By Ross Yednock, Director of the MEIC at CEDAM
Michigan policy has long held our state’s families living in or near poverty back from saving for emergencies and planning for the future. That has now changed, thanks to Governor Gretchen Whitmer’s announcement earlier this year that increased asset limits for three Michigan assistance programs.
As of December 1, 2019, the new “asset limit”—the maximum amount of savings a family can have and still qualify for certain state assistance programs—is $15,000. This allows families to build modest savings while remaining eligible for food assistance—an effective and sensible way to help Michigan families experiencing financial hardship.
Research shows that stringent asset limits discourage low-income households from building any kind of emergency savings for unexpected expenses (let alone longer-term savings for a home, education, retirement, etc.). These policies force families to “spend down” what little savings they have in order to continue qualifying for basic food assistance.
This is exactly what happened in Michigan. According to state data, between 2000 and 2007, of all families receiving FIP from the state, more families depleted their assets (1.3%) to gain eligibility than had their cases denied, or closed (0.456%) as a result excess assets. In other words, Michigan caseworkers were checking the assets of all recipients and potential recipients despite the fact that less than 2% were close enough to the asset limit to matter, wasting time and money that could have been spent on service delivery.
These limits created confusion among families in need and wasted taxpayer’s time and money, as less than two percent of the people applying for these benefits had any assets to begin with.
In contrast, the new approach by Governor Whitmer will help Michigan households build a pathway to financial success by allowing them to maintain a financial cushion and plan for the future. Evidence from the Urban Institute, a nonpartisan research organization, shows that easing asset limits in other states led to more savings among low-income households. Emergency savings is critical to help families cover the cost of unexpected trips to the doctor or auto repair shop and help them avoid predatory payday loans.
Moreover, increased asset limits in other states has shown to reduce SNAP “churn.” This means more families do not face the constant cycle of on and off food assistance when assets fluctuate from month to month. This increase in financial stability helps families plan and invest in their future.
Higher asset limits can help families participate in the mainstream financial market and avoid expensive check cashers and other predatory, high-interest lenders. Families living in states with more relaxed asset limits are more likely to have a bank account, a key building block for financial security, research shows.
Allowing low-income families who accumulate modest savings to continue to receive vital food and cash support will make Michigan’s safety net programs more effective. Governor Whitmer should be commended for this (long overdue) practical solution and will help more Michigan families living on the financial brink to increase their financial stability.