Advancing Economic Mobility Through Savings
November 24, 2009
Daniel Cooper (Federal Reserve Bank of Boston), Maria Luengo-Prado (Northeastern University)
As the saying goes, “A penny saved is a penny earned,” but does that penny saved
translate into greater economic mobility? Movement up the income ladder is fairly
limited for children of low-income parents—42 percent of children born to parents
on the bottom rung of the income ladder remain on the bottom rung a generation later.i
To date, however, there has been less analysis that shows clearly how income mobility
differs based on one’s own or one’s parents’ level of savings. This paper clearly
demonstrates the relationship between savings and economic mobility.
Using data from the Panel Study of Income Dynamics (PSID), the paper first explores
whether having parents with high savings (i.e., above median savings) or having high
savings oneself, improves one’s chances of making the climb up the income ladder,
or prevents one from falling down it. Second, it examines federal incentives and
disincentives to savings in the federal tax code and public assistance programs.
And third, consistent with the project’s recently released nonpartisan policy road
map to enhance mobility, it makes recommendations on ways public policy can be
improved to encourage savings, especially among low- and moderate-income families.
To read the entire paper, click here.