On this Motley Fool Answers episode, Robert Brokamp is on his own to interview Rachel Schneider, a senior VP at the Center for Financial Services Innovation, and professor Jonathan Morduch, who teaches public policy and economics at NYU, about their new book, The Financial Diaries: How American Families Cope in a World of Uncertainty. For the study behind the book, their team tracked essentially everything about the finances of 235 families in five states for a full year, giving them deep insights into where we are succeeding, where we're not, and what obstacles are most commonly in our paths.
Recognizing that personal choices matter, a great deal of what's holding families down comes from macro factors they can't begin to affect. But our elected representatives in Washington, D.C., can. In this segment, the authors lay out a few areas where President Trump could, if he chose to, make a big positive impact on the lives of ordinary Americans -- and they don't mention the word "taxes" even once.
A full transcript follows the video.
This video was recorded on Sept. 26, 2017.
Robert Brokamp: Let's say President Trump finds your book, loves it, calls you into the White House and says, "All right. I agree with you." And to be quite honest, reading about some of these people, I'm sure many of them were Trump voters because they're talking about how they're not getting ahead even though they're working hard and they were expecting some sort of changes. And he says, "Which thing should I be doing to improve this situation?" Not that he's actually going to do it, but what would you tell him?
Jonathan Morduch: It's interesting. We didn't touch politics when in the conversations with the households, but we were definitely in some very Republican areas. What would we say? When we think about security in this country, there's a real divide. There are Americans who are very secure and then Americans like the families we got to know who are struggling in various ways.
And there are really two dimensions of that. One is what's the underlying instability, like the hours going up and down week by week? And the other is what their coping mechanisms are. And you need both. So the top of the list would be some labor market intervention. Perhaps legislation that would say you need to give your workers a week or two weeks' notice so they can plan better. Better would be a month. So there are interventions like that. Or helping collective bargaining so that workers can take back some of the power and get to better contracts.
But then there's a whole series of things which usually don't get talked about in that conversation, which are financial: better financial products, mechanisms, regulations. Rachel has done a lot more thinking on that side, but there are lists of things which really go together and haven't been on the table in the way they ought to be.
Rachel Schneider: And that's the set of things that the business community often can get behind and does like. You can make the argument that there is profit to be made in serving people with better financial services. We need, in fact, better lending. Better savings. Products to help people manage the ups and downs they experience. I think we're at the beginning of a whole wave of innovation in insurance. And so you could think about some really pro-business approaches to encouraging innovation in that space.
I also think government has a real role to play, here, and there's lots of motivation from both sides of the aisle to revisit the way we provide welfare in our country. I think we just passed the 20-year anniversary of welfare reform or we're just about to get to it and I don't think anybody really thinks the way we provide assistance to families in need today is working as well as it should. And so we need to think about new and better policies to help people to manage their economic lives. To know they can be secure and take on risks for their future.
Morduch: Yes, the CFPB [the Consumer Financial Protection Bureau], which is an Obama innovation and pushed by Elizabeth Warren and all kinds of people who Donald Trump wouldn't necessarily see as buddies; that government agency is protecting a lot of Trump voters...
Brokamp: Exactly...
Morduch: ... and in some world it would be great if Donald Trump said, "Hey, these are my people and we need to strengthen this organization, this agency and provide protection to those folks. They need it."
Brokamp: One of the points you make in the book is that various social services [welfare types of safety nets] vary across the country, so a lot of it is administered by the state, and a lot of them do have requirements in terms of assets. And once you have saved up some money, then you're not in the program anymore. But the evidence is that if you let people stay on the program and accumulate more assets, it reduces the chances that they'll come back to the program later.
Schneider: Yes, that is so true. And that just doesn't seem like it makes any sense, and there is state-by-state movement to change it, but it's hard. And that's only one of the many policies you could pull at the threads of and say, "We think we're helping people with that policy but the way it's structured we're making it harder for people to get off of public assistance and stay off."
For example, it's generally pretty onerous to get public assistance. TANF, which is the main way we provide welfare has a work requirement which is fine one way or the other, but it means you've got to document that you're either working or trying to find work, and it caps the amount of time that you can receive welfare. But at the end of two years, regardless of where you are in terms of your employment prospects, you're now done.
And it doesn't really work in any meaningful way to change somebody's trajectory. We'd be better off enabling somebody to actually become self-sufficient. Let's invest that same money in some way that makes the person able to take care of themselves better.
