Among low-income children, those born to high-saving parents are more likely to move up from the bottom income quartile than children of low-saving parents. This is just one of the findings in the recent report “A Penny Saved Is Mobility Earned: Advancing Economic Mobility through Savings” by the Pew’s Economic Mobility Project. Using data from the Panel Study of Income Dynamics (PSID), the report found that greater savings also increases the chances of upward mobility for the parents themselves. At the same time, the report explains how government policies and programs that incentivize savings seldom go to low-income households and asset limits on public assistance programs discourage savings among low- and moderate-income households. The report concludes with recommendations on policy changes to encourage savings. Examples of recommendations include (1) revising asset limits to exclude vehicles, EITC refunds and other refundable credits, retirement accounts, college savings accounts, savings bonds, and Individual Development Accounts; (2) encouraging direct deposit of benefits and facilitate opening of basic bank accounts; and (3) expanding financial education and counseling.
“Seventy-one percent of children born to high-saving, low-income parents move up from the bottom income quartile over a generation, compared to only 50 percent of children of low-saving, low-income parents.”
“Among adults who were in the bottom income quartile from 1984-1989, 34 percent left the bottom by 2003-2005 if their initial savings were low, compared with 55 percent who left the bottom if their initial savings were high.”
A Penny Saved Is Mobility Earned is available for download along with other reports at www.economicmobility.org.