During the financial and economic crisis of 2007 and 2008, families saw their wealth disappear faster than ever before. The sharp losses following the sharp declines in the housing and stock market require action. Importantly, in an era of fewer employer-provided benefits and less long-term government support for income insurance (Social Security, welfare, and unemployment insurance, among others), private wealth plays a more important role than in the past.
Rebuilding these losses to family wealth will require public policy attention. First, it needs to be easier for families to save. This could be accomplished, for instance, by making stronger savings incentives for low-income and moderate-income families. Public policy could promote more automatic enrollment options into retirement savings plans.
Second, public policy should help families avoid potential pitfalls in investing their money, such as putting too many eggs in one basket. For instance, policies could encourage the creation of default investment options in retirement savings plans.
Third, policies should focus on helping families avoid excessive levels of leverage. This could be done by increasing families’ access to stable and sustainable credit that is well regulated with transparent and easily understood conditions. Better regulation of deceptive practices and promotion of low-cost, long-term credit options would be a good start.
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