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EQUITY Feature Article
Asset Building, Financial Education, and Self-Determination
by Jack Hillyard
Income generation through savings and assets can increase hope and a sense of ownership and mastery over one’s life and future. We know that people with disabilities have some of the highest rates of financial dependency of any group in the United States. Imagine how different their experience might be and how better prepared they might be, if they were meaningfully employed, had increased disposable income and a savings for their future!
While the top 10% of Americans command 40% of national income, the top 1% control 90% of assets. Fully one-third of Americans households have no investable assets and more than half have negligible amounts. Among adults with disabilities, more than a quarter live in poverty and more than 75% earn less than $20,000 annually (Bowe, 2006). Moreover, compared to their non-disabled counterparts, three times as many people with disabilities live in poverty, with annual incomes below $15,000 (26% versus 9%) (Louis Harris Poll, 2004).
Assertive advocacy is needed to eradicate poverty by addressing disincentives in public programs to asset accumulation. These disincentives reinforce the systemic “bias to poverty” whereby people with disabilities must be poor to qualify for vital supports and services. Annually, public human services systems spend over $25 billion in a manner that relegates large numbers of persons with disabilities and their families to a type of enforced poverty. For example, Supplemental Security Income (SSI) is intended to provide for food, shelter and clothing for persons with disabilities. This aid alone will not produce viable escapes from poverty. Both the SSI and TANF programs penalize asset acquisition of persons with disabilities by denying eligibility and/or reducing benefits to those who exceed certain asset limits. In other words, many persons with disabilities are forcefully precluded from acquiring many of the tools that could enable them to become meaningfully employed, pursue post-secondary education or purchase a first home.
Another major cause of asset poverty for individuals with disabilities is the lack of knowledge about or relationship with traditional banking services. Compared to higher-income peers, people with disabilities often lack relevant information about accessing mainstream banking, impeding their ability to build assets. When low-income individuals turn to alternative financial institutions (i.e. check cashing stores, payday lenders, rent-to-own stores, tax preparers, etc.), they face very high costs for service, taking a large bite out of their already limited cash resources—making it even more difficult to build assets.
Some reasons for the lack of a relationship to banks or credit unions include:
Individuals lacking entrée to mainstream financial institutions, and who conduct their financial transactions by using alternatives to banks or credit unions, are known as the “unbanked” or “under-banked”. Research indicates that the “unbanked” tend to be 1) minority (including people with disabilities); 2) less educated; 3) more likely to be unemployed; and 4) renters. The “unbanked” tend to rely on alternative financial institutions to meet their banking needs. In many cases, this is because these alternatives offer a number of benefits not associated with mainstream banking. They:
However, these benefits come at a steep price that undermines a person’s ability to save—higher fees and rates of interest.
States, private sector entities, human service providers, and advocates have a variety of options to encourage people with disabilities to use traditional banking as a means to save. Efforts should focus on:
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Jack Hillyard will begin his new position with the Office of Long Term Living in Pennsylvania as Director of the Bureau of Individual Supports on April 14, 2009.
Prior to joining OLTL, Jack worked as the Director of the Employment Policy Group (EPG) at the University of Iowa’s Center for Disabilities and Development, nationally designated as Iowa’s University Center for Excellence on Disabilities. He is responsible for EPG’s overall management and leading its statewide activities to promote public policies that encourage a positive return on businesses’ human resources investment and lead to the economic self-sufficiency for individuals with disabilities. He joined the University of Iowa in January 1996, bringing expertise in strategic planning, systems change advocacy, economic and community development, human resource management and policy formulation. Jack holds a Master of Social Work from Virginia Commonwealth University with an emphasis in healthcare administration and a Bachelor of Social Work from Missouri Western State University. Prior to working in Iowa, Jack has worked in Missouri—from which he hails—and Maryland.
by Jack Hillyard
Income generation through savings and assets can increase hope and a sense of ownership and mastery over one’s life and future. We know that people with disabilities have some of the highest rates of financial dependency of any group in the United States. Imagine how different their experience might be and how better prepared they might be, if they were meaningfully employed, had increased disposable income and a savings for their future!
While the top 10% of Americans command 40% of national income, the top 1% control 90% of assets. Fully one-third of Americans households have no investable assets and more than half have negligible amounts. Among adults with disabilities, more than a quarter live in poverty and more than 75% earn less than $20,000 annually (Bowe, 2006). Moreover, compared to their non-disabled counterparts, three times as many people with disabilities live in poverty, with annual incomes below $15,000 (26% versus 9%) (Louis Harris Poll, 2004).
Assertive advocacy is needed to eradicate poverty by addressing disincentives in public programs to asset accumulation. These disincentives reinforce the systemic “bias to poverty” whereby people with disabilities must be poor to qualify for vital supports and services. Annually, public human services systems spend over $25 billion in a manner that relegates large numbers of persons with disabilities and their families to a type of enforced poverty. For example, Supplemental Security Income (SSI) is intended to provide for food, shelter and clothing for persons with disabilities. This aid alone will not produce viable escapes from poverty. Both the SSI and TANF programs penalize asset acquisition of persons with disabilities by denying eligibility and/or reducing benefits to those who exceed certain asset limits. In other words, many persons with disabilities are forcefully precluded from acquiring many of the tools that could enable them to become meaningfully employed, pursue post-secondary education or purchase a first home.
Another major cause of asset poverty for individuals with disabilities is the lack of knowledge about or relationship with traditional banking services. Compared to higher-income peers, people with disabilities often lack relevant information about accessing mainstream banking, impeding their ability to build assets. When low-income individuals turn to alternative financial institutions (i.e. check cashing stores, payday lenders, rent-to-own stores, tax preparers, etc.), they face very high costs for service, taking a large bite out of their already limited cash resources—making it even more difficult to build assets.
Some reasons for the lack of a relationship to banks or credit unions include:
- A lack of appreciation of the costs, benefits, and risks of using alternative versus mainstream financial institutions
- Traditional banking services are often not typically tailored to the needs of low-income populations and do not offer the services needed most by people with disabilities such as money orders, phone cards, the ability to wire funds, and bill payment
- Opportunities for people with disabilities to connect to banks or credit unions can be limited because many often lack steady pay from one employer, eliminating opportunities for direct deposit of their paychecks.
Individuals lacking entrée to mainstream financial institutions, and who conduct their financial transactions by using alternatives to banks or credit unions, are known as the “unbanked” or “under-banked”. Research indicates that the “unbanked” tend to be 1) minority (including people with disabilities); 2) less educated; 3) more likely to be unemployed; and 4) renters. The “unbanked” tend to rely on alternative financial institutions to meet their banking needs. In many cases, this is because these alternatives offer a number of benefits not associated with mainstream banking. They:
- Serve as a one-stop source for cash, credit, and short-term loans;
- Assume the risk of bounced checks and defaults; and
- Provide more personalized service.
However, these benefits come at a steep price that undermines a person’s ability to save—higher fees and rates of interest.
Types of Alternative Service Providers and Services Provided
| Provider |
Services | Cost or Risk to Consumer |
|---|---|---|
| Check cashing Stores |
Immediate access to cash and bill payment, money orders, money transmission, municipal services, and phone cards |
Typically charge a 2-3% fee to cash payroll or government checks; up to 15% for personal checks |
| Payday Lenders |
Short-term (usually two weeks) cash advance on paychecks |
15-17% fee for a two-week loan; additional fee if loan is rolled over |
| Rent-to-Own Stores |
Purchases of big ticket items are paid for by monthly installments |
Final purchase price can be 2-3 times retail cost. Customers forgo equity until final payment. Payments over time are not refunded if item is returned |
| Tax Preparers |
Refund Anticipation Loans (RAL) based on EITC or other tax refunds provide filers with cash earlier than with direct deposit |
Refunds are received only 1-2 weeks earlier than if filed electronically with the IRS; filers pay interest rates between 70-700% if calculated annually. These fees are generally deducted directly from customers' refund checks |
States, private sector entities, human service providers, and advocates have a variety of options to encourage people with disabilities to use traditional banking as a means to save. Efforts should focus on:
- Informing people with disabilities about the advantages of traditional banking services through financial literacy programs
- Expanding consumer access to credit, loans, financial services, and asset accumulation through credit union (cooperative) involvement
- Persuading banks and credit unions to provide services (i.e., bill payment, money orders, pre-paid phone cards, and cash-wiring services) that are affordable to and routinely used by people with disabilities who are poor in one convenient location
- Incorporating banking into other support programs offered by the human services systems. For example, Electronic Benefits Transfer (EBT) and Individual Development Accounts (IDAs) provide financial institutions with opportunities to target people with disabilities. Incorporating banking into support programs into support programs can provide a portal to mainstream financial products and services to support savings, asset-building, and wealth-creation.
_______________________________________________________________
Jack Hillyard will begin his new position with the Office of Long Term Living in Pennsylvania as Director of the Bureau of Individual Supports on April 14, 2009.
Prior to joining OLTL, Jack worked as the Director of the Employment Policy Group (EPG) at the University of Iowa’s Center for Disabilities and Development, nationally designated as Iowa’s University Center for Excellence on Disabilities. He is responsible for EPG’s overall management and leading its statewide activities to promote public policies that encourage a positive return on businesses’ human resources investment and lead to the economic self-sufficiency for individuals with disabilities. He joined the University of Iowa in January 1996, bringing expertise in strategic planning, systems change advocacy, economic and community development, human resource management and policy formulation. Jack holds a Master of Social Work from Virginia Commonwealth University with an emphasis in healthcare administration and a Bachelor of Social Work from Missouri Western State University. Prior to working in Iowa, Jack has worked in Missouri—from which he hails—and Maryland.