Building Communities, Building Hope for New American Families
April 1, 2016
Infographic by former AFI grantee EARN, a non-profit in San Francisco, California.By Jeannie Chaffin, Director, Office of Community Services
Once again, the President has proclaimed that April is National Financial Capability Month .1 In recognition of the importance of financial capability to the well-being of low-income individuals and families, the Administration for Children and Families has included in the President’s fiscal year 2017 budget a proposal to create and evaluate an Asset Innovation Fund within the Assets for Independence (AFI) program.
The AFI program provides support to local demonstration projects to develop knowledge about what practices work to assist families with limited means to use limited-use matched savings accounts called individual development accounts (IDAs) to accumulate assets. Currently, AFI participants can use their IDAs for a first-home purchase, post-secondary education or training, or business capitalization. The proposal to create an Asset Innovation Fund would allow ACF to test and evaluate a wide variety of innovative strategies for asset building and financial capability.
For example, with the flexibility to allow more assets, an Asset Innovation Fund project could offer children’s savings accounts (CSAs) in which parents’ savings and the project match are combined in a 429 college savings plan. CSAs have become a growing area of interest, as cities, states, and others recognize the importance of starting early with savings. Research shows that young people with savings are more likely to get better grades and complete more years of education, regardless of their family’s income. One study found that a youth with designated school savings of less than $500 before reaching college age is almost two and a half times more likely to graduate from college than a youth with no savings.2
Another emerging area of interest is emergency savings. Kathryn Edin and Luke Shaefer’s recent work $2.00 a Day: Living on Almost Nothing in America describes the critical importance of cash for household budgets. While the authors depict conditions for those in some of the worst conditions in our country, this main finding is relevant for families with even moderate incomes. Tax refunds often help families bridge gaps in their household budgets, or pay off debt. Edin and Shaefer recommend giving families the option to save a portion of their Earned Income Tax Credit, thus giving them access to an emergency fund when they are in a pinch later in the year. Under the Asset Innovation Fund, community-based organizations could create innovative new matched savings programs to encourage emergency savings and other asset building. EARN , a non-profit in San Francisco, California and former AFI grantee, created the EARN Starter Savings Program using private funding. This innovative six-month program allows users to get started saving for the goal of their choice, including emergency savings, and encourages them with small matches. This program and others like it may allow participants the chance to gain more financial stability before working toward a larger asset purchase, such as a first home.
Additionally, ACF proposes to use the Asset Innovation Fund to support projects focused on the integration of financial capability services into existing programs that serve low-income and vulnerable populations. As with CSAs and emergency savings, financial capability integration is an area of recent innovation in the asset building and financial capability field. AFI is well positioned to support innovative pilots that address gaps in the knowledge, such as integrating financial capability services with programs such as the Low Income Home Energy Assistance Program (LIHEAP) and health navigators. Participants in these programs could also be connected to credit and debt counseling or free tax preparation at a nearby Volunteer Income Tax Association (VITA) site, for example. Under the Asset Innovation Fund, ACF could explore and test models of financial capability service integration, both with and without IDAs, to better understand how such services can improve outcomes and wellbeing for the populations we serve.
In the more than 15 years since the AFI program was created, there have been significant advancements in the state of research and knowledge on asset-building and related fields. With the authority to create an Asset Innovation Fund, AFI could build on these developments and push them even further, to better serve low-income children, youth, and adults in the United States and to expand their financial capacity and economic well-being.
1. Financial capability is the capacity, based on knowledge, skills, and access, to manage financial resources effectively.
2. Elliott, W. (2013). Small-dollar children’s savings accounts and children’s college outcomes. Children and Youth Services Review, 35(3), 572-585.
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