Access to investments and asset building for low income people

Abstract

This chapter addresses the specific issue of marginalisation risk for the economically and socially lower individuals, that concerns access to saving and asset accumulation. First of all, within a theoretical framework and for methodological sake, we will briefly analyse the considerations why saving and asset accumulation for the LMI people is important and why then some forms of support and encouragement as well as ad hoc products are to be created in order to meet these group of people's needs. Secondly, our analysis will focus on some experiences that have been made in this context in Europe and USA. It is not difficult to observe that (financial or real) asset and saving accumulation are almost universally viewed as desirable goals by any family unit. These goals remain, in any case, rather prohibitive for the poorer or "marginal" part of the population, namely the ones that we call low moderate income people (LMIs). It is not easy nor natural for them to retain from their consumption a part of their current revenue, which may be also just close to their subsistence level, as their consumption marginal utility is high and their necessity to face emergencies and unforeseeable events is frequent. The social welfare policies and actions for these people have traditionally neglected the importance of saving accumulation to reach and sustain economic well-being. Typically, these policies' structure rather aims at making LMIs less vulnerable in the economic sphere through cash and subsidies transfers. In fact, what these social actions lead to is to create better livelihood conditions because of the support given to the consumptions, namely the fact that the revenue is immediately available. This then means that the impact of this kind of social intervention is limited to the short term and is not far-sighted. In other words, traditional monetary subsidies can, in the short run, assuage some difficulties but they cannot, at the same time, avoid future difficulties to people that have unstable revenues and some saving potentials. This is not possible as the traditional monetary subsidies do not stimulate any prudent behaviour nor they promote a certain education to use poor resources, namely some saving to meet difficult situations, which would also give to the family, in the long run, a less precarious economic base. On the other hand, the development economy's studies underline that goods and therefore also resources accumulation to be maintained over time and to be used to produce a certain revenue are the very base for a lasting well-being. Saving is crucial because its increase makes the assets increase possible. This is what makes the difference between income or consumption-based policies and asset-based policies. The USA reality - where wealth is very much concentrated in a small part of the population and where ethnic, cultural and linguistic differences can considerably contribute to the introduction in a poverty cycle - shows that, as from the 90s, the idea of introducing LMIs as addressees of ad hoc asset-based policies is highly supported by the intellectuals and politicians. In this respect, Michael Sherraden is considered as one of the most important authors with this orientation: in his works, such as "Rethinking Social Welfare: Toward Assets" (1988) and "Assets and the Poor: A new American Welfare Policy" (1991), he already proposes a concrete application of the asset-based economic development theory, which will be dealt later in these pages. These preliminary remarks show that these policies presuppose that the population's marginal families and people have a saving capacity. The various existing theories about the individual saving behaviour do not focus very much onto LMIs. For the neo-classical theory, saving is simply the amounts left after individuals have carried out their consumption decisions. These decisions are supposed to be taken by a rational individual, who has stable preferences and wants to avoid significant fluctuations in his/her consumption model within a context of perfect and always accessible markets. The psychological/sociological theories invert the priorities order between consumption and saving. In other words, they state that individuals primarily define their goals in terms of goods acquisition and related savings to this purpose according to their own aspirations and perspectives - although these are influenced by economic and social circumstances. Mentally, individuals are more and more persuaded that they are not allowed to spend that amount and the consumption is then linked and determined by what is left after considering the saving intention. For the behavioural theory, individuals may encounter major difficulties to resist to spending temptations even if they understand the saving value. In order to protect this value, individuals try to create their own incentives to keep and restrict the access to their own personal liquidity. Finally, the institutional theory emphasises the role of institutional variables (rules, criteria), which can have an impact on individual saving attitudes. This gives then the institutions a role in the creation of saving mechanisms and incentives. © Springer-Verlag Berlin Heidelberg 2007.