Best and Worst States for Financial Security
A new scorecard finds some do more than others for residents
Richard Eisenberg is the senior Web editor of the Money & Security and Work & Purpose channels of Next Avenue and Assistant Managing Editor for the site. Follow him on Twitter @richeis315.
According to the new state-by-state 2014 Assets & Opportunity Scorecard from the Corporation for Enterprise Development (CFED), Treading Water in the Deep End, the answer depends partly on where you live.
Every year since 2002, CFED — a nonprofit whose mission is to “empower low- and moderate-income households to build and preserve assets” — ranks states on residents’ family economic security. But this year, for the first time, the scorecard also rated states on 66 policies in five categories: financial assets and income; education; health care; housing and homeownership and businesses and jobs.
Ranking State Policies for Impact
“We can now say which states not only have policies to increase financial security and opportunity but which ones are having an impact,” says CFED President Andrea Levere. (You can find all the scores and explanations of the policies on the CFED site.)
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Only eight states (mostly ones in the mid-Atlantic and New England) have adopted more than 50 percent of the policies CFED tracks: Connecticut, Maine, Maryland, Minnesota, New Jersey, New York, Rhode Island and Washington.
By contrast, seven states have adopted less than 25 percent of the policies: Alabama, Alaska, Idaho, Mississippi, Missouri, South Dakota and Wyoming.
Policies Can Make a Difference
The study also found that policies aimed at decreasing poverty and creating more opportunities for low-income families “can make a real difference.” Minnesota, for instance, adopted the 7th-highest number of policies CFED says are critical to economic security and also has the 7th best outcomes for families.
Some states such as Connecticut, New Jersey and New York have strong policies but “not as strong outcomes,” due to their high cost of living and wide income inequality, says Levere.
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The CFED study gets high marks from noted state-policy analysts, Katherine Barrett and Richard Greene, who write The B&G Report for Governing magazine. “It’s unbiased in the use of data, clearly presented, with transparent criteria,” says Barrett, a principal at Barrett and Greene. “There are obviously policy preferences embedded in the rankings, but there are also clear explanations as to why CFED finds some policies preferable.”
A Key Measure of Financial Security
To determine a household’s financial security level (the strength of its safety net), CFED created a measure it calls Liquid Asset Poverty. This number measures whether a household could exist at the poverty level for three months if its main source of income was disrupted — due to, say, a job loss or an illness. A family of four would need at least $5,887 in savings or it would be “liquid asset poor.”
Today, 44 percent of American households are liquid asset poor, CFED says. “This changes the conversation from ‘Those Poor People’ to ‘Half of Us,’” says Levere.
Even more striking: 25 percent of people who Levere calls “solidly middle class” (those making $55,000 to $90,000) are liquid asset poor.
Here, too, there are wide variations by state. All but one of the 10 states with the worst liquid asset poverty rates are in the South: Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, Nevada, North Carolina, Tennessee and Texas. In Alabama, 2/3 of households are liquid asset poor. The state with the lowest percentage of residents with this problem: Iowa.
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Why Savings Levels Are Low
I asked Levere whether the widespread lack of emergency savings was because people are living paycheck-to-paycheck or because they’re not disciplined enough to save.
“I’d add a third dimension,” she says. “It’s not just discipline or needing every penny you earn. We haven’t created the structures to make it easier for people to save.”
Levere notes that roughly 30 percent of the public doesn’t have a savings account. And, according to the Federal Deposit Insurance Corp., 20 percent of households (one in five) are “underbanked” — they have a bank account but have gone somewhere other than a bank for a financial service at least once in the past 12 months, such as a check-cashing service, a payday lender or a pawn shop.
The ‘Poverty Tax’
In addition, low-income Americans often get socked with huge overdraft fees — the average charge rose 3 percent to $32.20 last year — making them feel unwelcome at financial institutions.
Gary Rivlin, author of Broke USA, says low-income Americans pay “a poverty tax” of more than $2,500 per household annually because they’re nicked on everything from corner check-cashing charges to jacked-up car loans from subprime auto lenders.
States Protecting Older Americans
When I asked Levere how the states compare in adopting effective policies for older Americans, she reviewed their work protecting residents from predatory lenders. The best, according to CFED: Arkansas, Connecticut, Massachusetts, Montana, New Hampshire, New Jersey, Vermont, and Washington, D.C.
State Policies That Matter Most
Which of the 67 state policies CFED reviews matter most in helping their residents attain financial security?
Levere says a decent minimum wage is key. “You have to start with increasing the amount of earnings coming into the household,” she says. While President Obama just proposed raising the federal minimum wage from $7.25 an hour to $10.10, 21 states have higher amounts than the current federal level.
CFED says last year was a “big year” for minimum-wage advocates; 13 states raised their minimum wage for 2014. California, voted to raise its $8.00 minimum wage to $9.00 as of July and to $10 in 2016. New York will raise its state minimum wage to $9 by 2016.
Four other important state policies cited by Levere: programs that help people get banked; access to health insurance (the Affordable Care Act will lead to a health rankings re-do in next year’s scorecard), protections against predatory lending and incentives for children’s savings accounts. The new Nevada College Kick Start Program, for example, established 529 college savings accounts for all new fall 2013 kindergarten public school students in 13 of the state’s most rural communities, kicking in $50 per child (roughly 3,000 kids).
Enthusiasm for the MyRA
Levere thinks Obama’s new MyRA retirement accounts are a “terrific” idea to help low- and moderate-income people save for their futures. “I think what we’ve seen is if you set people on a pathway and make the savings automatic, these kinds of programs really work,” she says.
So to return to the original question: When it comes to the nation’s financial security and poverty level, how are we doing?
Levere says: “We’re improving, nationally, on a range of measures of broader economic indicators, such as unemployment, foreclosures and credit card debt. But what hasn’t improved is the level of household financial security.”
Maybe next year.