Fw: Welfare Savings Accounts in US

H. C. Covington (ach1@sprynet.com)
Sun, 7 Jun 1998 22:53:11 -0500

-----Original Message-----
From: John Freund <jbreund@IDT.NET>
Date: Thursday, May 28, 1998 7:07 AM
Subject: Welfare Savings Accounts in US

From: Ed Schwartz <edcivic@libertynet.org>
Subject: Welfare Savings Accounts


The following story appeared on the business page of this morning's
Philadelphia Inquirer. It relates directly to our discussion of
welfare-to-work strategies. John Watkins of The Simple Society
has been advancing the notion of "Empowerment Loans"--a concept
he describes more fully in their current printed newsletter. This is
another variant of the same principle.

There's a web page that describes this more fully:


Ed Schwartz


An extra hand to help pull up on bootstraps


WASHINGTON -- After interviews with welfare families in the 1980s,
Michael Sherraden came to believe that a double standard was at work for
society's haves and have-nots.

In most states, a person who was considered poor by federal income
but who still managed to have $1,000 or more in the bank was deemed
for public assistance. In effect, the poor were penalized for saving
money --
while middle-class Americans had IRAs and 401(k) plans that offered tax
and, in some cases, matching funds as incentives to save.

"It didn't make sense," said Sherraden, director of the Center for Social
Development at Washington University in St. Louis. "We're rewarding one
for building assets but not the other."

His suggestion was individual development accounts, which are limited-use
savings accounts for the poor that would provide matching funds.

For years, the idea generated little action. Then along came welfare reform
two years ago.

Now, individual development accounts, or IDAs, are in vogue. Private
foundations have begun to fund them in small demonstration projects, and
national welfare-reform law allows states to do the same with federal
Pennsylvania is one of the states offering the accounts. The accounts can
used only to finance job training, home ownership, small-business ventures,
post-secondary education. Most require account holders to take financing
courses -- budgeting, money management, cost-comparison and other classes
could help them reach their savings goals.

In most programs, would-be participants must be receiving public assistance
making no more than 200 percent of the federal poverty level per year. (For
family of four, the poverty level is $16,450 in 1998.)

Typically, a poor person deposits money into the account and the sponsoring
agency, whether it be the state government or a foundation, provides the

And while setting aside even $20 to $50 a month is difficult for low-income
families, matching rates -- from 50 cents to up to $9 for each dollar
saved --
make the accounts hard to refuse.

Plus, the money saved does not count as a disqualifier for welfare
eligibility, thereby avoiding the problem of penalizing the poor for
saving. And though
details remain to be worked out, no account holder has yet paid income tax
the money. Hailed as a ground-breaking direction in public policy, IDA
programs are sprouting throughout the country. With only a short track
record and
little formal review of their effectiveness, the accounts have made
believers of

conservatives and liberals, who see the potential to instill hope, economic
discipline and the value of personal sacrifice in the poor.

"IDAs just don't fit the traditional category of left or right or liberal
conservative theory; either side can always find something about the idea
they like," said Ray Boshara, program director for the Corporation for
Enterprise Development, a nonprofit economic- and policy-research firm in
>From rural areas in Kentucky, Vermont and New York to the inner cities of
Chicago, Atlanta and San Antonio, more than 100 private organizations and
several states fund programs. Boshara sees the funding as an investment in
self-improvement. "The basic theory is that people move forward through
savings and investment, not consumption and spending," Sherraden said.

Lisa Pauly was separated from her husband in 1996 and was earning barely
enough to keep herself and her three children in a two-bedroom apartment
when she
heard about the IDA home-ownership program from her daughter's Head Start
center in Fond du Lac, Wis.

Owning a house had been a longtime dream, but without her husband's help,
Pauly, 33, did not think it was possible on her $14,000-a-year secretarial
job. Through the individual development account, she saved $500 in nine
while attending classes on budgeting, the mortgage process, home
maintenance, and
detecting lead poisoning.

With her IDA's 4-1 match, she finished the program with the maximum $2,500.
She saved an additional $800 and used the $3,300 as a down payment on a
three-bedroom Cape Cod-style house.

"It's more than just the money," Pauly said. "You're really putting your
in order. That's the part that raises your self-esteem."

In Washington, five organizations will offer 100 development accounts by
end of the year. One of the groups, Wider Opportunities for Women, provides
job training for low-income females. It recently was host to 16 candidates
need the accounts to finance tuition and down payments for homes. The
accounts pay a 7-1 matching rate, while the home accounts pay a 4-1 match.

If selected for one of the group's 10 development accounts, Sharon Hatchett
plans to save $1,200 over two years, get the $4,800 match, and use the
total to buy a house.

"This gives a chance to people who never had a chance in life," Hatchett
"I can learn how to clean up my credit, what to purchase, how to purchase
Without this, I'd be lost."

Sherraden believes the growing popularity of the programs stems from their
emphasis on long-term personal improvements rather than on stopgap income

Leading the nationwide push for IDAs, the Corporation for Enterprise
Development is conducting a six-year, $15 million demonstration project to
how effectively the accounts move people toward economic independence. The
project will fund at least 2,000 development accounts through 13
nationwide and follow the recipients for six years.

Though the project's funding comes from private sources, IDA advocates say
accounts need a public commitment as well. And slowly but surely, states

warming to that idea: Ten now pay for programs, and six have legislation
to do
so on the drawing board.

Indiana will spend $1.2 million over four years to pay for 335 IDAs. Using
3-1 matching rate, it will contribute a maximum of $900 per year to each

Pennsylvania agreed to pay $1.25 million over two years to fund accounts
1,900 families. It will match the savings at 50 cents for each dollar.

On the national level, the unlikely union of conservative Sen. Daniel R.
(R., Ind.) and liberal Sen. Tom Harkin (D., Iowa) has sponsored legislation
for a national $100 million demonstration project to fund 50,000 accounts
various areas of the country.

"The private sector can only sustain this for so long," said Christine
Robinson, director of poverty programs for the Indianapolis-based Moriah
Foundation, which sponsors numerous IDA programs. "There's just not enough
money to match the people that are interested, so if we're going to do this
over decades, we have to look to public funds."

For More Information
To learn more about individual development accounts, call the Corporation
Enterprise Development at 202-408-9788 or access its Internet site at

Ed Schwartz, Institute for the Study of Civic Values, 1218 Chestnut St.,
Rm. 702, Philadelphia, Pa. 19107 215-238-1434 edcivic@libertynet.org