Economic Inequality: CDAs, Financial Social Work Part of the Solution

By Leigh Glenn

Within Social Work’s Grand Challenges, two related goals support the creation of a just society: reducing extreme economic inequality and building financial capability and assets for all. Addressing these two challenges also would help bolster individual and family well-being and strengthen the social fabric—two other overarching goals of the Grand Challenges initiative.

Thought of in the abstract, these goals would seem to verge on the impossible. But individual development accounts in general—and increasing use of child development accounts, in particular—may help foster real change in an arena where longstanding policy has focused on income transfer rather than asset accumulation.

people sitting atop structure, sun shining

Michael Sherraden, PhD, MSW, Washington University St. Louis George Warren Brown Distinguished University Professor and founder/director of the Center for Social Development (CSD), has been following the growing trend of asset-accumulation accounts for decades. Think 401(k)s, 403(b)s, Individual Retirement Accounts (IRAs), Roth IRAs and 529 College Savings plans — but for everyone, with progressive funding. Despite the increasing use of these types of accounts, benefits from them have accrued to people of means because, generally, those who use them must have attained a certain level of income to access them — meaning, they can tap into the tax benefits of these kinds of accounts as well as other tax-advantaged assets, such as home ownership.

“Both income and asset inequality have continued to worsen since 1980, spurred by the Reagan administration,” Sherraden says. “A simple way to understand this is that the U.S. goes in and out of such periods, always ending in periods of reform. The political dynamic is the constant tension between those with capital and those without. Throughout American history, this has also been deeply intertwined in racism.”

Tax-advantaged benefits have not flowed to the poor and support for the poor typically has been confined to income transfers, he says. The question that has motivated Sherraden’s life’s work has been, “Why not asset building for everyone?”

Sherraden testified 20 years ago to the President’s Commission on Social Security, which at the time was investigating the creation of individual accounts within Social Security. He fully supported Social Security income benefits, but also said: “Social policy for the poor has been focused almost entirely on income. The assumption is that income transfers will support a certain level of consumption. This is a noble and necessary goal, but it is not enough. For the vast majority of households, the pathway out of poverty is not through income and consumption but through saving and accumulation. Stated simply, not many people manage to spend their way out of poverty.”

Sherraden, who wrote “Assets and the Poor” in 1991, was encouraged by then-Brown School Dean Shanti Khinduka to establish the Center for Social Development, which he did in 1994. The center and its large team of international researcher-scholars creates and studies asset-based policies for and impacts on economically marginalized people.

In “Assets and the Poor,” Sherraden proposed a universal, lifelong policy of Individual Development Accounts (IDAs) beginning as early as birth. But in applied policy innovation, he says, it is often necessary to start with any version of an idea that can move forward, and IDAs became a short-term policy, targeted to lower-income adults.

“The research evidence was generally positive, but there was no sustainable policy structure, and the demonstrations were short-term, covering only a few years,” Sherraden says. “In shifting to Child Development Accounts (CDAs), we are back to the original proposal—universal and progressive asset building, on a sustainable platform, that can become lifelong.”

That platform appears to be transformed 529 plans.

“We are working successfully to transform state College Savings (529) plans from serving 5 or 6 percent of the child and youth population to serving all — 100 percent — of newborns,” Sherraden says. “This is an inclusive, trusted, asset-building, and sustainable structure. As we learned in demonstrating IDAs, the sustainable policy structure is fundamental. In addition, we are aiming for public support for these policies to be much more progressive, with substantial federal funding.”

Benefits for families with newborns enrolled may see other kinds of positive changes. The main focus of the CSD researchers is on asset building rather than individual savings behavior.

“We always want families to participate, but the poorest families may not have much money for saving,” Sherraden says. “CDAs do greatly increase household saving, but we also find that, whether the families have saved themselves or not, there are still very positive effects of CDAs on asset building, as well as positive outlook of parents and development of children.”

In social welfare policy, work toward asset building versus income transfer seems to be yielding results that go more toward the Grand Challenges’ other overarching goals of enhanced individual and family well-being along with a stronger social fabric. As Sherraden wrote and testified years ago, “When people begin to accumulate assets, their thinking and behavior changes as well. Accumulating assets leads to important psychological and social effects that are not achieved in the same degree by receiving and spending an equivalent amount of regular income. These behavioral effects of asset accumulation are important for household well-being. They are likely to include more long-range planning, better care of property, increased learning about financial affairs, and increased social and political participation.”

Based on research of CDAs so far, Sherraden says effects include “increased asset holding, reduction in reported material hardship, higher educational expectations for children, improved social development of children, and more positive outlook of parents.”

Nuts and Bolts

people holding up nuts and bolts

How do CDAs work, exactly?

A CDA opened at birth may be owned by the state or another entity in a single, omnibus 529 plan account, says Margaret M. Clancy, MSW, CEBS, policy director and College Savings Initiative director at CSD. She oversees design and leadership of large-scale policy demonstrations, including SEED for Oklahoma Kids (SEED OK) and has, since 2001, been researching features of 529 plans as models for inclusive asset-based policies. All statewide CDAs hold deposits in their 529s plan. Market appreciation can increase the assets over time, especially if deposits are made at birth or when a child is very young.

State CDAs are restricted to post-secondary education. Recipients may use contributions and earnings for qualified trade schools, colleges and universities, typically either in-state or out. The schools, colleges or universities must be recognized as eligible educational institutions—those that can participate in student financial aid programs run by the U.S. Department of Education.

“CDA administrators will eventually send program funds directly to the accredited school,” Clancy says. But beneficiaries may forfeit the funds if they are not used by a certain age, 26 or 30, for example. “In addition to making the goal of college more salient, such restrictions may shape how families view the assets, promote future workforce development, and influence families in other ways.”

The SEED OK study, which started in December 2007, began with $1,000 initial deposits invested in the Oklahoma 529 College Savings Plan, with the Balanced Option, and is now in the Moderate Age-Based Option, as the funds are automatically more conservatively invested as beneficiaries reach the age when the money may be tapped. The age-based option “simplifies fund selection and eliminates investment decisions for families saving in their own 529 account,” Clancy says.

The initial $1,000 deposits had grown to about $1,902 by the end of 2019, though they had dipped below $700 during the Great Recession, she says.

Over the course of the SEED OK study, Clancy found that 18 percent of treatment children and 4 percent of control-group children had 529 accounts opened by a parent. In other words, treatment-group children were five times more likely than control children to have had an OK 529 account opened by a parent.

How the children and their parents choose ultimately to use the money toward their post-secondary education remains to be seen. But the money need not be spent before benefiting participating families. The research has demonstrated that children randomly assigned to receive accounts in infancy showed significantly higher social-emotional skills at age 4, says Clancy, and CDAs give parents new hope for their children’s future and may change how parents interact with their children. Moreover, CDAs increase the likelihood that disadvantaged children have assets accumulating for their future education, with the potential for greatest impact being among households of color, lower incomes and lower parental education, she says.

The presence of CDAs and social worker involvement in helping families access such resources points to a larger need for social work at the intersections of work, financial capability and social-economic justice. As Sherraden has emphasized in his work, income-transfer policies grew out of industrial-based and mass-scale economies. As developed economies like that of the United States have evolved away from farming and manufacturing jobs and toward services and specialized forms of work, social supports need to evolve, too. This goes beyond individual development accounts and touches on every aspect of technological innovation and distribution of resources, so that all families can be secure, reach for their dreams, and contribute to society.

Financial Social Work

Try separating finances and social work. How well does that work? Yet, money is often an uncomfortable subject for social workers just as it tends to remain taboo in the larger culture.

Jodi Jacobson Frey, PhD, LCSW-C, CEAP, and chair of the Financial Social Work Initiative (FSWI) at the University of Maryland School of Social Work, Baltimore, saw in 2008 just how critical the links were between money and social work.

“As a social worker in the workplace and more specifically, workplace behavioral health, I saw how ill-prepared the workplace was to support working-age adults and families — low-, moderate- and even higher-income folks who were experiencing economic crisis and devastation,” she says. “I knew we had to do much more in social work in the workplace than referring to credit counseling and/or even worse — referring people to potentially predatory for-profit financial companies.”

That experience drew her into the emerging field of financial social work to grow the knowledge of social workers and financial well-being so that they could be more effective in helping working families.

Frey has seen people move from work in the financial sector to social work to help change lives, communities and systems. For social workers, it can be harder as they “are often scared of money and related, scared of math/numbers,” she says.

But when they “take an approach that builds financial into the biopsychosocial/spiritual/financial assessment, we find that students often experience a lightbulb-going-off experience and they realize that their role is not to provide financial advice, but to help people identify resources, options and set goals for financial planning and greater security,” Frey says.

Developing knowledge, skills and practices of financial social work can, in turn, help social workers think about how systems may be structurally designed to prohibit growth and then how to mobilize resources to dismantle these systems and promote growth, she says. At the same time, they also support people through coaching and in other ways to navigate the current financial system and gain opportunities for financial decision making as structures open up.

Among community-based programs that support families as units, social workers are seeing success with two-generation approaches to financial education. “Parents want better for their kids and that can be incentivized to work on things like CDAs, while also helping to encourage personal goal setting and recognizing that supporting oneself also helps support kids—role model, financial stability, goal setting and achievement,” Frey says.

Frey’s own focus within financial social work is increasingly on how solutions that help break cycles of poverty may also play a positive role within the social determinants of health, as poverty tends to be correlated with poorer health. CDAs may be helpful here.

“Universal investment in children through CDAs reduces stigma and helps provide financial support that can be used for education, stability, such as housing, and other financial supports,” Frey says. “When programs are matched, it can really help parents or others who are contributing to accounts see how their contributions can go further, leading to greater savings. Many people know the benefits of savings, but don’t see how they can save for kids when it is challenging to make ends meet each week or month. By normalizing and incentivizing saving, we can work to promote saving behavior for future generations and have more opportunities for pivotal learning moments, like using tax refunds for saving or working to increase savings contributions with job promotions — if programs can be coupled with workforce development or other supports for family members.”

That said, just as any social work with clients is nuanced, so is financial social work. Organizations often have a “‘Financial education—check, we did that’ mentality,” she says. “But we know that changing behavior takes time and is not linear. People need to take small steps and often make mistakes to learn from prior actions.” Rather, they have better outcomes when mixing education with strengths-based coaching over time, letting people try different things, make mistakes, and learn from them.

Frey’s colleague in Maryland’s FSWI, Christine Callahan, PhD, LCSW-C, came to the work early in her career as an oncology social worker, having seen firsthand the financial fallout from life-threatening illness. From then on, she has “made sure to ask about and integrate financial realities” into her work. Because social workers see and often experience themselves the importance of financial stability, many are beginning to see the importance of financial social work, she says.

Not only that, but financial social work and social/economic justice intersect “across settings and agencies,” and economic justice is also a focal point for FSWI. Says Callahan, “We see from a macro perspective that addressing systemic injustice constantly includes financial stability and that people have been hurt financially over the years by unjust policies and practices and that we must do everything we can to right these wrongs.”

The “righting” includes helping families develop financial capability. Callahan works on a project with the University of Albany’s Center for Human Services Research, which is rolling out and evaluating financial-stability programming in home visits through Healthy Families New York/Healthy Families America. The foundational idea is that “financial capability is critical in helping vulnerable families and babies and kids become more stable; that working on self-identified financial goals will help families address issues that are most important to them; and that they can find out more in depth about the resources, tools, and strategies to bring more money into their households and gain greater stability.”

Mindset Shift Needed

Understanding the distinction between income and wealth is critical to know how to proceed toward helping vulnerable families and curtailing extreme economic inequality. One may have work earning a good income, but with debt — from post-secondary education, for example — and without assets, one may be just as susceptible to economic downturns or personal setbacks as someone who earns minimum wage. Likewise, the presence of assets can encourage goal setting and future-oriented action.

William “Willie” Elliott III, PhD, MSW, director of the Joint PhD Program in Social Work and Social Science and founding director of the Center on Assets, Education, and Inclusion (AEDI) at the University of Michigan, knows this firsthand. He grew up in poverty and was homeless at times. Those setbacks affected his ability to learn at the same pace as his peers who had stable housing. At the same time, he used to walk with his mother in more affluent neighborhoods and dream he could live there one day.

“There was no rational way for us to think we were going to leave poverty,” he says. “My story is based on delusion — some of us walk around seeing a half-full cup without having reason to do so.”

Having that fake hope, as he calls it, has proven useful in considering how to solve poverty, which is his life’s work. When it comes to poor people, many liberals, many progressives, he says, often focus on the current situation, not on the future. So, the thinking is give money for food, with programs built around that. But “the thing that gets you to the next day is not your ability to eat today, but the belief that you can change your current status, the belief that the land is rich enough, the markets are rich enough to provide you that ability,” Elliott says.

woman with glasses and glass half full

“You have to have the belief to change your lot in life,” he says. “We lose sight of that, on all sides of the political spectrum.”

Elliott’s overriding question of how to solve poverty led him to serve in the military, where he developed interviewing skills, and then to go to school at Washington University St. Louis to study with Sherraden, who also could help him. Sherraden suggested he work on the I Can Save program in St. Louis, where his interviewing skills came in handy. He began to think more about how changing the lives of children in relation to money could have longer-lasting impacts than working with adults, even with small-dollar amounts that provided recipients with the ability to perceive themselves as having greater control over their future. Perhaps that is how the great chasm of wealth inequality gains traction—because assets place the wealthy in a sea of contextual cues different from those of poor people—one cue being that they have no reason to worry about whether they’ll go to college much less how they will pay for it.

“Free college” is touted as one solution, but, says Elliott, this usually implies free two-year college when recipients may see themselves as four-year students, so may even bypass the “free” because it is not congruent with how they see themselves and would not reward them for their hard work.

The income-based focus of many programs and means-testing perpetuates a bifurcated system that locks people into long-term wealth inequality, says Elliott. Being on welfare translates into not having assets and even people of greater means than the poor, should they hit a rough patch and need help, may be stripped of their assets. A terminal illness may also spell the end of the family home that has to be mortgaged to cover medical bills. Likewise, an asset-poor person may go to college and emerge deep in debt, as did Elliott, and find themselves unable to invest in most people’s major asset—a home.

Going forward, Elliott is curious about what the effect of higher-dollar amounts — $30,000 or $40,000 for families — would have on outlook and long-range results, such as post-secondary education and entrepreneurship. As things stand, CDAs and Child Savings Accounts seems to be having a greater positive impact on poor families, especially poor Black families.

Decades-old social-support systems have had the effect of encouraging all to believe that income is key, Elliott says, and he would like to see a shift, too, among social workers — away from believing that there cannot be a conversation about assets until income problems have been cured.

“This is not an argument for no child tax credit,” he says. “But that is not enough. We also need to actively seek a future for our kids to make sure they have a store of wealth.”

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