A Brief History of Asset Building Policy in the United States 1929-2019

A Brief History of Asset Building Policy in the United States 1929-2019

To better understand where we are, it is good to know how we got here.

 

To all of my financial capability friends out there, the work you do to make the world a better place is admirable.  You work tirelessly to serve your clients, your communities, and by extension the country as a whole.  But do you ever pause to consider how we got here as a nation in terms of how we supports our households?

I was recently asked to give a brief talk to professionals new to the financial capability field and, as I frequently do, I thought that this talk would make a good blog post.  So you, lucky reader, do not need to fight crazy traffic and wait in the TSA line just to board a plane to sit in a windowless hotel conference room just to hear me speak.  You get to read them from the comfort of your own computer screen.  You’re welcome.

 

How Did It Start?  The 1930s and 1940s:  Great Depression Through World War II

I thought that it would be good to start with 1929, as it was October 24, 1929, when the stock market began its free fall into what would become the Great Depression, the ten-year period that impacted how an entire generation thought of money and their future.  In my case this was the decade when my grandparents were in their teens and twenties. Living through the Great Depression during their early adult years impacted not only them, but how they raised my parents as well.  My nana told a story of seeing a man jump to his death from a skyscraper in downtown Chicago in the 1930’s, and later refused to purchase a home, even though my grandfather was eligible for the GI Bill. Emotionally, she could not take the financial risk, even when there was a safety net there.

1913[Okay, this happened before 1929, but it would mess up my easy-peasy math, so just go with it] Deductibility of Mortgage Interest on Owner-Occupied Housing:  Back in the first days of federal income tax, way back in 1913, the federal government allowed you to deduct ALL interest paid on debt, because they wanted you to grow and prosper!

1934Federal Housing Administration (FHA):  In an effort to encourage lenders to make mortgage loans (which at that time were relatively new and remember, the country was five years into the Great Depression), the federal government created the FHA to serve as a guarantor of some mortgage loans.

1943War Labor Board:  This encouraged employers to offer health and pension benefits as a means to attract workers during World War II.  Ever wonder why your health insurance and your retirement account are tied to having a full time job?  Well, now you know that what started as a short-term fix during the war years turned into gospel for the next 75 years.  Should you be required to have a full time job with a large employer in order to have access to affordable health insurance or a descent retirement plan???

1944Servicemen’s Readjustment Act (GI Bill):   This was created to help veterans returning from World War II. It established hospitals, made low-interest mortgages available, and granted stipends covering tuition and expenses for veterans attending college or trade schools.  This was what started the great economic expansion of the 1950s, as returning veterans [read as “young white men”] were given the full support of the American government to grow into the largest middle class that the world has ever seen (hyperbole?).

 

The 1970s:  Disco, Yes, But Also Economic Struggle

Fast forward to the 1970s, the decade of my childhood.  Did I have a Dorothy Hamill haircut?  Yes.  Did my parents wait in line at the gas station on a day determined by their license plate number?  Also yes.  Let’s take a look at a few ways that the federal government tweaked social policy in an effort to support working households.

1971Volunteer Income Tax Assistance Program:  The VITA program is a national initiative sponsored by the Internal Revenue Service.  It offers free tax help to people who generally make $55,000 or less, persons with disabilities, the elderly, and limited English-speaking taxpayers who need assistance in preparing their own tax returns.  And guess what?  This year Congress passed legislation making VITA permanent!

1974Employee Retirement Income Security Act (ERISA):  The main purpose of ERISA is to protect the interests of employees who are enrolled in employee benefit plans, and to ensure that employees receive the pensions and group-sponsored welfare benefits that have been promised by their employers.  This is an attempt to protect workers and their retirement benefits, and you can read more about it this article on Bankrate.com.

1975Earned Income Tax Credit (EITC):  EITC started on a temporary basis in 1975 and was a modest tax credit that provided financial assistance to low-income, working families with children. After various legislative changes over the past 40 years, the credit is now one of the federal government’s largest antipoverty programs. It pulled 5.7 million people out of poverty in 2017.

1979HUD Pre-Purchase Housing Counseling Demonstration:  This program, which is still running today, has a goal of reducing mortgage delinquency and foreclosure, and to help first-time home buyers achieve and sustain home ownership.  (As a student of a first-time home buying class in 1999, and someone who has worked in the field of home buyer education since 2000, I love that I came across this in my research!)

 

The 1990s:  MTV, Madonna, and Friends

The 1990s were the decade when I started my bold career to make the world a better place, and to do that by talking about money at every opportunity I could.  For better or for worse, Bill Clinton was the first president of my young adulthood.  I watched his inauguration on a television set in the dining room of the emergency homeless shelter that was my first job out of college.  The director of the shelter let the residents (mostly single men, many of whom were veterans) stay in after lunch that day to watch it with the staff.  I remember that we all felt a rush of hope and optimism that day.

1992Family Self-Sufficiency Program (FSS):  FSS provides residents of public housing a financial incentive (escrow account) that automatically grows with their income, and a financial counselor or coach to help them along the way. When FSS families experience an increase in income, the portion of that extra income that would have gone to rent instead goes into an interest-bearing escrow account. If families meet their goals within five years, they are granted access to the funds in the escrow account to be used however they see fit.

1992SBA MicroLoan Program:  This program provides microloans and technical assistance to start-up, newly established, or growing micro-businesses.  (I worked in a microenterprise program at Jewish Vocational Service in Boston in the late 1990s — shout out, microenterprise!.)

1994 – Department of the Treasury Community Development Financial Institutions Fund (CDFI Fund):  A CDFI is a financial institution that has a primary mission of community development, serves a target market, is a financing entity. It provides development services and remains accountable to its community.

1996 – College Savings Plans/529 Plans:  While the 529 plan has become more popular than other education-saving vehicles, its participation level is still just 18% among American children.

1997 – Capital Gains Exemption:  This says that if you are a single homeowner, you will pay no capital gains tax on the first $250,000 you make when you sell your home. Married couples enjoy a $500,000 exemption.  [Did you get this?  Read it again if necessary. If you are married and you sell your home, you get to keep the first $500,000 of profit tax free!  This is yet another way that the tax code favors home owners over renters.]

1997 – Child Tax Credit:  The child tax credit was created to help ease the financial burden that families incur when they have children. It reduces tax liability dollar for dollar of the value of the credit. Initially it was a nonrefundable credit for most families, but now it is refundable up to $1,400 for eligible families who owe little or no tax.

1998 – Assets for Independence Demonstration Program (AFI):  This program, for which I also worked, provided federal funding for community-based matched saving programs serving households living below 200% federal poverty level.  While this was the only federally-funded program of its kind to encourage low-income families to save towards assets like homes, businesses, or education, no funds were appropriated for the AFI program for federal fiscal year 2017, leaving community-based organizations with one fewer tool in their toolbox to help working families get ahead.

2001 – Savers Tax Credit: This is a tax credit designed to encourage lower-income persons to save for retirement in existing retirement products such as IRAs. However, the credit is nonrefundable so the vast majority of those who need it have no incentive to take it (boo, nonrefundable tax credits!).

 

What say you, member of the Talking About Money Tribe?  If you are reading these words then I know that you made to the bottom of my longest post yet – bravo!  Did you learn anything new during this walk down social policy memory lane?  I will say that I was most surprised by revisiting the War Labor Board.  No, we do not need to link health care and retirement benefits to full-time employment.  Leave a comment and tell us what you think.  And if you enjoyed this post, please take a moment and forward it to one or two people who you think might enjoy it too.  Thanks.

Why Your Clients Are Not Coming to See You

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