The Unbanked, Asset Limits, and Poverty Policy

by Reihan Salam

Catherine Rampell blogs on the large number of American households without bank accounts. It should go without saying that lack of a bank account keeps millions of families on the margins of economic life, with little in the way of savings that can be drawn on in times of distress, to buy a home, or to create a business. But what exactly is driving the problem? 

The most common reason survey respondents gave for not having a bank account is that they didn’t have enough money to think they needed one.

I’m sure that’s true. But of course many means-tested programs have asset tests. The average asset limit among states is $2,000 to $3,000. Isn’t it obvious that many if not most of the unbanked don’t want to jeopardize the various state and federal benefits they receive? This strikes me as an entirely rational response to a screwy system. Short of eliminating asset limits, I can’t see how we will “solve” this problem. Plenty of voters will object to giving aid to families that have accumulated tens of thousands in assets, so perhaps the best solution is to raise asset limits.

A deeper problem is that social service bureaucracies aim to assist as many people as possible, and so, as Jason DeParle and Robert Gebeloff noted in an incredible article in the New York Times on the spread of food stamps, they’ve worked mightily to eliminate the stigma associated with receiving said assistance. Interestingly, the Bush administration took the lead on this front.

While the numbers have soared during the recession, the path was cleared in better times when the Bush administration led a campaign to erase the program’s stigma, calling food stamps “nutritional aid” instead of welfare, and made it easier to apply. That bipartisan effort capped an extraordinary reversal from the 1990s, when some conservatives tried to abolish the program, Congress enacted large cuts and bureaucratic hurdles chased many needy people away.

It should go without saying that many Americans believe that there should be a stigma associated with food stamps, to drive home the point that they should be used sparingly and only under extraordinary circumstances. What we have is an unstable cultural equilibrium. Razib Khan noted the following:  

The variance in utilization rates of the program by region (50% in California vs. 98% in Missouri) of those eligible, as well as the near saturation of utilization in much of the Black Belt and highland South (the Appalachians and the Ozarks), implies to me that while in some American subcultures the program is seen as a stop-gap in others it is a background condition of life. 

One wonders where this process of destigmatizing the use of public assistance will end. An obvious solution is to introduce or strengthen work requirements for assistance, but that could very well cost money rather than save money. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.