Low-wage jobs can be unstable, leaving families struggling to cope with employment gaps and financial emergencies that can strike without warning. About four in five low-income families are "asset poor," lacking enough liquid savings to live for three months at the federal poverty level without earnings. In this essay, McKernan and Ratcliffe suggest a cluster of policies that would improve financial markets and savings opportunities for low-income families across the life cycle.

This brief presents an empirical analysis of how asset tests affect families’ asset holdings. The findings suggest that more lenient asset tests and more generous IDA program rules can lead families to increase their asset holdings. Relaxed vehicle asset limits, for example, are associated with increased vehicle ownership. Since people often need a reliable car to get to work, this finding suggests that exempting at least one vehicle in all states may increase employment and job stability among low-income families. The findings also suggest that restrictions on withdrawals and incentives built into restricted asset accounts and IDA programs may provide families with motivation to build assets.

Assets are like ladders that can place low- and moderate-income (LMI) families in reach of opportunity. Moreover, increased saving benefits not just households but the economy overall. If every household with less than the median net worth saved an additional $1,000, it would add $56 billion to the economy. However, current U.S. savings policy directs the lion's share of $300 billion in annual subsidies for saving to households earning $50,000 and above who would likely save in any case--and still, the national saving rate fell to zero in 2005. This paper addresses barriers to saving among LMI households, such as asset tests in welfare and education policies and the targeting of subsidies to those households in the highest tax brackets.