By: Rebecca Mowbray
August 14, 2012
Asset poverty is a big problem in New Orleans, where many have no cash cushion
Some 37 percent of New Orleans households would not be able to survive for more than three months without falling into poverty if their main source of income were disrupted, according to a new study released Tuesday by the Greater New Orleans Foundation and the Ford Foundation. While many examinations of poverty look at a family's income, this study of "asset poverty" looks at how large a financial cushion households have to protect them in times of crisis.
"If a family had an emergency and had to live off of its assets, how long could it last?" asked Kasey Wiedrich, senior program manager at the Corporation for Enterprise Development, which led the study in conjunction with its local partner, the Greater New Orleans Community Data Center.
In New Orleans, the answer is: not very long. Researchers found that 37 percent of local households would not be able to generate the $4,632 that would be necessary for a family of three to cover basic needs for three months if they liquidated everything they had.
And of course, that measure is optimistic, because a family probably couldn't sell a home or car quickly enough to generate income in an emergency, and doing so probably would be ill-advised anyway since the family would need a roof over its head and a breadwinner might need transportation to get to a new job.
The Corporation for Enterprise Development will next focus on "liquid assets" as a more precise measure of resources that are immediately available to New Orleans families.
The Greater New Orleans Foundation presented its study Tuesday morning at the Hilton New Orleans St. Charles Avenue hotel before an audience of nonprofit, government, community and philanthropic leaders and executives from major banks.
Asset poverty is 10 percentage points higher in New Orleans than in the nation as a whole. Also, some 24 percent of local households live in "extreme asset poverty," meaning that they have no assets or are in debt and have negative net worth.
While the condition of asset poverty affects all groups, the study found, not surprisingly, that it's worse among minorities and those with lower incomes and educational attainment.
Albert Ruesga, president and chief executive of the Greater New Orleans Foundation, said the data are a "call to action" for foundations, nonprofits, local governments, employers and banks to find solutions on how to improve the financial security of local residents. The foundation hopes to hold summits on the topic in the next few months.
"History will not absolve us if we create in post-Katrina New Orleans the same disparities that existed before," Ruesga said.
Nancy Montoya, senior regional community development manager at the Federal Reserve Bank of Atlanta, said it would be easy to look at the data as a source of gloom, but she sees it as highlighting an opportunity to make a difference.
"There is not one of these statistics that we can't make real improvement on," Montoya said.
Speakers said a commitment to reducing asset poverty goes beyond protecting families in times of crisis. Helping people find their path to savings can build a long-term mindset that is necessary for getting to college and graduating. And since there's strong overlap between financial insecurity and poor health, city health commissioner Karen DeSalvo said that improving financial security would reduce debilitating chronic stress, which would lead to better health and, in turn, people who are better poised to participate in the economy.
Some steps are extremely easy. Ida Rademacher, chief program officer at the Corporation for Enterprise Development, said getting employers to eliminate the paper checks that often lead workers to usurious payday lenders would make a big difference. Getting employers to sign up workers for savings accounts with direct deposit would be even better.
The study found that 71 percent of New Orleanians have sub-prime credit scores, which not only make borrowing more expensive but make it more difficult for find jobs or housing, since it's increasingly common for employers and landlords to look at credit scores.
In addition, New Orleanians are less likely to have a bank account than their counterparts in other places. Some 12 percent of households are "unbanked," meaning that they have no checking or savings account, and 26 percent are "underbanked," meaning that even if they have a bank account, they still visit payday lenders and other nontraditional financial service providers.
Local banks such as Liberty Bank and Regions Bank have already started making strides in making it easier for people to access traditional banking services. Thelma French, chief executive of Total Community Action, said there is a need to begin financial education at an early age to steer people away from high-cost financial services.
Examples abound in other communities. Rademacher said that Seattle brought in a financial component to public health initiatives. A program called Save USA makes matching funds available for those who save a portion of their Earned Income Tax Credit, and incentives grow the longer people hang onto their savings. In New York, local governments are taking a more active role in sponsoring financial coaching for residents. Cities are also using zoning and other regulatory powers to crack down on check-cashers and payday lenders.