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May 23, 2005
Intangible assets lead to tangible wealth
The Corporation for Enterprise Development (CFED) has released its latest scorecard report on how well states are doing to help build financial security. The Assets and Opportunity Scorecard
measures how easy or hard it is for families across the United States to achieve the American Dream.
The Dream is about opportunity. It is about the simple idea that no matter who you are, if you work hard and play by the rules, you can help your family get ahead... that you can do this in ways that add to your community, to your society, to your economy... that you have opportunity and security, and that your children do as well.
The foundation for that opportunity rests on two pillars: first, a family's ability to build assets that can be used to invest for the future, send children to college, and weather unexpected financial storms; and second, safety nets and safeguards that provide financial security in the event of a job loss, medical emergency, or other life events that could otherwise put a family in a tailspin.
The Assets and Opportunity Scorecard measures key parts of that foundation, compares them state-by-state, and looks at state policies that can help or hinder citizens' abilities to get ahead. The story it tells is compelling: many American families are living with practically no safety net, some groups and states are doing much better than others, and every state has room for improvement in helping its citizens achieve the Dream.
Importantly, CFED recognizes that intangible assets are key to building tangible wealth. They specifically describe education and business development as two of three building blocks (the third being homeownership):
Education is the first step toward achieving security, acquiring assets, and building wealth. Working Americans who are well-educated and well-trained provide future returns for society by creating a workforce that is productive, agile, and responsive to economic changes. The Scorecard shows promising trends in education.
* The percentage of children living at the poverty level who are served by a Head Start program increased in 46 states between 2001 and 2003.
* College attainment rates increased in 43 states since the late 1990s. The attainment gap by income has closed slightly, yet the wealthiest 20% of Americans complete college at a rate more than six times that of the poorest 20%.
. . .
Small business creation has been the route into the middle class for many Americans. There has been increasing entrepreneurial activity in recent years, and some states have found effective ways to foster entrepreneurship.
Yet, all is not sweetness and light. As David Frances comments in the Christian Science Monitor ("The American Dream gains a harder edge"):
The American dream, at least on the economic side, is fading. Most people see the United States as a special place where there is plenty of opportunity for someone to work hard, play by the rules, and get ahead - maybe even become wealthy.
Today, though, nearly 1 in 5 American households has zero net worth or actually owes more than it owns. And the odds of a son or daughter rising above their parents in such a financial predicament have shrunk.
"Income mobility has declined in the last 20 years," says Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago.
What that means is that the US is becoming less of a meritocracy, where skill and intelligence determine success, and becoming more of a class-bound society, where economic background, including the better education money can provide, matters more. There are still many rags-to-riches stories. But there's stagnation in the underclass.
. . .
A broader look at the overall financial security of American families isn't encouraging either. It measures ownership (homes, financial assets, and so on) and protections against financial setbacks, such as health insurance to cover large medical bills that cause almost half of individual bankruptcies.
"There are lots of people who have found it difficult to meet their basic needs," says Lillian Woo, an economist in Durham, N.C., with CFED, a national nonprofit research group that conducted the study. "The ratio of indebtedness seems to be growing."
That's not because these Americans have engaged in shopping sprees, though that sometimes happens. It is often because of medical bills or high housing costs. Many households are "hovering on the brink of financial disaster," Ms. Woo maintains. "The cushion is very thin."
For example: 1 in 4 households does not own enough to support itself - even at the poverty line - for three months.
There are bipartisan efforts being made to help increase the financial security of folk at the bottom income levels through innovative asset building concepts such as KIDS Accounts.
We need to increase our investments in the types of intangibles that generate wealth as well.
Posted by Ken Jarboe at May 23, 2005 4:05 PM
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