Low-income families need nest eggs too

The Monroe on a Budget column runs Tuesdays in The Monroe Evening News. Here is this week’s installment.

Even those who are living on the tightest of budgets need to build up nest eggs.

That’s one of the messages that the Corporation for Enterprise Development has in a report of its  state by state scorecard that shows how Americans are doing in terms of financial security.

The 2013 Assets and Opportunity Scorecard is part of an occasional series that began in 2002. One of the details considered is whether a family could sustain itself at the poverty level for its household size for three months in case of an emergency such as a job loss or divorce. For a family of four, using the 2012 federal poverty guideline, that amount would be $5,762.50 in savings.

But 40 percent of Michigan residents have almost no cash reserves, according to the research study.

“Without savings, these families have limited hope of building a more prosperous future for themselves or their children, including saving for college, buying a home or setting aside money for retirement,” the agency said.

“Our focus on savings can seem like a luxury at times,” one of the study authors, Kasey Wiedrich, said in a followup conversation last week.

Ms. Wiedrich said the fact so many Michigan families had to deal with unemployment and other financial hits should focus even more attention on their vulnerabilities. But her point was that an unexpected bill or expense could handled even on tight budgets if there were only cash reserves on hand.

“Do you have even a small nest egg to get through that?” she said about those needs. “Having that savings is really just a different mindset.”

The agency also questions whether certain government policies, credits and programs actually encourage savings among low income families. The examples cited include the cash and asset limits for welfare, food stamps and Medicaid.

The eligibility for Michigan Department of Human Services cash benefits has a cash asset limit of $3,000 that includes money in one’s checking or savings account in addition to investments, retirement plans and trusts. But property up to $500,000, vehicles and personal belongings are not counted.

Michigan’s food stamp program, also known as Supplemental Nutrition Assistance Program, has a cash asset limit of $5,000 that includes money in one’s checking or savings account along with investments and some retirement plans. There also is an exemption for one vehicle and adjustments for some living expenses.

But given where the caps fall, Ms. Wiedrich pointed out, a family in temporary financial difficulties might need to spend down its savings or sell a vehicle just to get help.

That’s really “counter-intuitive,” she said.

To look up the report, go to assetsandopportunity.org/scorecard.