Some families struggle to support themselves and save for tomorrow. Yet, this work of acquiring assets — such as emergency funds, a college fund and homeownership — is especially critical to helping families build and sustain the American Dream.
The Great Recession was devastating for U.S. families, causing a collective $16 trillion loss in net worth. This loss disproportionately affected low-income families of color, perpetuating a racial wealth gap even as the racial income gap has narrowed.
Case in point: The median net worth of white households was more than 10 times greater than that of African-American or Latino families in 2013. Whereas white families’ net worth rose by 2% from 2010 to 2013, Latino and African-American families’ net worth fell markedly — by 15% and 34%, respectively.
For the majority of its history, the U.S. government has provided incentives to help families save and build assets. However, these policies — from retirement savings tax breaks to the home mortgage interest deduction — disproportionately benefit families with assets while doing little for those with low incomes and minimal savings. This regressive pattern creates particular disadvantages for families of color, who are less likely to have savings or inherited resources. A home, for example, is a primary driver of net worth, making homeownership an important milestone for many American families. Yet systemic prejudice in zoning, building code enforcement, residential restrictions, mortgage practices and home insurance account for stark differences by race in homeownership and, therefore, net worth. Although home values among households of color took a much harder hit during the recent recession — especially in some communities — home equity remains an essential long-term asset that all families should be able to access.
Against this backdrop, many people of color have a far greater hill to climb to build assets, and this disadvantage can reap consequences that persist for generations. Family assets strongly correlate with indicators of child well-being — such as academic performance and self-esteem — and help children avoid negative consequences such as behavioral problems and teenage pregnancy. Yet, despite the importance of family assets, 47% of Americans cannot handle a $400 emergency let alone pay for college or a home. The absence of savings also prevents Americans from launching businesses that stimulate our economy. And living without a savings net exacts additional costs, with payday loans costing cash-strapped families $8.7 billion in interest and fees annually.
This brief explores the prevailing financial landscape for American families, articulates how financial instability impacts child well-being and offers policy recommendations aimed at closing the nation’s devastating divide in assets, savings and opportunities.
Promoting savings for a lifetime is the surest way to enable low-income families to build assets. Four federal policy solutions to increase the financial stability of low-income families, especially those of color, include: 1) supporting the myRA retirement plan option; 2) raising asset limits for public benefit programs; 3) expanding access to homeownership; and 4) automatically establishing a universal savings account for each child born.
