Nearly half of Colorado residents are living on the edge of financial disaster with almost no savings to fall back on in the event of a job loss, health crisis or other income-depleting emergency, according to a report released today by the Corporation for Enterprise Development (CFED).
The 2013 Assets & Opportunity Scorecard defines these residents as “liquid asset poor,” which means they lack adequate savings to cover basic expenses at the federal poverty level for just three months if they suffer a loss of stable income. Included in this group are a majority of Colorado residents who live below the official income poverty line of $23,050 for a family of four, as well as many who would consider themselves middle class. Fully 30% of households earning between $59,377 and $101,424 per year have less than three months of savings ($5,762 for a family of four).
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.
“In order to cope with the recession’s continued impact, these families have had to prioritize today’s expenses over tomorrow’s goals,” said Andrea Levere, president of CFED. She called the findings “particularly disturbing given the ongoing budget talks in Congress that will likely result in further reductions in the social safety net and other programs that help low- and moderate-income people get on their feet and start planning and saving for a better future.”
Published annually, the Assets & Opportunity Scorecard offers the most comprehensive look available at Americans’ ability to save and build wealth, fend off poverty and create a more prosperous future. The Scorecard explores how well residents are faring in the 50 states and the District of Columbia and assesses policies that are helping residents build and protect assets across five issue areas: Financial Assets & Income, Businesses & Jobs, Housing & Homeownership, Health Care and Education.
Colorado ranks 19th in the country overall in the ability of residents to achieve financial security. The Scorecard evaluates states across 53 measures within the five different issue areas. Colorado ranks the worst in the nation in Health Care, with many low-income families’ health and financial stability at risk. Ranking 48th in the disparity of being uninsured by income, the poorest 20% of people are 5 times more likely to be uninsured than the richest 20%. Additionally, 16% of low-income children (ranked 46th) and 38% of low-income parents (ranked 41st) lack health insurance. However Colorado gets an “A” in Education and has some of the highest rates of those with at least a two- or four-year degree, 45% and 37%, respectively. Colorado college graduates have lower-than-average student loan debt, ranking 11th with an average of $22,283, but the student loan default rate for recent graduates ranks 48th, with 17% defaulting on their loans. Colorado’s other “A” is in Businesses & Jobs, where Coloradans have the 7th highest microenterprise ownership rate, 5th highest business creation rate and the 8th lowest rate of job-wage jobs.
“Although there are signs of improvement in Colorado’s economy, with unemployment edging downward in recent months, this year’s Assets & Opportunity Scorecard paints a picture of a state – and a nation – that is struggling to achieve economic opportunity for all residents,” said Jennifer Brooks, director of state and local policy for CFED.
To address these challenges, the Scorecard includes a dozen policy solutions that can help Colorado increase opportunity and promote financial well-being for all residents. To reduce debt, liquid asset poverty and bankruptcy, Colorado should help families maximize their incomes by enacting a refundable Earned Income Tax Credit and Child Tax Credit. To increase health care coverage and reduce the disparity in coverage by income, Colorado should increase income eligibility thresholds for public health care programs and provide basic dental care for adults. Finally, to close the college attainment gap for people of color, Colorado should create incentives for college savings by automatically enrolling all children into 529 accounts and minimizing barriers to education savings.
Nationally, the Scorecard data reveal the daunting reality facing far too many low- and moderate-income families as they struggle to move up the economic ladder. CFED found that 25 states saw increases in liquid asset poverty over findings reported in the 2012 Assets & Opportunity Scorecard. The report also found continuing racial gaps, with nearly 63% of households of color considered liquid asset poor compared with 35% of white households. Among the other key findings:
- Many households don’t have the basic tools to save for a rainy day, with nearly a third (30.8%) lacking a savings account and 8.2% with no mainstream financial account at all.
- For the second year in a row, more than half (56.4%) of consumers have subprime credit rates, meaning they do not qualify for short-term credit at “prime” rates, making them more likely to turn to high-cost payday, auto-title or installment loans.
- Two out of every three college graduates is leaving school with student loan debt, the average amount of which increased by $552.98 over last year’s Scorecard findings to $26,600.
- By the second quarter of 2012, the foreclosure rate had dropped to 4.27% – a decrease from a 2010 high of 4.6% but still above the pre-housing crash rate of 0.99% in 2006. The move by financial institutions to stop offering high-cost mortgages has been a mixed blessing for asset poor families. On the up side, they are no longer prey to abusive and unscrupulous lenders. On the down side, they are largely shut out of the mortgage market.