage to avoid major emergencies, the savings accumulated in their less-poor years can offset their dissaving (asset drawdown) in other years.
So the poor can save, as long as they are not always poor. Asset-building programs use this dynamic by extending their income eligibility thresholds (measured at program intake) to 150 or 200 percent of the poverty level. The favorable evidence on homeownership among IDA participants (including a randomized control trial under an early Tulsa program) suggests that program effects are concentrated among those in the higher ranges of income eligibility. Only a subset (30 to 40 percent) of IDA participants makes any matched withdrawals. This tends to be the near-poor, in keeping with the notion that a consistent savings habit is possible only during times when a household’s annual income exceeds the poverty level.
Asset-building programs should thus be viewed not as approaches to lift people out of chronic poverty, but as ways to promote upward mobility for the episodically poor and to prevent the near-poor from falling back into poverty. The latter role for asset-building—to provide emergency savings as protection against unplanned spending needs or income drops, and to avoid the high cost of credit from predatory lenders—was prominently mentioned at the Assets@21 meeting. Assets are thus important for both self-investment and self-insurance: for both offense and defense.
Filed under: Assets and debts, Government Add a Comment »
| Posted: April 20th, 2012
With the tax season now over, it’s a good time to point out that tax-time matched savings programs are among the more promising approaches to boost low-income savings. In these programs, tax filers are encouraged to deposit some of their tax refund—primarily from the earned income tax credit (EITC)—into a savings account. Those deposits are then supplemented with match funds. One successful example is New York City’s $aveNYC Program, run through participating Volunteer Income Tax Assistance (VITA) sites. The program pays a 50 percent match on amounts up to $1,000 held in a $aveNYC account for a full year. In 2008-2009, the initial years of the program, 79 percent of participants received match funds. Of these accountholders, 71 percent re-upped the following year.
A just-released report by UNC-Chapel Hill’s Center for Community Capital provides insights on low-income savings behavior based on in-depth interviews with 48 $aveNYC participants—mostly African-American and Hispanic women between 25 and 50 years old. Consistent with other research, the study highlights the fact that children provide the strongest motivation for low-income workers to save because of the obligation to meet kids’ basic living needs, the instinct to serve as a role model for them, and the desire to provide them a better environment for growing up. To be realized, these impulses to save must be combined with confidence in one’s ability to save and a sense of trust in the financial institutions that hold one’s savings. And low-income households often lack that confidence and trust.
The basic message from this recent research—and the emerging body of work in behavioral economics—is that savings interventions need to nurture the intention to save and also make the act of saving easier. Whether someone is able to save (given that they can afford to) depends on a complex tug-of-war between their current impulses and their future plans. Savings tools such as precommitment, default-in/opt-out decision framing, and envelope budgeting are ways to enable our better selves to prevail.
Community-based savings collaboratives, such as savings circles where people pool their savings, have had some success helping the very poor save in developing countries. Is there a scalable way to do something similar in urban America? Can the motivational influence of one’s children be more effectively harnessed?
One possible untested approach is setting up a virtual savers’ club comprised of parents whose children share the same birthday. Parents could create a savings account on their child’s behalf and set a savings goal to be reached by the child’s next birthday. Members would receive periodic savings reminders and could compare their progress with the progress of other club members. This kind of self-induced competition has worked in energy conservation initiatives.
As with $aveNYC, the financial incentive to save could be strengthened by match funds—in this case, funds directed to a child’s account through donations from other family members or friends (or even a noncustodial parent). If this virtual savers’ club were widely marketed, other people who share the same birthday might be interested in making charitable donations of match funds to a child’s account.
In each of these cases, the necessary focus for savings interventions is clear: nurture the intention to save and enable the act of saving.
Filed under: Assets and debts, Government 1 Comment »
| Posted: March 17th, 2012
Last week’s MetroTrends blogs tackle three issues critical to the well-being of families and their communities – decent housing, fair wages, and adequate savings:
Filed under: Assets and debts, Built Environment, Economy, Government, Quality of Life, Urban Culture Add a Comment »
| Posted: March 16th, 2012
Two just-published reports provide useful insights on patterns of household saving in the United States. The analyses highlight the policy dilemma that comes during and after recessions. As American consumers, we tend to save more than we should during recessionary periods, when more spending would stimulate economic expansion. We then tend to fall back into myopic spending habits, when more saving would promote the economy’s long-run growth potential and help provide for our own long-term needs.
Amidst the statistical avalanche of the 2012 Economic Report of the President are the most recent numbers on personal saving (as a percent of disposable personal income) before, during, and after the Great Recession. From a pre-recession level of 2.4 percent in 2007, the saving rate more than doubled to above 5 percent in 2008–2010, exceeding 6 percent in some quarters during the recession. This reflects the collective reaction to the enormous drop in household wealth that was a result of plunging stock market values and housing prices. The total wealth decline was the equivalent of 1.8 years of income for the average household, the steepest drop since such data were first collected in the early 1950s.
During 2011 the saving rate then fell to below 4 percent as pent-up demand for consumer durables (especially cars) buoyed consumption. This has been welcome news for the economic recovery, but it suggests a return to a historical path of not saving, a matter of concern for our long-term economic health.
Barry Bosworth of the Brookings Institution focuses on this long-run horizon in his book The Decline in Saving. As Bosworth points out, our personal saving rate has declined over the past three decades. From an average of 7.7 percent in the 1970s, it dropped to 7.2 percent in the 1980s, 4.7 percent in the 1990s, and then 2.4 percent during 2000–2007. As explanations for this decline, Bosworth points to easier credit availability and financial innovations that enabled households to extract equity from homes and other assets, fueling a more consumption-oriented economy. He notes that Canada is an instructive comparison, observing that “the mortgage market innovations that led to the growth of the subprime mortgage market in the United States were largely absent from Canada.”
Whether American households under-save or over-save is a complex question from a macroeconomic perspective; it hinges importantly on the level of saving or dis-saving in the corporate and public sectors. The evidence suggesting a return to long-term trends of under-saving in the household sector is discomforting, with discernible risks apparent as one moves down the income distribution. Do households have sufficient assets to weather financial emergencies, to withstand national economic downturns, and to meet their retirement needs? If upcoming data show continued low rates of personal saving, in a world where low interest rates do little to encourage thrift, we should heighten our focus on savings initiatives, especially targeted to low- and middle-income consumers, to break the pattern of saving too little.
Filed under: Assets and debts, Government, Quality of Life, Urban Culture Add a Comment »