Nearly half of all American households exist in a state of persistent financial insecurity, according to a recent report by the Corporation for Enterprise Development (CFED), a nonprofit research and advocacy group focused on asset building for low-income households.*
The report lists a variety of statistics related to economic well-being, but it focused on the liquid asset poverty rate, a measure of how many households have enough savings set aside to cover three months of living expenses in a crisis, such as losing a job. In 2013, a family of four with less than $5,887 in accessible savings was liquid asset poor. Last year 44 percent of American households fell into that category.
CFED has published seven reports on financial insecurity at the state level since 2002, though this is the first that also ranks states by the degree to which they’ve responded with policy changes. The 2014 Assets and Opportunity Scorecard includes a menu of 67 different policies, such as removing asset tests for receiving food stamp benefits and providing a state match for the federal Earned Income Tax Credit. "Policies that state officials have at their disposal can make a difference," said Jennifer Brooks, director of state and local policy at CFED.
The connection between policy action and real change can be murky, however. Some of the states that have implemented the fewest policies, such as Wyoming, Alaska and South Dakota, still rank among the best in terms of financial security. Brooks said that cost of living and the strength of states’ economies -- often driven by a thriving energy sector -- seemed to be improving people's financial security.
The map below shows states with strong policies and relatively high financial security (orange), weak policies and relatively low financial security (blue) and a few cases that don't fit either scenario. (Wyoming, Alaska and South Dakota fall under the "policies weaker than outcomes" category, which is blue with orange stripes.)
The report highlights Maine, Vermont and Minnesota as leaders nationally in passing the right policies, which seems to fit with their profiles as some of the best states in terms of people's financial security. That correlation isn’t always present, however. Maryland has implemented more of CFED’s recommended policies than any other state, but comes in 23rd in terms of overall outcomes. Maryland households have more credit card debit, on average, than their counterparts across the country. On another metric that assesses whether households rely on payday lenders, pawn shops and other non-traditional financial services, Maryland has a higher percentage of so-called “underbanked” households than the country as a whole. It's not all bad news though: Maryland has one of the lowest state percentages of households that are liquid asset poor.
Reducing financial insecurity has become a legislative niche for Maryland Del. John Olszewski, Jr., who was a lead sponsor on a bill that allowed banks and credit unions to offer cash prizes to residents who deposit money into financial institutions. “I try to find those areas where there hasn’t been a champion and we know that it can help working families,” he said. At a time when many of the proposed solutions to poverty and income inequality reveal ideological differences, legislation that promotes responsible saving seems to garner bipartisan support. For example, Olszewski’s bill on prize-linked savings won approval in the state House and Senate without a single dissenting vote.
Still, Olszewski expressed dissapointment that Maryland lags behind other states on a number of metrics listed in the CFED report. This year he plans to sponsor a bill related to paid-sick leave and to support Gov. Martin O’Malley’s proposal to raise the state’s minimum wage.
Part of what may be happening in Maryland is a lag between when policies are enacted and when their impacts become apparent. Many of the leading ideas for reducing liquid asset poverty aren't likely to yield results for years, if not decades. “If you expect to enact a policy and for it to have an impact in 30 days, you’re just looking for a banner headline,” said Kate Marshall, the state treasurer for Nevada, where the liquid asset poverty rate dropped almost 7 percentage points between 2010 and 2011.
Marshall’s office announced this week that it would open college savings accounts for every kindergartener in Nevada public schools, with an initial $50 deposit. Like its counterparts in San Francisco and Cuyahoga County, Ohio, the Nevada program is designed to encourage children to make college attendance a personal goal while lowering the cost of college tuition.
The impact of college savings accounts wouldn’t be realized for 13 years, but not every policy has such a long time horizon. For instance, Marshall is working on removing an asset test for people receiving welfare cash benefits, officially known as Temporary Assistance for Needy Families (TANF). She wants to move people off public assistance, but to do so, people need to have a financial cushion during that transition out of poverty. “If you don’t want any safety net," she said, "you have to allow savings."
Correction: An earlier version of this story incorrectly listed CFED as the Corporation for Economic Development. It is the Corporation for Enterprise Development.