New Dem Play | Helping working families build assets and obtain financial independence
Where It's Working | Dozens of states and cities across America
Players | Federal, state, and city officials
When discussing the economic gap between the rich and the poor we most often focus on income and ignore personal assets and wealth. While a substantial income is vital for daily survival, true advancement and financial security comes from accumulating savings and building wealth. Savings can provide people with a personal stake in the economic mainstream and give them the financial cushion necessary for upward mobility. For many low-income Americans, however, building savings is difficult, and accumulating enough savings to buy a home, finance a business, or pay for schooling may be well out of reach.
Individual Development Accounts (IDAs) are one innovative way to help low-income families accumulate sufficient savings to meet these goals. IDAs were first proposed by Washington University Professor Michael Sherraden in a report published by the Progressive Policy Institute in 1990. Under a typical program, IDA participants open up savings accounts in which their deposits are matched at a rate determined by the sponsoring organization. The matching dollars, which are provided by government or private sources, can vary from as little as 50 cents for every dollar saved to as much as five dollars. IDA programs are often coupled with classes in financial literacy.
In 1993, Iowa became the first state to pass legislation in support of IDAs. Since then, there are currently more than 250 IDA programs operating in 49 states nationwide. Most of these programs are run through community-based organizations, and are often jointly funded from private and public money. States can tap both federal and state dollars to provide the infrastructure and matching funds for these programs. One potentially significant source of federal funding is the Temporary Assistance For Needy Families (TANF) block grant.
Oregon's comprehensive IDA program offers just one example of how states can take the lead in building assets for low-income families. Created seven years ago, and most recently updated through a 2001 law, the program is available to all Oregonian individuals or families whose income is less than 80 percent of the surrounding community median or who have a net worth of less than $20,000, minus total debts and obligations. Deposits are matched on a ratio between 1:1 and 5:1 (at the discretion of the funding organization), and matched monies cannot exceed more than $2,000 each year or $20,000 total. In addition, each participating financial institution that provides these benefits receives a 75 percent tax credit based on the total amount it matches in a given year (with a $75,000 limit). Unlike many other states, Oregon allows for emergency withdrawals that are unrelated to homes, education, or business ventures. The funds withdrawn for these other purposes, however, must be returned within 12 months.
A return-on-investment study of Multnomah County, Oregon, showed that for every dollar invested in IDA programs, the public and private sectors received a $3 return on new taxes, tuition, home ownership equity, and retail purchases.
Local municipalities can even tap resources to provide a stronger incentive for saving within their community. For instance, St. Louis (partnering with the Annie E. Casey Foundation) offers IDAs through the St. Louis Regional Jobs Initiative, and matches funds on a 1:1 ratio up to $2,000 for all participants that are involved with or eligible for TANF.
The Democratic Leadership Council has long advocated for increased savings incentives for low-income families. In 2006, the DLC produced the American Dream Initiative, under the leadership of Sen. Hillary Clinton and former Gov. Tom Vilsack, which proposed the creation of Baby Bonds that would help close the asset gap and give more resources for low- and middle-income families.
"State Assets Policy Page," Center for Social Development, Washington University (The ultimate IDA website, with background, in-depth descriptions of state programs, model legislaton, etc.)
http://gwbweb.wustl.edu/csd/policy/index.htm
The IDA Network (Center for Economic Development)
www.idanetwork.org
Economic Success Clearinghouse-IDAs
www.financeprojectinfo.org/WIN/individu.asp
The Family Conservancy - Kansas City, Mo.'s Family Asset Building (FAB)
www.thefamilyconservancy.org/life/ida.htm
The New America Foundation's Asset Building Program
http://www.assetbuilding.org/
Personal Responsibility and Work Opportunity Reconciliation Act, U.S. House Bill 3734, 1996
thomas.loc.gov/cgi-bin/bdquery/z?d104:
HR03734:@@@L&summ2=m?summary
Hawaii Senate Bill 646, 1999
www.capitol.hawaii.gov/session1999/bills/sb646_cd1_.htm
The CARE Act, U.S. Senate Bill 476, 2003
http://thomas.loc.gov/cgi-bin/bdquery/
z?d108:SN00476:@@@L&summ2=m&
Oregon Individual Development Accounts
www.tnpf.org/programs/assets_idas/
Oregon Statute, Chapter 458.670, 2003
www.leg.state.or.us/ors/458.html
Annie E. Casey Foundation
www.aecf.org/MajorInitiatives/FamilyEconomicSuccess/
TheJobsInitiative.aspx
The American Dream Initiative
http://www.dlc.org/documents/ADI_Book.pdf
"Idea of the Week: Individual Development Accounts," DLC, April 10, 1998
www.dlc.org/ndol_ci.cfm?
contentid=1703&kaid=114&subid=144
"Idea of the Week: Wealth-Building Assets for the Poor," DLC, May 24, 1998
www.dlc.org/ndol_ci.cfm?
contentid=679&kaid=131&subid=207
Michael Sherraden, "Stakeholding: A New Direction in Social Policy," Progressive Policy Institute, January 1990
www.ppionline.org/ppi_ci.cfm?
contentid=2105&knlgAreaID=114&subsecid=143
Jeff Lemieux and DeWayne Davis, Individual Development Accounts, How Are They Working?, Progressive Policy Institute, August 2000
www.ppionline.org/ppi_ci.cfm?contentid=2141
&knlgAreaID=125&subsecid=164
Corporation for Enterprise Development
777 N. Capitol Street, NE
Suite 800
Washington, DC 20002
(202) 408-9788
(202) 408-9793 (fax)
Irene Skricki
Annie E. Casey Foundation
701 St. Paul Street
Baltimore, MD 21202
(410) 223-2884
skricki@aecf.org
Katie McMinn Campbell
Policy Analyst
Progressive Policy Institute
600 Pennsylvania Ave., SE, Suite 400
(202) 546-0007
(202) 544-5002 (fax)
kcampbell@ppionline.org
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