Nevada’s Numbers Game

Nevada Financial reportIf this opening sentence doesn’t grab your attention, perhaps nothing much would? “A majority of Nevadans are living “on the edge of financial disaster” with almost no savings to fall back on, a new report says.” [LV Sun] What’s “the Edge?”

62.5% have less than three months worth of savings available in case of a job loss, a medical emergency, or other financial crisis.  44% of us in this state have assets, but those are “overwhelmed” by indebtedness.  33% of those living in the Las Vegas metropolitan are are “underbanked.”  Those kinds of numbers are the basis for painting Nevada that deep gray on the map; along with most of the Deep South, Arizona, and New Mexico.   If we put our scores on a report card it would look like this:

Report Card Assets Opportunity 2013

How did we get a failing grade in Financial Assets and Income?  After all, our median household income is a tick higher than the national median, currently reported as $55,553 (national median $52,762).  [Census]  Part of the answer is that our Asset Poverty Rate stands at 43.9% compared to national data at 26.0%.  Our Liquid Asset Poverty Rate 62.5% puts us in 40th place nationally.  67.9% of Nevadans have subprime region credit ratings, compared to 54% nationally, and our bankruptcy rate stands at 8.6% almost double the national rate of 4.4%.   We are significantly “underbanked” with 31.2% of us not having the kinds of financial accounts which would soften emergency financial blows.

Given that Nevada ranks 16th in the percentage of jobs which fall into the Low Wage category, [CFED] and that low wage jobs appear to be the ones being created overall, this could explain some, but not all of the Financial Assets and Income issues we’re having.

The CFED offers some advice for doing better “next semester” —

“To reduce income and asset poverty, Nevada should maximize income for low-wage workers by adopting state tax credits for working families; remove the disincentive to save for very-low-income families by lifting asset limits for its cash welfare and  Medicaid programs; and fund a state Individual Development Account program.”

When a state has no income tax it’s difficult to offer a reduction for working families.   However, the asset limits on very low income families for financial assistance and Medicaid programs could be eased, thereby allowing families to save more for stormy days.  This notion runs head on into the Grinch Argument — if low income family X has a savings account for emergencies, why should “I” be paying more for their necessities — why don’t they dip into their savings and “not into mine?”  The counter argument is relatively obvious — If Family X has no household safety net, then they are more or less trapped in the cycle of lurching financially from one crisis to the next, with the attendant result that breaking the poverty cycle becomes more difficult.  The cliched Catch 22 applies, if a family manages to save a bit then their benefits for basics like food and housing are cut, but if they don’t save then they remain stuck on the poverty cage wheel.

The Individual Development Account idea is one suggestion for getting people off the treadmill:

Individual Development Accounts(IDAs) are special savings accounts that match the deposits of low- and moderate-income people. For every dollar saved in an IDA, savers receive a corresponding match which serves as both a reward and an incentive to further the saving habit. Savers agree to complete financial education classes and use their savings for an asset-building purpose – typically for post-secondary education or job training, home purchase, or to capitalize a small business.  [CFED]

The idea has some merit.  Directed savings programs with mentoring assistance could help move people of very modest means out of poverty.  The Consumer Credit Counseling Service of Southern Nevada offers IDA accounts.  Supported by the National Federation of Credit Counseling, the United Way, HUD, the Better Business Bureau, and the Council on Accreditation, CCSSN offers financial literacy instruction, debt management counseling, down payment assistance programs, and housing counseling.

The bad news is that there appears to be only one program of this type in Nevada, and while it’s located where most of the population lives, it doesn’t seem to have migrated to northern or rural Nevada.  The other element which doesn’t appear in the process is the idea that the directed savings could be more long term.  For example, the following rules apply to those in Washoe County who seek Section 8 housing assistance:

“As the assistance a family receives is based partially on a family’s income, all participants must report all sources of income. Income can include, but is not limited to: wages, Social Security, interest earned on a savings account, contributions towards bills from individuals not in the assisted household, child support, lump sum payments, unemployment, welfare, pensions, annuities, financial aid, disability payments, and self employment. A complete listing of income can be found at 24CFR 5.609. To ensure accurate calculations, once income is reported by the participant, RHA verifies income through a variety of sources, including 3rd-party verifications sent to the source of the income and national databases. If unreported income is found, the family will be charged for overpaid rental assistance and their assistance may be terminated.”

And, there’s the catch.  If a person earns “too much” interest from a savings account their housing subsidy could be in jeopardy.  CRF 24.5.609 explains the limitations more completely.   There’s also a little kicker in CRF 24… annual income includes money going to, or  on behalf of, the family head or spouse (even if temporarily absent) or to any other family member;..”  Thus, if the intent of the IDA is to help save money to provide for job training for any member of the family, then the earnings from that savings account are counted as family income, potentially reducing the assistance the family receives to keep the roof over their heads.

And, then there’s this from the State definition of income as it pertains to Section 8 Housing assistance:

“Any withdrawal of cash or assets from an investment will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested by the family. Where the family has net family assets in excess of $5,000, annual income includes the greater of the actual income derived from net family assets or a percentage of the value of such assets based on the current passbook savings rate, as determined by HUD.”  [NV Housing pdf]

The incentive to create a savings account is to earn the interest thereon, but the interest is counted as family income for the purpose of determining assistance for Section 8 housing.  The effect could easily be sending the message to low income savers — you can save a little, just not too much!  Little wonder, then, too many Nevadans struggling below the poverty line, are “underbanked.”

The idea of Individual Development Accounts is laudable, and should be extended throughout the state, however it should be coupled with redefining the source of income which is calculated for the purposes of receiving public assistance.   Not to put too fine a point to it, but it doesn’t make sense to encourage savings when the interest earned could jeopardize housing, TANF, and SNAP assistance.

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