Individual Wealth Building

OVERVIEW

Individual wealth building programs aim to increase the savings of low and moderate-income individuals. One of the pioneering efforts in this area was the Individual Development Account (IDA). Michael Sherraden, a professor at Washington University in St. Louis, is credited with pioneering the IDA concept. According to Sherraden, the core elements of the IDA idea are:

• Special savings account
• Started as early as birth
• Savings are matched for the poor, up to a cap
• May have multiple sources of matching deposits
• Includes financial education component
• May be used for homes, education, and business capital

Individual development accounts illustrate a central feature of the community wealth-building approach: namely, that to end poverty, communities—and the people in those communities—must be given the tools they need to develop their own, long-term income-generating capacity.

In concept, IDAs are intended to serve as lifelong matched savings accounts. But as implemented to date, they have been limited-term accounts that assist low-income families to meet a specific savings goal. Typically, matched funds must be spent on specific wealth-building activities, such as home ownership or renovation, business start-up or expansion, or education. To date, over 50,000 Americans have participated in individual development account programs.

Three small federal programs use IDA principles—the Assets for Independence Act (the official federal IDA program, which in FY 2007 received an allocation of just under $25 million) of the Office of Community Services; a smaller program in the Office of Refugee Resettlement (which allows IDAs to be used to purchase cars or computers); and the Family Self-Sufficiency (FSS) Program, which permits low-income families who are in subsidized housing and seeking to move “up and out” to deposit gains in income they earn in a matched savings account to finance college or a downpayment and thus speed their transition to self-sufficiency.

Additionally, there is a long-list of initiatives at early stages of development. For instance, the Federal Home Loan Bank of San Francisco runs two downpayment/closing cost match programs for low-income families who are purchasing homes. The Chicago-based Council for Adult & Experiential Learning is running a three-city demonstration project in which individual savings accounts are used to finance education and training. Advocates are also seeking to relax asset limits on benefit programs—as these discourage the very savings necessary to stay out of poverty—and to encourage those receiving earned income tax credit rebates to deposit a portion of their rebates into matched savings accounts. And in Congress there are efforts to create childhood savings programs. In Great Britain, Child Trust Funds, which enable every child on birth to receive a £250 (about $500 US) voucher from the government to start a savings account—which can then be increased by parental and family contributions—were enacted into law in 2002.