- The Washington Times - Wednesday, March 23, 2005

Many middle-class families find it difficult to save, but it’s especially hard for the working poor. Now there is a special savings program — called Individual Development Accounts— designed to help poor families accumulate assets to buy a home, fund a small business or pay for college.

IDAs were the brainchild of Michael W. Sherraden, a professor of social development at Washington University in St. Louis. Mr. Sherraden pointed out in research published in 1991 that Americans traditionally have built wealth by acquiring assets, such as houses.

“That meant we had to find a way for poor people to accumulate assets, but the country’s social policy supported income programs — food stamps, things like that,” Mr. Sherraden said in an interview. “We needed a mechanism to help them accumulate assets so they could make investments for the long term.”

That mechanism was the IDA. The way it works is that community groups set up IDA programs, including financial education seminars. Foundations and the government put in funds to match what the working families save, a tactic similar to the company matches for worker contributions to 401(k) retirement programs. Local banks manage the accounts.

From a trio of demonstration projects in Illinois, Wisconsin and Indiana in the mid-1990s, the IDA program has grown to include about 500 sponsoring organizations across the country, and more than 20,000 IDAs have been opened. The Web site www.idanetwork.org lists participating groups.

Under the typical program, families that set aside even $25 per month will see their savings matched 2 for 1, for a total of $75. That means they can accumulate $900 per year, plus interest. Some have parlayed their earnings over four to five years into down payments on their first homes or tuition at community colleges — the first major investments in their lives.

That’s what happened to Sylvia Olano, 34, and her husband Eric Castro, 36. Immigrants from Peru, the couple had managed to save little from their salaries, she as a teacher and he as a librarian.

They joined the IDA program at the San Francisco-based nonprofit Earned Assets Resource Network (EARN).

“The EARN classes helped us to find ways to save money,” Mrs. Olano said. “For example, they told us to just buy the things we really need and to cut back on bills, so there was more money to save.”

By June, the couple’s IDA savings were enough to allow them and their 7-year-old daughter Diana to move from a rented one-bedroom apartment in San Francisco to their own three-bedroom, two-bath home in the nearby community of Antioch.

“We couldn’t have found a way to buy this house without this program,” Mrs. Olano said.

Ben Mangan, a former Ernst & Young manager who co-founded EARN in 2001, said the group already has opened IDAs for 600 people and can’t keep up with the demand.

“We don’t do advertising or promotion,” Mr. Mangan said. “But 50 people show up at orientations every month, drawn just by word of mouth.”

Some, like Mrs. Olano and Mr. Castro, are immigrants. Many of the other participants are single mothers or young couples in low-paying jobs.

EARN, like other sponsoring groups, limits participation to workers who earn less than 200 percent of the national poverty level, which translates to $18,620 for an individual or $37,700 for a family of four.

“We get them going with eight hours of financial management training, and the heart of that training is creation of a detailed budget and spending plan,” Mr. Mangan said. “It, of course, includes a line item ‘savings for my IDA.’”

Each participant can save up to $2,000 and garner $4,000 in matching funds under EARN’s program.

“Leveraging $2,000 into $6,000 is powerful,” Mr. Mangan said. “But what’s more powerful is how it makes other things happen, how it changes people’s vision of their future.”

IDA holders see that people just like them finally have the resources to go to school or start a small business, he said. They are motivated to get better jobs, clean up their credit and take steps on their own to build assets.

Although the federal government has authorized about $25 million per year for the program, and many states have earmarked some of their federal grant money for IDAs, many community groups that run them still struggle to raise funding from financial institutions, foundations and other charitable sources.

Bob Friedman, chairman of the District-based CFED, which did an early IDA demonstration project, said the concept of asset-building for the poor has proved so sound it’s being copied in Canada and Britain, and deserves more support in the United States.

ASSOCIATED PRESS

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