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.

from the September 7, 2007 edition

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Take welfare. The program that gives temporary assistance to needy families requires all recipients to engage in 30 to 40 hours of "work activities" every week, meet stringent income requirements, and be subject to strict time limits. Coupled with the stigma associated with welfare, it's no wonder that asset limits have become entirely unnecessary in preventing fraud (only 0.5 percent of applicants a year were denied assistance due to the asset limit in Virginia). In 1996, welfare was redesigned to be truly an option of last resort – and in that respect it has overwhelmingly succeeded.

Any money that families might have saved in low-wage jobs must be spent before applying for government assistance. One young woman I met while interviewing recipients at a welfare office in Maryland laid bare her understanding of the relationship between saving and public benefits: "I definitely don't think you can have any money in a bank account and still get assistance."

While Maryland permits families to hold up to $2,000 in liquid assets and still qualify for assistance, this woman believes the existence of an asset limit – and the caseworker's duty to investigate financial holdings – sends a clear message that saving will be penalized.

The campaign for reform is gaining momentum. President Bush has recognized the disincentive to save that exists in the food-stamp program and has proposed excluding retirement accounts from the asset test. Sen. Saxby Chambliss (R) of Georgia has gone a step further in proposing to exclude education savings accounts and index the limit to inflation.

States across the country – from Virginia to California – are using what flexibility they have in administering government programs to raise or eliminate the asset test for low-income families. Unfortunately, state policymakers are limited in what they can do, and few legislators at any level are even aware such a problem exists.

This new legislation signals that awareness is growing – the opportunity for reform is now. If we truly want low-income families to achieve self-sufficiency, we need to give them the tools, education, and incentives to save for the future – not penalize those who try.

• Rourke O'Brien is a policy analyst with the Asset Building Program at the New America Foundation, a nonprofit, nonpartisan, public policy institute.

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