Recent Census Bureau data finds that incomes declined and poverty increased for low -and middle - income Californians in 2007.

This reversal in trend is exacerbated by steadily increasing unemployment rate. In July 2008, California’s unemployment rate reached 7.3% —the highest level in 12 years. That’s not all; to cope with the current economic downturn, employers are cutting workers’ hours. This has profound implications in a state where nearly 29% of its households are asset poor - in other words, living paycheck to paycheck. Because many households lack the savings necessary to weather unexpected financial emergencies like job loss, we are seeing more and more families turning to public assistance programs like CalWORKs, Food Stamps, and Healthy Families program to make ends meet.

As California faces what many economists expect to be an extended period of slow economic growth, it seems our state’s workers and their families have little to celebrate this Labor Day.

To learn more, download California Budget Project’s new report, Labor Day 2008: Little to Celebrate.

A new documentary produced by the California Reinvestment Coalition (CRC) entitled “Mo’Money, Mo’Money, Mo’Money” shows how foreclosures destroy the dreams of California families and threaten the stability of small businesses, city governments, and neighborhoods.

The film reveals how this disaster could have been avoided if regulators and government officials had not ignored predatory lending practices.

California accounts for a quarter of all foreclosures in the country and seven of the state’s cities are consistently in the list of top ten foreclosure rates in the nation. Earlier this year, seven bills were introduced in the California legislature to address the mortgage foreclosure crisis. Despite strong support from community groups, the legislature only passed one meaningful bill.

To view the documentary and learn more click here.

California fares poorly—receiving an overall “C” grade—in the 2007-2008 Assets and Opportunity Scorecard, a biannual report released by the national Corporation for Enterprise Development (cfed). This report presents a comprehensive look at wealth, poverty, and the financial security of families on a national and state level. The 50 states, along with the District of Columbia, are assessed on 46 performance measures in five major areas: financial security, business development, homeownership, healthcare, and education.

According to the report, California is at the forefront of small business development, receiving an “A” grade for Business Vitality. However, California still has a long way to go in areas of asset poverty, homeownership, and access to health care. For example, California ranked:

• 39th in asset poverty
• 50th in affordability of homes
• 51st in median mortgage debt
• 49th in homeownership rates
• 42nd in percentage of uninsured low-income children
• 39th in percentage low income parents without health insurance

Overwhelming new data for the golden state indicates a need for:

• More asset-building saving programs
• State earned income tax
• A public health insurance programs to cover all low-income residents
• Eliminating asset limits on public benefit programs such as CalWORKs and MediCal

Grim data such as this is just the beginning if legislatures and advocates fail to respond to California’s growing insecurity.

Matt Fellowes from the Brookings Institution argues that it costs a lot to be poor. Fellowes notes that low-income communities pay a high premium for financial services simply because mainstream banks and credit unions effectively ceded this market to high-cost financial institutions. You can read more about the consequences of such neglect here.

Yet another aspect of financial neglect is the fact that financial institutions are not developing competitive products to meet the needs of low-income communities. Take payday lenders for example. Payday lenders provide loans and charge the most that they can charge according to state law. In California, the law allows payday lenders to charge up to 459% APR. So, what’s the incentive for payday lenders to provide competitive products that would drive down such costs? None. They can charge top dollar. Why change that? As long as competition from banks and credit unions is kept at bay - and state law is not changed - business for payday lenders is, well, good.

Slowly, this may be changing. A report by the Woodstock Institute release earlier this year notes that some credit unions are developing products to compete with payday lenders. Indeed, competition may well be what drives down the high-cost of being poor. But until all banks and credit unions jump in and compete, life for neglected borrowers will continue to be more expensive.

According to a study by the National Center for Policy Analysis the answer is often no — and it also depends on who you are. If you are young, single-parent, living in a lower-income household, than it may not pay off very much, according to the analysis presented in this report.

The authors of the report argue that low-income families have a high marginal tax rate on savings. For example, take CalWORKs which has an asset limit for eligibility of $2,000. If a single-parent with two children earning $1,000 per month, saves one dollar more than the asset limit, they would lose $292 in CalWORKs benefits. The immediate effective marginal tax rate for saving that $1 dollar over $1,999 is 2,920 percent!

So, what’s the incentive to save if your single and low-income? Not much.

The broader issue that this report highlights is the wide discrepancy between rhetoric and policy toward savings. On the one hand, we have government demanding that low-income families pull themselves out of poverty, and on the other hand, we have policies that actually penalize low-income families from saving what little resources they may have. And without savings and opportunities to built assets, low-income families have little chance of moving out of poverty for good.

For every federal dollar spent on programs to help low-income families build assets, the federal government gave up – meaning they did not collect in taxes – $582 dollars through preferential tax rates, tax deductions, tax exemptions and tax credits that mostly benefit high-income families.

Do you think this sounds fair? Hardly.

A recent study by CFED “Return on Investment” found that federal asset building dollars largely benefit high-wealth families. The CFED study builds on their groundbreaking analysis from 2004 “Hidden in Plain Sight,” where they took account of who really benefited the most from all of the asset-building programs and dollars in the federal budget. They found that the lion’s share of $335 billion dollars in the federal budge for 2003, benefited mostly those families in the top 1% of income earners.

In the new report, CFED found yet again the same lopsided benefit; specifically, the report notes:

Of the three largest asset-building policies — the mortgage interest deduction, the property tax deduction, and preferential rates on capital gains and dividends — over 45% of the subsidies go to the top 1% households, whose average income exceed $1.25 million. The top fifth of taxpayers (those with incomes greater than $80,000) receive the vast bulk (88.7%) of asset-building benefits. In contrast, the rest of the population share 11.6% of the tax benefits, and the lowest 60% of households get a bit less than 3% of the benefits.

To read the report, click here.

Earlier this month, the Aspen Institute Initiative of Financial Security released a report stating that

The U.S. needs a sensible savings policy that allows all Americans to save, invest and own, at every stage of life.

Today’s savings system consists of a confusing patchwork of plans, most of them income-based programs that rely on tax subsidies to generate retirement savings. Unfortunately, those plans are not currently available to many Americans, and they are far too complex for easy, universal use.

From this analysis, the report outlines four recommendations for how federal policy could help families save and build wealth throughout every point in life.

• Child Accounts to build savings from the beginning of life. All children born in the U.S. would receive a beginning endowment provided by the government to open an investment account. Based on the United Kingdom’s Child Trust Fund, this market-based, retail-sold account product would give every child a financial jump start and help build financial literacy.

• Home Accounts to be used for a down payment on a home. These FDIC-insured accounts would allow more low- and moderate-income families to become homeowners by providing a government match on their savings.

• America’s IRA—standardized, simple Individual Retirement Accounts with a government match for low- and moderate-income Americans who do not have access to retirement plans where they work. America’s IRA would use existing IRA products and distribution channels and would feature a one-time incentive for opening the account.

• Security “Plus” Annuities—basic life annuities to provide an additional layer of lifetime, guaranteed income as a complement to Social Security. It would partner the familiar and universal Social Security program with the private market, and would provide many of the 80 million soon-to-retire baby boomers with a simple, low-cost annuity product that protects them from outliving their savings or losing them in a market downturn.

You can download a copy of this report by clicking the link below. I’m sure you’ll find it very persuasive.

Savings For Life: A Pathway to Financial Security for All Americans. (The Aspen Institute)

The wealth gap is as big as the Grand Canyon!

The good news, according to folks at United for a Fair Economy, is that we can close the gap; all it would take is more of the same type of policies that helped white men into the middle class but this time such policies would help everyone. Indeed, the current wealth at the top didn’t just happen magically, it was created through public policies that as Meizhu Lui explains: “…helped the wealthy gain more assets (such as by taxing income from stock ownership at a lower rate than income from work), while penalizing low-income people for saving (such as through extremely low asset limits to quality for temporary income supplements).”

Of course, there is a lot more to how our society came to be where we are in regards to the wealth gap. And a great illustration of this history is now in a book titled, the Color of Wealth which goes through “the obstacles placed in the path of asset building by government actions and inactions for four different racialized groups, and to detail the boosts given to white people by public policy.”

This book is without a doubt a must read for anyone working to close the wealth gap in our society.

What we know for certain is that there are no quick fixes to the failures and abuses in the mortgage market — particularly those in the sub-prime market that are at the bottom of the current wave of foreclosures. But in the rush to develop policy solutions to stop and prevent foreclosures we must not forget that sometimes it is the little things that make the biggest difference; and in this case it may be allowing borrowers to get advice from a trusted source while making the biggest financial decision of their lives. For far too long borrowers have depended on the advice from realtors and mortgage brokers who themselves have a financial stake in the borrowers’ decisions. Trusting their advice proved too costly for those families that now face the harsh realities of losing their home.

In a report entitled, “Understanding Mortgage Market Behavior” the Joint Center for Housing Studies from Harvard University noted that

… Because consumers have malleable preferences, lack price awareness, struggle with shopping and have difficulty making choices with time dimensions, new initiatives are necessary to overcome today’s aggressive marketing practices. These include:

(1) Provide for a Second Opinion through a Trusted Advisor Network.

Building on the existing community-based infrastructure as well as national scale organizations and foundations committed to social justice, a third-party advice system could provide a network of “trusted advisors” with incentives aligned with the borrowers’ interests.

• Expand community-based and national nonprofit efforts to provide mortgage counseling services that guide consumers to “good loan” products.

• Establish a for-profit ‘buyer’s brokers’ network that works explicitly for the buyer for a flat fee.

• Develop tools to support these networks including a second opinion hotline, on-line pricing guide, and national database of representative rate sheets.

Current rules essentially leave borrowers standing alone in the mist of a wild mortgage market with no one to trust. A Network of Trusted Advisors could change that for the better. The IDA field is a great example of what can happen when mission-driven, non-profits jump in the ring on the side of consumers.