Over the last couple of years a new approach to social policy, welfare policy in particular, has started to gain ground both in the UK and internationally, known as ‘asset-based welfare policy', where the Government fosters saving and asset building. The Child Trust Fund and The Savings Gateway are the most recent examples for asset-based policies in the UK. The Right to Buy policy, the Homebuy scheme and the Shared Ownership programme are other examples, with a particular focus on housing assets.
However, this new approach to welfare has now been killed off. The Chancellor Mr Osborne has announced this morning that the Child Trust Fund
will be axed, payments will be scaled back from August and stopped from January 1, saving £320 million along the way. However, a couple of years earlier, in 2003, George Osborne had said,
“We greatly support the principle that the (Child Trust Fund) Bill is designed to promote (…) We think that having savings gives people a stake in society, gives them independence, encourages self-reliance and bolsters the freedom of the individual against the overbearing state.”
An asset is a source of potential future income, whether the asset is cash in the bank, a house or investment in a business. The important aspect of assets is that they represent ownership of a positive economic value. To alleviate financial hardship most Government policies are focused on income measures, either universal such as child benefit or targeted such as income support.
In 2007-2008, the Gini coefficient for net income in the UK was 0.36 on a scale from 0 to 1, where 0 corresponds to complete equality, i.e. every person receives the same percentage of the total income, and 1 to the ultimate form of inequality, i.e. where one person receives all income an the others none. This compares unfavourably to other European nations - Germany had a mid-decade coefficient value of around 0.29, the Netherlands: 0.26 and Sweden: 0.24.
Yet while income inequality is high, asset inequality is at startling levels. The Gini coefficient for total net wealth in the UK, calculated for the first time in 2009, was 0.61 for the period of 2006-2008.1 This reflects the harsh reality of British society today, where the wealthiest half of households holds 91 per cent of the UK's total wealth, while the the other half have the remaining 9 per cent. The bottom 2.6 percent of society has zero or negative net wealth. This disparity is even starker when focused on financial wealth, as the bottom half of households in Britain owned 1 per cent of net financial wealth compared with the top 20 per cent, which owned 84 per cent.
In the UK we do not only face a savings and asset crisis but also a related debt crisis. Total UK personal debt at the end of February 2010 stood at a staggering £1464bn. Over 50% of England's teenagers are in debt by the time they are 17. This shows the ‘financial capability' deficit in the UK that needs to be tackled urgently. ‘Financial capability' goes beyond financial literacy and education as the former focuses more on translating any acquired financial knowledge into beneficial behaviour and practices.
In his influential work Assets and the Poor (1991), Michael Sherraden of the Center for Social Development at the Washington University in St. Louis introduced the term ‘asset-based welfare.' He advocated that welfare policies should be asset-based rather than income-based because welfare was a dynamic process. He demonstrated that asset ownership had positive welfare outcomes for individuals and families that went beyond potential consumption. These outcomes included the development of a future orientation, a foundation for risk-taking, and an increase in personal efficacy, social influence, political participation, children's wellbeing and overall household stability. This transformative power of asset ownership came to be referred to as the ‘asset-effect'.
Further research shows that asset ownership has positive psychological outcomes on individuals and families, in that it makes them more self-directed and intellectually flexible, feel more confident of their present situation, more emboldened to take risks and more empowered to think and plan for the future. Asset ownership also has positive social outcomes. Home ownership, for example, increases immobility and thus increases the chances that individuals and families can develop valuable neighbourhood social capital. Home ownership also makes people more interested in local politics and willing to actively engage with neighbourhood organisations and local politics. It thus promotes active citizenship by increasing civic participation and political involvement. Asset ownership is directly related to economic well-being. It provides economic security and grants its owners the freedom to take positive risks. It allows people to invest in themselves and focus on enhancing their human capital development. Thus, as shown, there is substantial academic literature to establish the potential of asset-building welfare policies to endow benefits on citizens that went beyond just potential consumption to include positive psychological, social and economic outcomes as well.
The Child Trust Fund is, or rather was, part of the beginning of an asset-building social policy. So far, it has boosted savings as since the inception of the Child Trust Fund more parents are saving more for their children.
It can increase financial capability, if combined with programmes that tackle people's lack of knowledge and behaviour. Financial education taught in classrooms might have little effect if children and young people do not have any assets or savings they can manage. The Child Trust Fund can make the learning experience more concrete, especially for the 16-18 year olds as they can manage the Child Trust Funds themselves.
Citizenship can be strongly connected to asset-building social policies such as the Child Trust Funds and the Savings Gateway programme. Active asset- building and the ownership of assets is seen as a positive element of citizenship and is central to its concept.
The ultimate goal of asset-building policy is financial inclusion which in turn will enhance social inclusion. Changing the asset inequality and successively income inequality will require a new approach: a radical change in economic policy, more - not fewer - asset-building products if we are to find a way to move our economy and society on from this shameful wealth inequality to a more equal society.