January 28, 2014
Gen-X Retiree Income Inequality to Widen
There’s a growing awareness of the chasm between average working Americans and those at the top of the earnings scale.
What isn’t widely recognized is that this broad economic trend is spilling over into retirement incomes, which depend on how much people earn and save while they’re still working.
“The increasing wage inequality we see during the working years plays out over the life course and will result in more unequal incomes at older ages,” said Richard Johnson, an economist with the Urban Institute in Washington.
Johnson recently compared the incomes of today’s retirees with his income projections for the youngest members of Generation X who will enter retirement in about 30 years. He found that the imbalance between those at the top and bottom is expected to be wider for Gen-X.
In his study, retiree income includes Social Security benefits, pensions from traditional defined benefit plans, and employment earnings. Johnson also assumes that people spend down their 401(k)s, but he does not include equity in one’s home, which retirees can also convert to income. …Learn More
October 22, 2013
Food Stamps Need Rises in Good Times
Enrollment in the federal food stamp program, known as SNAP – for Supplemental Nutrition Assistance Program – has more than doubled over the past decade to 47 million.
What’s remarkable is that for the first time the number of Americans receiving food stamps increased even in a period when the economy was growing. During the 2003-2007 expansion, the SNAP case load, in a break with historic trends, rose 24 percent.
One explanation is the change in the longstanding correlation between the unemployment rate and poverty, according to research findings by economists Matt Rutledge and April Yanyuan Wu of the Center for Retirement Research, which were presented at the Retirement Research Consortium meeting in August.
Poverty used to fall in tandem with the jobless rate, reducing the need for food stamps. But the researchers found that the mid-2000s expansion was different: poverty did not decline as the economy grew.
In the recovery that has followed the Great Recession, the number of people receiving food stamps continued to rise, according to federal data.
The assumption has always been that a stronger labor market will reduce the need for food stamps. But this new trend suggests rising employment might no longer be enough. Reducing the food stamp rolls may require a broader recovery or initiatives to reduce poverty and provide more jobs for the marginally employed.
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed do not represent the opinions or policy of SSA or any agency of the federal government.Learn More
December 11, 2012
Black Families Struggle to Build Wealth
It is extremely difficult for black Americans to accumulate wealth they can pass on to their children.
Getting to the heart of this concern is new research by the Urban Institute. The Washington think tank found that while blacks excel at converting the gifts and inheritances they receive into even more wealth, the size and frequency of these bequests are much smaller than for whites, perpetuating a wealth gap that has existed since emancipation.
“In the news, you hear about the racial income gap, but the racial wealth gap is so much larger, and it’s not improving,” said Signe-Mary McKernan, a senior fellow at the Urban Institute and co-author of the new study. Smaller inheritances and gifts in African-American families “are hindering their opportunity and wealth accumulation,” she said, about her findings.
Median wealth for black families is $18,181 – white family wealth is $122,927, and Hispanic wealth is $33,619.
But the real question is, why is white wealth seven times larger than black wealth? The researchers found that blacks are five times less likely to receive family bequests than are whites, and their inheritances are $5,013 smaller.
McKernan’s research employed standard statistical methods by holding factors such as income and education constant in order to highlight the racial aspect of differences in wealth.
But Lester Spence, a political science professor at Johns Hopkins University who sometimes conducts statistical analysis in his research, said such analysis fails to fully capture the significant impact of factors such as the social and cultural barriers facing black Americans. …Learn More
February 16, 2012
Impulse Saving May Be ‘New’ New Thing
You’ve heard of impulse purchases. But how about impulse saving?
It’s purely an idea at this stage, and it may not work. But a New York City check-cashing firm plans to start a program that will allow customers to throw $20, $10, even $1 into savings – on impulse – when they’re cashing a check or flush with cash.
“I know my customers,” said Joseph Coleman, president of RiteCheck Cashing Inc., which has 12 stores open 24/7 in Harlem and the Bronx. “If they could put $5 away or $20 away for a television they wanted, to buy a car, or for Christmas, they would do it.”
Key to making the program work is simplicity, operating on the theory that barriers and red tape thwart savings deposit; if a customer wants to open a savings account, RiteCheck will print an application that’s already filled out and needs only a signature. RiteCheck teamed up with long-time business partner Bethex Federal Credit Union to open and manage the accounts.
“People have intensions to save” but “get derailed by the lack of a clear, easy path to start saving,” said Innovations for Poverty Action’s (IPA) Jonathan Zinman, a Dartmouth College economist who worked with Coleman to create the product. The non-profit IPA granted $15,000 this month to set up RiteCheck’s program…Learn More
July 28, 2011
New Product Boosts Low-Income Saving
A Connecticut non-profit is testing a new product to help low-income people overcome their particular obstacles to saving money.
Innovations for Poverty Action is recruiting participants at the District Government Employees Federal Credit Union in Washington. The effort replicates a program already up and running in New York City.
The product’s name, Super Saver CD, is a bit of a misnomer. It is a hybrid of a bank certificate of deposit and a traditional savings account. Its low minimum deposit – $15 – removes a formidable obstacle for people who can’t afford to shell out $1,000 for a CD.
Innovations for Poverty Action was founded by behavioral economist Dean Karlan at Yale University, and it designed the Super Saver CD to help people to act in their own interest and save. The human behavior that drives the product’s design is that people don’t always do what they say they’ll do. So the Super Saver CD requires that people commit to regular deposits. The idea is to encourage saving regularly, a little at a time, like a savings account. But once the money is put away, it can’t be touched – that’s where a CD-style commitment comes in.
Rosa Sorto, who irons linens at a Washington laundry service for hotels and hospitals, said the program appealed to her because she can put the money away and forget about it. …Learn More