Washington, D.C. – New research by the Consumer Federation of America (CFA), the National Credit Union Foundation (NCUF), and Credit Union National Association (CUNA) reveals that the wealth gap between the poor and other Americans has been growing over the past decade. Historically, the wealth gap between the two groups has been much larger than their income gap.
“Obscured by the debate over welfare reform and its effects has been the stagnant wealth of low-income households over the past decade,” said Stephen Brobeck, CFA Executive Director. “Most of the poor did not benefit from the dramatic run-up in housing and stock prices during the nineties,” he added.
As part of the growing America Saves campaign to help lower-income individuals and families save and build wealth, today credit union leaders announced the launching of a new America Saves Through Credit Unions program.
“The NCUF and CFA have formed this partnership to increase the savings rates among lower-income credit union members and their communities,” said Daniel A. Mica, president of CUNA and the NCUF. “This new initiative will encourage America’s credit unions to embed America Saves messages and services into their programs, with special attention being paid to the least affluent.”
Who Are the Poor?
Research on low-income household finances was undertaken by Professor Catherine Montalto of The Ohio State University using 2001 Federal Reserve Board Survey of Consumer Finances data. These data, collected from 2,400 representative U.S. households, represent the most reliable recent information about the financial condition of American individuals and families. The data were collected in 2001 and released in 2003.
This research looked at the poorest one-fifth of Americans by income and compared this group to the rest of Americans. Specifically, comparisons were usually between the typical low-income household and the typical American household (i.e., comparison of median statistics).
The research revealed that the poor are indeed somewhat different than the rest of America. Of course, their median incomes are much lower — $9,868 compared to $40,088. This gap is greatest among whites, the married, and the well-educated.
Lower-income households are much more likely to be old, and somewhat more likely to be young, than the rest of America. Thirty-six percent of the poor, but only 21 percent of all Americans, are at least 65 years of age. Also, 27 percent of the poor, yet only 23 percent of other Americans, are under the age of 35.
Lower-income households are about twice as likely as all American households to be unmarried, African-American or Hispanic, and not well-educated (i.e., not have finished high school).
What Is The Condition of their Finances?
There is a significant, and growing, wealth gap between lower-income households and the rest of America. In 2001, the net wealth of the typical poor household was only $6,720 compared to $86,100 for the typical American household. That is a wealth gap of thirteen to one, compared to an income gap that year of only four to one.
More distressing, this wealth gap has grown over the past decade. Between 1992 and 2001, in constant dollars (2001), the net wealth of low-income households increased by only seven percent — from $6,261 to $6,720. By comparison the net wealth of all American households increased by 42 percent — from $60,695 to $86,100. That increased the wealth gap between the two groups from under ten to one to thirteen to one.
The fact that the wealth gap is much larger than the income gap suggests that factors other than income are significant. Most important, according to the research, are homeownership and retirement assets. In 2001, only 40 percent of the poor, but 68 percent of all Americans, owned a home with equity. And in the same year, only 13 percent of the poor, but 52 percent of all Americans, had a retirement account. That means that the typical low-income household held neither home equity nor retirement assets while the typical American household held both.
There was, however, one low-income group that held some wealth. The typical household headed by an older American (65 years or older) held net wealth of $46,700 in 2001. That is principally because the typical older American who was income-poor owned a home. To a lesser extent, that is also because they were more likely to have retirement assets. As a result, it is not surprising that, from 1992 to 2001, the net wealth of the older poor increased by 24 percent — from $37,654 to $46,700.
America Saves Through Credit Unions Initiative Aims to Help Close Wealth Gap
In the past several years, led by the National Credit Union Foundation, the credit union community has launched several new initiatives to assist lower-income households.
“The National Credit Union Foundation is committed to combating payday lending and other fringe banking services that exploit low-income individuals,” said Gary Officer, NCUF Executive Director. “Our partnerships extend from this historic NCUF/CFA effort to our work with the Ford Foundation, U.S. Department of Housing and Urban Development, and the U.S. Department of the Treasury. Each begins with vision focused on providing low-income people access to quality and affordable financial services.”
The America Saves Through Credit Unions initiative is being launched jointly by NCUF and CFA, and is being strongly supported by CUNA, the nation’s largest credit union trade association, and other credit union groups.
“Credit unions have the capacity and the philosophical commitment to help low-income Americans achieve their savings goals,” said Chuck Purvis, NCUF chairman and senior vice president and strategic business officer of Coastal Federal Credit Union, Raleigh, N.C. “The America Saves Through Credit Unions campaign will provide credit unions with tools, strategies and programs designed to increase savings among low-income Americans.”
America Saves through Credit Unions builds on the success of America Saves, a broader effort now in its third year that encourages and assists lower-income Americans to save and build wealth. Funded by the Ford Foundation and many others including the NCUF, it combines a unique brand, powerful saving messages, opportunities for free enrollment as an American Saver, and supporting services.
Sixteen broad-based local Saves campaigns have been launched, and another more than 30 are being planned. Nationally, Black America Saves, Hispanic America Saves, Faith Saves, and American Saves Through Homeownership have been initiated, and initiatives involving the Department of Defense and workplace saving are being planned. Well over 500 organizations are participating in these programs, including about 100 financial institutions that have lowered or eliminated minimum balance requirements on saving accounts.
To date, more than 16,000 Americans have enrolled as Savers, which requires them to develop a wealth-building goal and specific plan including monthly dollar deposits. The typical Saver is a moderate-income young adult who is saving $40 a month to create an emergency saving fund.
NCUF and CUNA will adapt and make available to credit unions America Saves services under the general brand of America Saves Through Credit Unions and under subbrands of America Saves for Homeownership Through Credit Unions, America Saves at Work Through Credit Unions, and America Saves for Retirement Through Credit Unions. NCUF and CUNA not only will make available materials, a national Saver data base, and services such as the wealth estimator to credit unions, but also will work with individual credit unions to develop unique America Saves programs. America Saves Through Credit Unions will be featured next Monday in a session at CUNA’s Governmental Affairs Conference.
Contact: Jack Gillis, CFA, 202-737-0766; Mark Wolff, CUNA, 202-508-6764