Let the poor save for their future

While asset tests for public assistance programs are meant to prevent fraud, they send a dangerous message to low-income families: Do not save.

By Rourke O'Brien

from the September 7, 2007 edition

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Washington - In 1990, newspapers around the country profiled the story of Grace Capetillo, a welfare mom from Milwaukee who, after managing to save $3,000 in the bank, was hauled into court by the county Department of Social Services and charged with fraud. Having breached the limit on allowable assets, Ms. Capetillo was found guilty and ordered to pay a fine of $1,000, spend down another $1,000 of the money she had worked hard to save, and promise not to save again if she wanted to stay on assistance.

The country was rightfully outraged; the system was clearly broken. Yet today, 17 years later and a decade since welfare reform, asset limits continue to send mixed messages to the poor.

Last month on Capitol Hill, Rep. John Conyers (D) of Michigan introduced a bill that aims to reverse decades of this self-defeating policy toward the poor. In order to qualify for government assistance, from cash welfare and food stamps to disability income, low-income families must demonstrate they are not only income-poor but asset-poor as well.

These rules were understandably designed to preserve assistance for those truly in need. Yet, while policymakers created an asset test to keep hypothetical, unemployed trust fund brats from collecting government checks, these rules are sending a dangerous message to low-income families: Do not save.

Mr. Conyers's proposal calls for a major reform in eligibility policy across public assistance programs, recommending aggressive liberalization or outright elimination of asset tests, depending on the program. While such a bill may prove too costly, Conyers is to be praised for shedding light on this tragic contradiction in American social policy: Income support programs designed to help families achieve economic self-sufficiency are penalizing those who save.

The climb out of poverty is fraught with unpredictable and expensive complications such as an illness, temporary unemployment, or divorce that can act as a riptide, dragging a working family back to government assistance. One of the proven ways to weather these income shocks is to develop a safety net of savings. But under today's rules, in order to remain eligible for vital government assistance – assistance understood to be crucial on the path to economic independence – families aren't permitted to save much at all.

While most would agree with the need for policies to protect income-support programs from fraud, existing asset limits are either far too restrictive or, in some cases, entirely unnecessary.

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