The recipe for financial success is actually quite simple: add a pinch of knowledge, an ounce of sound advice, a cup full of desire, and some seed money; stirrer all together in a supporting, welcoming environment and you got yourselves real people on the path to financial security.

That’s what EARN does every day.

This past May, EARN presented 3 Asset Builder of the Year Awards to Duane, Zenelia, and Aniya who participated in EARN’s matched-savings program that helped them realize their goal of buying a home, continuing their education, or starting up a small business.

Hear their inspirational stories for yourself; and see their glow as they walk the path towards financial stability.

For the past several years, the U.S. has been inundated with cheap credit. On the plus side, low interest rates meant more families could afford, among other things, mortgages even while prices for homes were going higher and higher. Consequenlty, in just ten years the national homeownership rate went from 65.4 percent in 1996 to 68.8 percent in 2006. That’s a huge jump considering that the national rate wobbled between 64-65 percent for almost 4 decades.

On the negative side, low interest rates meant families assumed more debt; and with more debt comes more interest payments on that debt. The Federal Reserves tracks what they call the household debt service ratio – an estimate of the ratio of debt payments to disposable personal income. From 1996 to 2006, the debt service ration jumped from 11.87 percent to 14.29 percent. For households in the lowest income quintile, the debt burden eat up 26 percent of their income in 2004. In other words, for every dollar that low-income families earned, 26 cents went to pay off their debts, leaving only 74 cents to pay for everything else.

Bottom line is that low cost credit meant more spending and thus less savings. It’s no wonder that our national savings rate dipped to negative 1 percent during this period of low-cost credit.

But the party seems to be coming to a close. Maybe now we can start a serious policy discussion on how to help families save and invest on assets that matter.

The NY Times Magazine published a number of articles related to poverty in America. I found “The Inequality Conundrum” by Roger Lowenstein, particularly interesting and worth noting in this blog.

The author, trying to understand the growing income inequality of today, takes a look back and notes that most economic policy debates – since Hamilton versus Jefferson and now between Bush versus the Democrats – boiled down to this tension: how can you promote equality without killing off the genie of American prosperity?

Good question. But there’s an inherent flaw in this bifurcated view of economic prosperity because it assumes that the “genie” is the only producer of wealth while “equality” merely consumes it.

Also, this view does not take into account of how federal fiscal policies tip the scales of economic prosperity towards the wealthy.

For example, take CFED’s recent findings on federal asset-building policies that 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, deductions, exemptions and credits that mostly benefit high-income families. In terms of income brackets, the report noted that 45% of all subsidies in the largest asset-building policies —the mortgage interest deduction, the property tax deduction, and preferential rates on capital gains and dividends— went to the top 1% of households, while the bottom 60% of households divided up a bit less than 3% of the tax benefits.

Indeed, low- and moderate-income families are not receiving the same economic opportunities and financial incentives to build wealth. Such lopsided policies can only produce (and re-produce) the lopsided income and wealth distribution we see in America today:

Between 1979 and 2005, the top five percent of American families saw their real incomes increase 81 percent. Over the same period, the lowest-income fifth saw their real incomes decline 1 percent. [source: inequality.org]

Income inequality may look outright egalitarian when compared with the wealth disparity in America. Consider this:

the richest one percent of U.S. households now owns 34.3 percent of the nation’s private wealth, more than the combined wealth of the bottom 90 percent. [source: inequality.org]

Without a full and honest accounting on how government policies create and maintain such income and wealth disparities, we may never get a real and clear picture of poverty in America.

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.