Building Expectations: Actions you can take now to improve your financial future

The news, seemingly as always, is filled with nearly fatal economic, financial and political headlines. Just this morning, a National Public Radio story reported that at the current level of job creation, it would take nearly 20 years to recoup the jobs lost in the recession of the last few years.

As we all know, there are huge deficits, both federal and state, which have to be addressed and will likely result in budget cuts threatening crucial social safety nets; increases in taxes paid will result from either increased rates or the reduction of allowable deductions; and the ongoing dramatic increase in energy costs, recently estimated to extract as much as 1.26 billion dollars from the U.S. economy, nicely offsets the Social Security payroll reduction of 2011.

Add to all of this, increased international conflict and political unrest, mix in a little natural disaster and a pending nuclear situation in Japan, and it seems easy to become completely overwhelmed by circumstances. Given all which currently surrounds us, an ancient piece of philosophy suggests one learns to accept the things we cannot change but have the courage to change the things we can.

As April ushers in another financial literacy month, current events and hysteria aside, it is critical to recognize that individuals, disabled or not, do have the ability to change their own financial lives. In fact, the argument can be made that now, more than ever, it is critical for people with disabilities to have the courage to learn about the effective strategies and tools available to improve their economic outcomes and build a financial future.  As programs across America are cut and reduced, perhaps the one aspect people can still control is their own personal finances.  What one does in their personal financial life matters, and it matters significantly more to the individual than does most of what we hear on the news and in the media. 

Living beyond ones means by design or ambivalence has a consequence: debt. This just in: debt will affect future financial flexibility, decisions and opportunities, while alternatively spending less than one makes yields similar results of accelerating advantage. Simply put, individuals, including people with disabilities, get to participate in their own financial lives. It may not always be what we want, it is rarely fair, but financial decisions made affect the rest of our lives, and it is up to the individual to make the best possible choices in the given situation.

One of the first things often mentioned in a discussion of asset building is the issue of the unbanked or individuals who do not benefit from traditional financial services such as checking or savings accounts and access to credit. According to the National Disability Institute, only 30% of people with disabilities have a checking account, while only 12% possess a savings account. This phenomenon is not limited to people with disabilities. In fact, in California, the nation’s richest state, nearly half the population does not have a savings account, and 25% of African Americans and Latinos do not have a checking account at all. California is not alone with such numbers.  According to a National Survey of Latinos conducted by the Pew Hispanic Center-Kaiser Family Foundation, 35% of all Latinos and 53% of Mexican immigrants in the United States are unbanked.

This one decision, not to have a bank account, has profound long-term consequences. Without access to basic financial services, many people turn to check cashers, payday lenders, and pawn shops for their financial services needs. This is an expensive proposition that virtually traps people in a revolving nightmare of poverty and debt. According to the Wall Street Journal, non-banked full-time workers pay an average of $40 to cash each pay check, an amount that adds up to over $40,000 over the worker’s lifetime. That is not a typo!  It is the result of one decision and the resulting mathematical consequence.

Many non-banked consumers including people with disabilities, however, are either leery of banks, have concerns regarding banking privacy or believe the products and services are too expensive or are not necessary. It is crucial to recognize that the cost of being unbanked far outweighs any costs associated with a checking or savings account. That said, consumers need to be smart shoppers when it comes to opening an account. Many banks and credit unions offer free accounts with direct deposit of a pay check or monthly benefit check. Often these accounts come with free bill pay by Internet or by phone and offer access to affordable loan products for lower income individuals. Many of these institutions also provide financial education training to assist the consumer in improving their financial outcomes. They can help establish and repair credit, open a savings account and provide many other services specifically tailored to the needs of the customer. These credit unions and community development financial institutions want your business and are organized around the concept of customer service. For more information, check out the National Federation of Community Development Credit Unions at www.natfed.org or find a credit union or community bank in your neighborhood.

Financial opportunity is not, however, limited to banking relationships, despite their crucial importance. There are a number of financial programs, tools and strategies available to people with disabilities, which when layered together, can in a short period of time change people’s long-term economic outcomes.

For example, a federally funded Individual Development Account provides a person with a disability receiving benefits a unique opportunity to save and build assets. Several IDA matched savings programs provide a substantial match for those working toward home ownership. In the San Francisco Bay Area, some programs provide a 2/1 match for those saving toward the purchase of one’s first home. WID partner, The Center for Financial Innovation and Inclusion in Georgia provides an inspiring six to one match. For every dollar saved by the participant, the local IDA program will match with six: that’s financial empowerment.  In addition, a federally funded IDA provides participants with an income and asset disregard for purposes of Supplemental Social Security income (SSI).  That is earned income contributed to a federally funded IDA (including the program match) is not counted as income for purposes of the SSI earned income calculation.  Of equal importance, the accumulated savings in a federally funded IDA account are not considered a resource for purposes of the SSI asset calculation and thus not subject to the $2,000 dollar limit ($3,000 for married couples). Many IDA programs also provide access to financial education programs as well. Participants can learn how $85 per month over a forty year work life at 8.5% can result in a nest egg of $325,000, or by increasing that $85 monthly savings by only 5% per year, they will be on track to save over one million dollars in their life time; how one can eliminate their $2,000 credit card debt six times faster by doubling the minimum monthly payment; and how one can choose to strategically build a financial future.

While the Federally funded IDA provides a powerful financial tool and opportunity for people with disabilities, the similarly underutilized Plan to Achieve Self Support (PASS) allows an individual receiving SSI to save income to fund items needed to obtain a vocational goal. By placing earned income into a PASS, recipients may be able to maximize their SSI benefit, while building assets to fund education, vocational training or a small business.

Perhaps one of the least known financial planning tools for people with disabilities is the Student Earned Income Exclusion, which allows a person who is under age 22 and regularly attending school to exclude earnings from the SSI income calculation. For calendar year 2011, a qualified individual may exclude up to $1,640 per month with an annual maximum of $6,600. This exclusion is applied prior to any other exclusion and provides an individual the opportunity to work and gain valuable experience without fearing loss of their income benefit. While the planning power of this exclusion is significant, the true advantage comes from the work experience gained by the person with the disability. Without exception, more work experience is better, particularly for young people with disabilities, needing to compete in an ever more competitive employment environment.

Each of the foregoing represents a powerful planning tool for a person with a disability wanting to build a more secure financial future. That said, it is the combination of these opportunities and the willingness to change ones behavior which can over a lifetime lead to remarkable financial outcomes.