I’m sure there are some people who would get a twist in their panties over this idea but it seems to be a way in which earnings and self-sufficiency can be encouraged and even rewarded.

A single woman gets out of the military, has a divorce with an abusive husband, and is trying to find a decent home.

She has $1000 saved up to find a place, but doesn’t yet have a job.

She lives with a friend or relative, at a rental price of $150 a week, with her child until finding an apartment.

After an exhaustive search, she finally finds a job with a non-profit; Grosses $1400 a month.

The least expensive rental she can find is $600 for a 1 bedroom.

Figuring in the cost of daycare for her 1 child; electricity; rent; gas; car maintenence; water and sewer; and groceries;

she’s lucky if she HAS any money to save. More than likely, she will find herself in a deficit from time to time.

This mother is NOT eligible for health insurance, and to get it through her employer, would cost her an additional $100.

She has to make some decisions now, ie, choosing to get her painful tooth looked at by a dentist, or paying rent/electricity/ Etc.

She has been told to apply for foodstamps, but knows that she has a $2000 retirement plan, and $1000 in a savings account that she is saving to put toward her home through Habitat for Humanity. (They require at least $500 deposit, and she will need her money for utility deposits.

If she spends her money now on food, she won’t be able to afford to move out. Section 8 has a 2 year waiting list, and Habitat will take at least a year.

If she spends her money now on food, though she will STILL NOT BE ELIGIBLE FOR ASSISTANCE. Government assistance is based on HOUSEHOLD income.

Here’s the problem with the system. We’re keeping people on it, and we don’t want to do that. We’re keeping people poor.

If this single mother can get herself out of this situation, and can EVEN get herself food stamps, she won’t be able to afford to get off of them.

Sure, having money in the bank means you can afford food, but not having the assistance can mean not becoming self-sufficient.

I think it’s a travesty that low-income people have to “dump” their savings into basic needs before they can get help with those needs.

Having a savings account shows that the people have goals, and that they are working toward getting out of the system, which should be the goal of assistance.

Rather than simple placing a limit on savings, the government could impose some sort of limitation on savings. Here are some MUCH better options:

1. Clients with $2500 or more cannot withdraw their money until they find a better paying job and get disqualify, income-wise, for assistance.

2. Clients must specify allocations for their savings, and there should be certain savings accounts excluded from the assets eligibilty requirements, ie. housing, retirement, or education. Clients should sign a contract stating that the money in their accounts is being saved for one of those reasons, and if used for any other reason, they may be penalized a certain percentage for the benefits they have already received, and may be terminated from receiving assistance.

3. Clients in temporary situations should not be penalized for savings if their accounts are less than the standard $2500 limit AND
a. first, last and security deposit rates (based on lowest available rental rates for local area), and
b. Deposits for utility bills
c. a certain small amount to account for basic living ammenities (bed, Etc).

S&P 500 returned 20% this last year. There’s no reason to believe that the market won’t return an average of 8-12% over the next 20 to 30 years. Over the last 5 years, the S%P has doubled over 5 years. By doing that math, that’s approx. 15% per year. Yes, it did go down. But then again, if you put your money aside monthly, you would have made money. It’s called cost-averaging.

“$500,000 you so breathlessly tout would be worth roughly $80,000 in 40 years given the inflation that occurred between 1967-2007. Going forward, inflation could very well be much higher, making your $500K worth even less.”

Secondly, DO YOUR MATH. 3% inflation 30-40 years from now only reduces value by a factor of 3. What empirical data do you even have to even suggest that inflation would be any higher than 3-4%? Even taking into account the recession and inflation crises of the 70s and 80s, our inflation is under 4%. Further, if you even begin to suggest that it’s unreasonable to expect a 10% rate of return, that means average incomes go down. That means that inflation would likely decrease unless we have short supply of a particular resource, the only one which comes to mind right now is oil. Either way, the last time I checked, 500K divided by 3 doesn’t equal 80K.

Oh Bob, btw, do you have a background in either economics or finance? I didn’t think so…

Lastly, what excuse do the poor have not to save money except for the fact that they may not know about it? If the poor save that money, it is only then that they have money there for a safety net or a retirement account.

I don’t think that a person’s retirement account should be included in their income. What should be done is to freeze it while receiving benefits. The reason that they include it is because the person has access to withdraw money; even though they would be penalized. So, if the government put a freeze on their accounts while receiving benefits, there wouldn’t be a problem. If the person wanted the freeze off to withdraw money, his or her benefits would stop.

Also, people can also prepay some of their expenses such as cemetery plots if you’re elderly.

You can also save money on the side. When you use coupons, receive rebates or gift money, that can be saved to the side until needed for emergencies.

“Oh, btw, saving 2000/year from 26-35 at standard market rates using IRA/401K vehicles results in approximately 500,000 in total savings by the time they are 65. Do the math. It’s compounding interest at 10%.”

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First, it would be rather naive to expect a 10% return going forward.

Second, the $500,000 you so breathlessly tout would be worth roughly $80,000 in 40 years given the inflation that occurred between 1967-2007. Going forward, inflation could very well be much higher, making your $500K worth even less.

Just like the law, the poor is often neglected with taxes since people who are doing the legislations are not poor and thus could never really get the real picture.