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)

BusinessWeek does an extensive job in describing the realities of subprime credit in their May 21, 2007, cover story entitled: “The Poverty Business.”

In recent years, a range of businesses have made financing more readily available to even the riskiest of borrowers. Greater access to credit has put cars, computers, credit cards, and even homes within reach for many more of the working poor. But this remaking of the marketplace for low-income consumers has a dark side: Innovative and zealous firms have lured unsophisticated shoppers by the hundreds of thousands into a thicket of debt from which many never emerge.

Why should asset builders care about predatory lending? It seems that no matter how fast we help working families build assets, there are people in the business of taking those assets away just as fast.

Although this article falls short in addressing solutions in how to clean up this industry, it does make clear that building assets is only the first step towards helping working families get out of poverty; helping them protect their assets is what follows.

At the recent Council of Foundations conference in Seattle, I had the opportunity to learn about an exciting new model for providing financial services to low income families and communities. Tricia McKay, Executive Director of the Medina Foundation in Seattle, is launching an exciting new venture called “Prosperity Credit Union”,  specifically to serve low income families in King County (Seattle) in Washington.

Prosperity plans to offer:

· No-fee/no-minimum checking and savings

· Overdraft protection debit cards

· Flexible ID requirements

· “Payday like” loans

· Financial literacy training

· Wire transfers

· Respectful, culturally appropriate and convenient services

The business planning for Prosperity Credit Union has been rigorous, involving in depth market research. The findings signify real demand for their proposed services – 78% of community residents surveyed indicated an interest in a credit union designed to meet their needs.

By the end of 5 years, Prosperity intends to have assets of approximately $13 million, with 3,500 – 5,000 members and revenues that make them self sustaining.

In addition to the important model for financial services Prosperity is developing, Tricia’s vision as a foundation executive driving this opportunity directly is a different sort of model I hope others will follow!

Check out the attached powerpoint deck to learn more.

prosperity-b-plan-exec-overview-2007.ppt

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.

The question is easy. Getting the answer that is right for you and your family is a bit more complicated. I just came from a two day conference organized by the National Economic Development and Law Center, a non-profit organization based in Oakland CA, who manages Californians for Family Economic Self-Sufficiency, a project designed to help answer this very question. The conference brought many anti-poverty advocates working on ways to help families achieve self-sufficiency.

Most people believe or think about the poor in singular terms, meaning that they believe all poor families and their problems are the same. Consequently, they believe that solutions and programs to help the poor should be the same. The reality is much more complicated and diverse; there are varied numbers of working poor families that require just as varied number of supports to help them achieve self-sufficiency.

The Self-Sufficiency Standard is a tool to help asses those needs based on family type, the number of family members and their respective stations in life. It’s a simple idea, really. The self-sufficiency standard tells us exactly how much it costs to make ends meet, say, for a single parent raising an infant and a preschooler. In Los Angeles County, this parent would have to earn $17.92 per hour in a full time job just to cover the basic costs of living in that county. In Shasta County, this parent would need to earn at least $13.99 to do the same. But how many jobs actually pay that much? And what happens to families only earning the minimum wage, currently only $7.50? How do they make ends meet?

Indeed, the self-sufficiency standard is a powerful tool with a great potential to help educate us on the real costs of living in poverty – and what it would take to help those families not quite making it.

For more information visit the Californians for Family Economic Self-Sufficiency (CFESS)

Late last year the Center for Responsible Lending reported that one out of five subprime loans will end in foreclosure, resulting in a net loss of homeownership for almost one million families costing them well over $164 billion in lost assets. The wave of foreclosures is said to hit California homeowners the hardest; 21.4% of all subprime loans made in the Golden State in 2006 will end in foreclosure. The report’s grim conclusions don’t have to come to pass — if CA Governor Schwarzenegger follows Massachusetts’ lead in protecting homeowners today.

Homeowners To Get State Help on Foreclosures

BOSTON — Gov. Deval L. Patrick has directed state banking officials to help homeowners negotiate mortgage payment terms to avoid foreclosure, a published report said yesterday.

The governor’s decision followed a protest at his Statehouse office Thursday by people whose houses were scheduled to be auctioned off by lenders that have foreclosed on the delinquent loans and seized the property.

Banking Commissioner Steven Antonakes told The Boston Globe that his agency already has secured 60- to 90-day freezes on the foreclosure process from lenders on behalf of 11 of the protesters.