Background Information on the Assets Perspective

BACKGROUND ON THE ASSETS PERSPECTIVE:

Why Assets?

In Assets and the Poor, CSD Director and Global Assets Project co-director Michael Sherraden posits a two-part argument in favor of assets: First, economically, accumulation of assets is the key to development of poor households. For the vast majority of households, the pathway out of poverty is not through consumption but through saving, accumulation, and investment. Stated simply, not many people manage to spend their way out of poverty. And, second, 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 “welfare” or well-being.

The Poor DO Save

Over the past decade, CSD and New America's Asset Building Program's work has largely focused on testing Sherraden’s ideas (primarily through IDA demonstration projects), and promoting asset-based policies in the United States. The essential findings are that the poor can save and build assets, and that IDAs can increase the assets of the poor. These findings on the ability of the poor to save in matched savings accounts have been corroborated within the United States and in developed and developing nations. Moreover, credit unions and microfinance institutions around the world have established that the poor can save. Stuart Rutherford, in his book The Poor and Their Money, shows how the poor in developing countries successfully save and manage their money. Thus, whether or not the poor can save appears no longer to be the issue.

But many questions remain about how and why the poor save, what differences it makes, and what the roles of the private financial sector and public policy should be. The Global Assets Project aims to address these important questions.

A Global Policy Shift Toward Assets

The Global Assets Project also recognizes the fact that social policies around the world are shifting to account-based systems. Governments and corporations are using accounts to deliver a wider array of benefits—especially pension benefits. Between 1980 and 2004, the presence of defined contribution plans with public support increased from 10 to over 50 countries. This pattern is also is strongly reflected in the rapid decline of “defined benefit” pensions and the proliferation of “defined contribution” plans, such as 401(k)s in the United States. But account strategies are also growing for the purposes of education, home ownership, health, and benefits directed at children.

Many of these account-based systems, however, are provided by employers and/or assume that persons have relationships with financial institutions. In addition, public subsidies—which are huge and growing—are typically administered through tax codes. Accordingly, most defined contribution schemes are highly regressive, leaving out millions of low- and no-income people. This pattern is repeated in nearly every country.

There is reason to believe that governments and corporations in this century will continue to expand account-based delivery mechanisms, in part because they are more flexible and portable in a global economy. With these trends very likely to continue, it is a high priority to ensure that all citizens have the ability to participate in such asset-based policies of the future. This means, as a first step, that the whole population should have accounts and access to basic financial services. In the vast majority of cases, these accounts will be held in the private sector.

Learn More

For more comprehensive information on the asset-building framework, see our sister site, AssetBuilding.org. For Frequently Asked Questions on asset building, please click here. For a list of essential reading on the topic, please click here.