Overview: Individual Wealth Preservation

In order to build wealth, you also have to preserve what you have — a lesson painfully reinforced by the foreclosure wave that began in 2007.  In 2008 alone, Americans lost $2 trillion in housing wealth, with minority and low-income communities being the hardest hit.

Even in non-crisis times, it is often the case that those who have the least pay the most for financial services.  Matt Fellowes of the Brookings Institution in a 2006 presentation to the National Community Tax Coalition noted that 4.2 million lower income households paid higher than the average mortgage price and 4.5 million lower income households paid higher than average auto loan rates. It's costly to be poor in other ways —for example, access to branch banking tends to be less, leading to the use of more costly alternatives, such as check cashing services and payday loans (cash advances on anticipated paychecks), which often carry an effective annual percentage rate (APR) of interest of 300 percent or more.

In response, a broad movement has developed to even the scales and help low-income families keep the wealth they have. Specific wealth preservation initiatives include the following:

Banking the unbanked
According to the Federal Deposit Insurance Corporation (FDIC), roughly nine million U.S. households are unbanked (i.e., do not have a bank account at all) and 21 million U.S. households are under-banked (i.e., supplement banking with non-bank alternatives, such as payday loans).  In response, programs to "bank the unbanked" have sought to reduce cultural and other barriers to financial services for low-income people.  In some cases, credit unions have created "payday alternative" products that are easy to access but carry significantly lower interest rates than "payday loan" products to help low-income borrowers avoid getting stuck in debt traps.

Financial education
"Financial education" refers to a broad umbrella of services that include credit counseling, investment advice, and protections against unfair or predatory lending. Practically speaking, financial education often involves free classes, online resources, and personal finance curriculum for K-12 education. Generally, financial education is coupled with individual wealth building efforts and community banking to support educated budgetary, saving, and investment decisions.

Foreclosure mitigation
In the wake of the worst recession since the Great Depression, many homeowners found themselves with escalating mortgage rates and mounting overdue payments. The collapse of the housing bubble led to 2.5 million foreclosures between 2007 and 2009, and people of color are more likely than whites to experience foreclosure. Counseling can help homeowners avoid foreclosure and recoup their losses.  For example, in 2007, one Cleveland, Ohio community group, the East Side Organizing Project (since renamed Empowering & Strengthening Ohio's People due to its expansion statewide), helped 1,500 families negotiate workouts with lenders, saving these families from foreclosure.

Limiting predatory lending
Predatory lending can take many forms including deceptive mortgage products (where high rates, for instance, are masked by low introductory "teaser" rates), payday lending, title loans, credit card abuses, and other lending abuse-related issues. The failure of subprime mortgage loans (that is, high-risk mortgages with high interest rates) helped trigger the collapse of the U.S. housing market in 2007 and 2008. The community development financial institution Self-Help reports that one in five families with a subprime loan made from 1998 through 2006 have already lost, or will lose, their home to foreclosure in the next few years. These losses add up to as much as $164 billion in lost equity for families. As is usually the case with predatory lending products, people of color are being disproportionately affected: 53 percent of African-Americans who bought homes in 2006 received a subprime loan, and 42 percent of Latino families. By contrast, only 22 percent of white borrowers received these high-cost loans.  Recent federal legislation, such as the creation of the Consumer Financial Protection Bureau in 2010 and the passage of credit card reform legislation in 2009, aims to curtail at least some of these practices.

Tax refund assistance
The Earned Income Tax Credit (EITC), a federal refundable tax credit that supplements low wage work, is the United States' largest anti-poverty program. Yet the Internal Revenue Service estimates that one fourth of all eligible tax filers fail to claim their EITC tax refunds. Moreover, many who do claim the credit take on a "refund anticipation loan" from their tax preparer. These refund anticipation loans (RALs), like standard "payday loans," often carry a very high annual percentage rate that eats into the amount of the refund received. Still, in 2007, nearly 25 million families received the EITC with an average credit of $1,947.

The Internal Revenue Service sponsors 12,000 free volunteer income tax assistance (VITA) sites across the country. The impact of these VITA sites is significant. For example, the network of 1,700 VITA sites that constitute the National Community Tax Coalition, which was founded in 2002, had, by 2009, become the fourth largest tax preparer in the country, with nearly 20,000 volunteers completing an estimated 1.2 million federal tax returns.  A survey of 56 percent of the NCTC's members found that respondents had prepared a total of 650,000 tax returns, which enabled low-income families to claim $950 million in tax refund money that they were due. These free services are often accompanied by opportunities to sign up for financial literacy classes, open savings accounts, or apply for other income supports like food stamps.