A Welfare State Does Not Make You Lazy
The coronavirus pandemic has revealed how many American workers are walking a tight-rope above a frayed safety net. We can do better.
Hi there, Talking About Money Community. I hope that you are well. I really do. The news has started trickling in from my friends and neighbors that some members of their circles have succumbed to Covid-19. My heart is with you.
In my previous post (in case you missed it, you can read it here) I outlined all the things that you can do to maximize your resources in this time of uncertainty and change. Among the suggestions were to:
Call your provider before you are going to be late on your bill. Providers know that many people are being hit hard by the pandemic, but you still need to pick up the phone and let the provider know that you need help.
While I still stand by this advice, people responded that while receiving some relief on your rent/utilities/cell phone/cable plan for the next three months might give you some breathing room, what will happen when three months-worth of bills all come due in the same month? And what if you have been out of work for those three months? What are households supposed to do then?
This is a great question. I’d like to believe that landlords and utility companies would be willing to put people on reasonable payment plans so that they can get back on track (and there is rumor to believe that in some instances this is the case). And even before that, I hope that the economy is able to quickly absorb all of the 16 million workers that are sitting on the sidelines as of early April, though that is currently looking unlikely.
But if you were to ask me what I think should happen going forward? Now you can get me talking. Let’s discuss three policy options for sewing up that frayed safety net swinging in the breeze below that tenuous tight-rope.
Universal Basic Income
First, let’s talk about the merits of Universal Basic Income, or UBI. Providing Americans with an earnings floor can give workers the security they need to support their households. I know that when my kids were babies, I remember thinking that if I had an extra $500 each month then I would have had the financial (and psychological) security to be the best parent I could be. You may have heard Andrew Yang talk about UBI during his presidential bid.
I also discussed it in this blog post:
Talking About Money Book Club: Utopia for Realists by Rutger Bregman
And if those two reasons aren’t enough for you, even Pope Francis wants countries to consider offering universal basic income.
Public Pensions
Second, let’s take a moment to discuss bringing back public pensions, as I did in this post:
The Cognitive Bandwidth Crisis (Or Why We Need Pensions)
Before the coronavirus took over all of the oxygen in the room, I was getting ready to talk to you about the fact that the median male US worker now has to earn more than a year's salary to afford the annual expenses for a family of four (and spoiler alert: the statistics are even more dire for female heads of household). How are average American workers supposed to successfully save for their retirement when then cannot break even annually? It’s a no-win predicament. This leads us back to the argument that pensions need to be brought back.
Individual Development Accounts
Third (and today’s soapbox oration) is to talk about bringing back Individual Development Accounts (IDA), or matched savings programs, this time with broader government support.
I have been preaching the gospel of IDAs since the mid-1990’s when I studied under Professor Michael Sherraden at the Brown School at Washington University in St Louis. In 1991 he had published a seminal book entitled Assets and the Poor where he proved that the poor can indeed save, and through creating their own financial safety net they experienced further reaching social and emotional benefits, for themselves and for their family members. As I was preparing to graduate I remember him telling my class to “go out into the world and create asset building programs” (though he may not have said that; it could have been my own imagination). Nevertheless, that’s what I did.
In the early 2000’s I ran a federally-funded Refugee Individual Development Account program at the International Institute of Boston (now the International Institute of New England). There I witnessed how hard-working yet low-earning households could attain a higher rung on the American economic ladder.
I worked with a refugee from Bosnia who purchased a car that let him get a higher paying job in the suburbs where public transportation didn’t go (with those higher earnings he went on to purchase his own home). A refugee from the former Soviet Union bought his first home with the help of his IDA savings and three different first-time home buyer programs. A young woman, a refugee from Afghanistan, was able to attend college, thereby positioning herself to get a better-paying job to support her mother and younger sisters. All told the program served 350 households and helped to generate $2 million in combined assets for these new Americans.
From 1999 until 2017 the primary funding vehicle at the federal level was the Assets for Independence Act, or AFI. The AFI program served over 84,000 people in its 18 years of operation. While reinstating federal funding for IDAs might be hard-reaching at this point in time, I think that the states could step in and create matched savings programs to help their hard-working residents to save for the future.
Indeed some states have risen to the challenge. According to Prosperity Now’s Scorecard, twelve states currently provide funding for some sort of matched savings program. With the fact that so many households need emergency savings, and that it has been proven time and time again that matched savings programs work, and the additional fact that the depth of knowledge already exists among practitioners across the country, can you give me a reason why more states shouldn’t launch (or re-launch) matched savings accounts?
And this time, let’s expand the approved savings goals (formerly restricted to purchasing a home, starting a business, or attending college) to include emergency savings. Yes, that’s right, let’s create a government-funded program that encourages workers – with a match – to fund an emergency savings account of $3,000 per person, or the liquid asset poverty rate as defined by Prosperity Now.
For all those workers who are trying desperately to get through on jammed lines to the unemployment office, not knowing if they will start receiving unemployment checks before the food in their pantry runs out, emergency matched savings programs will give workers peace of mind to know that they can weather the first weeks of a crisis…like the one that we are weathering right now.