Melinda Croes & Theresa Gibbons

Assets are Key to Economic Stability

Wages and household income are important indicators in defining and assessing economic stability for individuals and families. However, research demonstrates that economic stability for Americans is often dependent on attainment and access to assets. Assets include such positive economic holdings as a saving account, a college degree, a home, and a retirement account which can contribute to future and even generational financial security. Assets also strengthen day-to-day stability for families, build community, ease personal hardships, and improve standards of living for working families.  Unfortunately, many households have zero or negative net worth, increasing the potential of serious financial consequences with even a small reduction in income.

A popular response to these challenges has been the funding of Individual Developments Accounts (IDA) programs which allow those of modest means to save, build assets, and enter the financial mainstream.  Many participants, however, do not have either access to IDA programs or savings goals in line with those of traditional IDAs.

The IDEA Concept

Heartland Alliance has developed an alternative economic empowerment model to reach participants who may not qualify for an IDA program, but would benefit from the skills learned in a match savings program.  As such, the IDEA model was developed.  IDEA is a participant-based match savings model which has proven successful in reaching a broader audience and achieving comparable levels of savings because it:

• Offers greater flexibility in savings options
• Employs a strength-based approach
• Utilizes a harm reduction philosophy

Challenges to Match Savings Participation

Participants are given the opportunity to choose how and where their money will be saved and how much money they will save each month.  Upon enrollment, many participants express hesitation about dealing with mainstream financial institutions for a variety of reasons:

• Fees
• Mismanagement of past accounts
• Chex Systems history
• Distrust of financial institutions
• Misinformation about financial institutions
• Lack of convenient location or accessibility to banks
• Fears that the money they save will negatively impact their ability to receive public assistance, housing subsidies, etc.

Why the IDEA Model Works

Given these challenges, IDEA program participants are given several alternatives for savings which include using an existing account, opening a new account selected by the participant, or paying down an existing debt in lieu of savings. Regardless of which savings option is chosen, participants retain sole responsibility for their account, making deposits each month, and providing verification of doing so. Participants who make deposits each month for a minimum of five months, save at least $200, and attend a minimum of 10 hours of financial education will receive a 2:1 match of $400. Thus far, participants have saved more than $113,000 with an average savings rate of $530 per participant.

As a result of this alternative savings structure, participants who would normally be ineligible or hesitant to participate have learned valuable financial skills, successfully saved for their futures, and completed the IDEA program.

*Graduates of Heartland Alliance’s IDEA program were recently honored with certificates from the Illinois Saves program in a large graduation event.

March is Women’s History Month and there’s no better time to reflect on the progress women have made in the last century. It has been 92 years since women fought for and gained the right to vote in the United States. In 1963 the Equal Pay Act became federal law, which requires employers to provide equal pay for men and women performing the same job duties regardless of race, color, religion, national origin or sex of the worker. Sandra Day O’Conner became the first woman to join the Supreme Court in 1981. Madeline Albright became the first female Secretary of State in 1997. Finally, in 2009, President Obama signed the Lily Ledbetter Fair Pay Act into law, which expands workers’ right to sue for pay discrimination, and relaxes the statute of limitation of such suits.

Despite this tremendous progress, there is still a long way to go in the fight for equality. The Gender Wealth Gap is a pervasive problem affecting women in all aspects of their lives. The most obvious manifestation of the gender wealth gap can be seen in the pay gap. The pay gap refers to the fact that women that get the same college degree from the same University in the same major as a male classmate, and then works in full-time job in the same occupation earns 7% less than him within one year out of school. This expands further into their careers. Over a 35-year career, women with a college degree will make around $1.2 million less than a male with the same degree.

But this issue extends beyond wages into debt, wealth, homeownership, and investments. Mariko Chang, a former Sociology Professor at Harvard turned independent consultant, has done considerable work to study the gender wealth gap. She found that over all, single women have more debt then single men whether it be home, education, credit-card, or installment debt. This is most apparent with credit card debt.

• 38% of men have credit card debt while 49% of women have credit card debt.
• The median wealth of full-time workers age 18-64 varies greatly by gender.
• Single men have a median wealth of $20,000, while the median wealth for women in the same categories is only $1,550.
• 38% of never-married men own a home, only 28% of women do.
• 42% of never-married men have investments in stock with a median value of $16,000, only 29% of women own investments in stock with a median value of $10,000.

Much like the Racial Wealth Gap, women are still at a disadvantage when trying to access and maintain the same economic resources as men. Women of color are at even more of a disadvantage then their white peers. They experience the devastating effects of not only the gender wealth gap but also the racial wealth gap. For women ages 18 to 64, the amount of wealth compounded by race creates a bleak picture. Excluding the wealth inherent in the vehicles they own for transportation, single Black women have a median wealth of $100, single Latinas have a median wealth of $120, and single White women have a median wealth of $41,000.
In Illinois, a number of bills have been proposed that would help women rise above the gender wealth gap. This includes bills that would remove barriers to savings, increase access to retirement savings opportunities, and raise the minimum wage.

• Removing Asset Limits on TANF: SB2319 & HB2262 would eliminate the asset test on Illinois’ Temporary Assistance for Needy Families (TANF) Program. Removing the asset limit will remove a significant savings barrier for our most vulnerable families. In addition to encouraging savings behavior, it will also save the state money in administrative costs.
• Automatic IRA: SB2400 & HB2461 would create an Automatic IRA program in Illinois. The State of Illinois should expand retirement savings opportunities by creating an automatic retirement account option for all Illinois workers currently lacking retirement savings access. It creates a savings structure that utilizes employer payroll systems and gives workers the option of depositing a portion of earned wages into approved retirement accounts.
• Raising the Minimum Wage: SB68 amends the Illinois Wage Payment and Collection Act. It increases Illinois’ minimum wage from the current $8.25 an hour to $10.65 an hour. With the worst recession in a generation still being felt across the nation, state and federal leaders are focused on getting their economies moving again while helping working families make ends meet. Raising the minimum wage is a key strategy for doing both and should be part of an economic recovery agenda.

The Gender Wealth Gap can be alleviated by passing good public policy that helps women achieve the same access to wealth and resources that men are afforded. There’s no better time than Women’s History Month to pass public policy that helps improve women’s lives by encouraging savings, provided access to retirement savings, and raising the minimum wage that women and men alike are paid.

Online payday lending has become a growing business and a growing concern. Online payday lending has more than doubled from $5.8 billion in 2006 to $13 billion in 2011. A recent article in the New York Times outlines two ways the online payday loan industry is engaging in predatory lending: skirting state interest rate caps and collaboration with big banks for direct payment withdrawals.

Many states have regulations to cap the interest rates on loans, from 17% APR in Arkansas to 400% APR in Illinois. Unfortunately, online payday lenders are issuing loans at significantly higher interest rates than those allowable by state regulations. Interest rates of up to1,564% from online payday lenders have been uncovered, most recently in Minnesota through a lawsuit by Attorney General Lori Swanson. This is because the location of the lender rather than that of the borrower determines the effective interest rate regulations. Here in Illinois, Attorney General Lisa Madigan is currently investigating online lending activity, but as many online lenders have set up shop overseas for “lawsuit protection and tax reduction,” tracking them down for illegal lending can be difficult.

The 120% rise of online payday lending over the past five or more years is at least partially attributed to the cooperation of major banks like JP Morgan Chase, Wells Fargo, and Bank of America, all mentioned in the NYT article. By allowing lenders to directly withdraw payments from borrowers’ accounts, sometimes against their wishes, the big banks are reaping hefty rewards in the form of overdraft, insufficient funds, and service fees. According to a report by Pew Charitable Trusts, over a quarter of all payday loan borrowers have had their accounts overdrawn due to payday loans.

The article highlighted the story of Ivy Brodsky who tried to close her Chase account to stop six payday lenders from taking money from her account. Chase refused her request and kept her account open for more than one month, allowing the lenders to withdraw money 55 times. Those 55 withdrawals led to 44 insufficient fund, overdraft, and service fees totaling $1,523 in charges from Chase. Despite statements from some bank representatives that they work to stop collections when their clients request it, there is an inherent financial incentive to collaborate with online payday lenders since aggressive collections often result in a bounty of fees for the banks.

People will always need quick access to small cash loans, but high interest rates devastate low and moderate income communities. Our Alternative Small Dollar Loan (ASDL) Toolkit is an comprehensive resource for banks and credit unions to create a Small Dollar Loan program. A companion to the ASDL Toolkit, our Profitability Calculator is a fantastic tool for financial institutions to create a Small Dollar Loan customized to their institution’s portfolio that is both sustainable and financially safe for their communities.

Legislative advocacy is a critical part of the work of IABG. The spring legislative session currently underway in Springfield has provided significant opportunity to raise awareness of asset building issues and push for increased access to savings opportunities for Illinois families.

This session, our Coalition is focusing heavily on two pieces of legislation that would remove barriers to savings and give families the tools to build financially secure futures. These bills also address the staggering racial wealth gap that continues to expand as a result of policies and practices that create opportunity for some while leaving others behind.

Here’s our March Legislative Update:

Creating an Automatic IRA Program:

2.5 million private-sector workers in Illinois have no access to a retirement savings account. Without access to this important savings tool more and more people are relying too heavily on limited Social Security benefits and, as a result, falling into poverty in their retirement years. Social Security was never intended to be the sole source, or even the main source, of someone’s retirement income. However, for nearly two-thirds of retirees, Social Security provides the majority of their cash income. For more than one-third, it provides more than 90% of their income. For one-quarter of elderly beneficiaries, Social Security is the sole source of retirement income.

The Automatic IRA Program is a simple, cost-effective, way to increase retirement security for Illinois workers. The legislation (SB2400 / HB2461) would create a statewide infrastructure that gives workers access to a savings tool that will help them build financially secure retirements.

Eliminating the Asset Test on TANF:

The second piece is a bill that removes the asset limit on the Temporary Assistance for Needy Families (TANF) program (SB2319 / HB2262). As the law currently stands, families are deemed ineligible for public assistance if they own more than $3,000 in assets. This problematic policy punishes families for accumulating savings and incentivizes them to spend down retirement or college savings in order to remain eligible for aid. Eliminating the asset test would allow families to continue to build their savings while remaining eligible for much needed assistance. In addition to encouraging savings among families, eliminating the asset limit also benefits the state. Other states that have removed the asset limit on TANF have found an administrative cost savings while seeing an insignificant increase in the number of people receiving benefits. To learn more about this initiative check out our fact sheets.

Take Action:

In the next couple of weeks both issues will be up for a vote in their respective committees. We need your help in moving these policies forward. If your organization, business, or financial institution is interested in signing on in support, please contact Lucy Mullany.

Despite a snowstorm, graduates of Heartland Human Care Services‘ (HHCS) Asset Building Programs took center stage at the Hayes Center on March 5th. Graduates of the program included participants from HHCS’s various asset building programs, including: Meet-Your-Match, IDEA, Family Self-Sufficiency, and the GEAR UP program. They each received official Illinois Saves certificates from the Illinois Department of Financial and Professional Regulations (IDFPR) for completing HHCS’ IDFPR accredited financial education courses. IDFPR Acting Secretary Manuel Flores, who spoke at the event, handed out the Illinois Saves certificates to the excited graduates. Attendees also had a chance to hear from several graduates who spoke about how they have adopted the curriculum into their daily lives.

One graduate, Lisa, enrolled in the IDEA program with the aim of paying off old debt that had been plaguing her for some time. The IDEA program provides individual consultation and workshops focusing on financial education, housing and career development. As part of IDEA, Lisa worked with an Asset Development Coordinator who assisted her in setting and accomplishing her personal financial goals.

Lisa was also able to take advantage of IDEA’s matched savings program. Lisa used the hundreds of dollars of her own money and the matched money she received for saving every month to pay down her debt . At the graduation she was happy to be very close to paying it off entirely. In addition to reducing her debt, she has also been able to save by sticking to a budget even during Christmas time. Lisa shared that just before Christmas she received a letter from the state for a red light ticket her daughter had run while driving Lisa’s car. Sticking to her budget, Lisa deducted the cost of the ticket from the amount budgeted for her daughter’s presents. A financial education lesson for her daughter to be sure.

Stories like Lisa’s are not uncommon. Graduates “have been able to accomplish their goals through their persistence, focus, and hard work as well as with the support of these programs,” stated Gloria Hernandez, HHCS’s Asset Building Community Partner Liaison, in her opening remarks on Tuesday. Since 2006 over 7,000 Chicagoans have been educated by HHCS with 560 graduates of their IDFPR accredited financial education program. Their asset matching programs have helped an astounding 349 participants save $169,987 of their own money and, when combined with match money reaches, a total savings of $275,895. As Gloria shared, “1 in every 4 Illinois families do not have enough savings to meet their basic needs for just 3 months. It is through the support of asset building programs like ours that families can build the financial security they need should the unexpected happen.”

Programs like IDEA or Meet-Your-Match provide a powerful incentive for participants to start saving and get their budgets under control.You can learn more about IDEA and available resources to build an IDA program in your community through our recent webinar: Building an IDA Program For Your Organization. Check out a video recording of the webinar.