SOCIAL PROGRAMS : IDAs--Nest Eggs for the Poor : Special accounts give welfare recipients a chance to save for the future.
Genell Dean is saving money for a house.
That simple statement would have been unthinkable 18 months ago when, pregnant and with two young children in tow, Dean fled Atlanta and her husband, ending up in a Salvation Army shelter here.
And it still is unthinkable for nearly everyone who spent most of the last year on welfare, as Dean did in order to feed her family. In most of the United States, anyone who has $1,000 in assets is no longer eligible for payments.
“They always say they want you to get off welfare, but they make it hard for you to get off,” said Dean, 23. “If you try to get ahead, your benefits are automatically gone.”
Dean’s chance for a nest egg has come through a local experiment with “individual development accounts.” IDAs are being touted as a tool essential to welfare reform, as well as a way to help the working poor--and perhaps all Americans--improve their miserable savings rate.
The IDA, its proponents say, could provide a grubstake along the lines of the Homestead Act, which granted 160 acres of land at the turn of the century to those who agreed to farm the property, or the GI Bill, which propelled a generation of World War II veterans into the middle class.
An IDA takes the familiar concept of IRAs--individual retirement accounts--several steps further. Withdrawals are allowed only for specific purposes. But instead of pension income, they provide economic betterment: education, a home, a business.
The poor would get a subsidy, with government putting in a certain amount for every dollar the individual deposits. “We already subsidize savings for the middle class, with tax breaks,” said Robert Friedman, chairman of the Corporation for Enterprise Development, a policy research group in Washington. Indeed, deductions for IRAs and home mortgage interest cost $160 billion a year.
But “for poor people, the whole world is set up counter to that. There are obstacles to saving,” said Michael Sherraden, director of the Center for Social Development at Washington University in St. Louis.
Sherraden was the first to put forward the IDA concept. “Income may feed people’s stomachs,” he wrote in a 1991 book, “but assets change their heads.”
Long-term goals would seem reachable and transform the way poor people look at their communities and their own roles in society, he argued.
Support is bipartisan: A proposal for a $100-million federal IDA project is being sponsored by Sens. Carol Moseley-Braun (D-Ill.) and Dan Coats (R-Ind.). Five states, including California, have exempted from welfare limits any savings in accounts for education, employment, business or housing. Iowa is setting up a five-year, 10,000-account IDA demonstration. Oregon has created “individual learning accounts” in six counties in which employers put $1 an hour in restricted accounts for working welfare recipients.
From Bozeman, Mont., to Tupelo, Miss., to Chicago, smaller-scale subsidized IDA initiatives have been operating for two years.
Here, in the Highland-Brookside neighborhood--a mostly white but ethnically mixed area where unemployment is high and drugs are a problem--Eastside Community Investments Inc., a nonprofit community development organization, has incorporated IDAs into six of its training programs. Of 63 account-holders, 12 have made withdrawals, with checks written directly to schools, real estate companies or business vendors.
When Genell Dean first moved from the shelter to ECI housing for battered women, “saving money didn’t cross my mind,” she said. But then she was told that if she could scrape together $75 to deposit in an IDA, ECI would put in $925.
In March, as soon as she had completed six months in the program and was eligible, she put the money in.
She kept saving after receiving her subsidy and now has $2,000, even though she’s already made a withdrawal for classes in social work. She has been off welfare for more than three months, holding a job at another ECI program. She sells handmade photo albums for as much as $60 apiece. She makes wedding baskets and hairpieces.
And she dreams of her own place with a big back yard.
She’s seen other people use their IDAs to make a real change. Tina Moynihan, 18, moved with her fiance and son into a $51,000 house in August with the help of an account she started in February.
Harold Lloyd, 30, and his wife, Lisa, 31, took money from their IDAs to keep their fledgling janitorial business afloat.
ECI contributes a lot of money quickly “as an attention getter,” said the corporation’s president, Dennis J. West. “We want people to start taking this stuff seriously. With $1,000, you’re not very far away from where most people start, so you can see that with savings, you get results.”
A national IDA system could be financed, Sherraden said, by capping the home mortgage deduction--a touchy political issue.
But even laying out the money directly, Friedman contended, “would be a good investment.” A study by his organization showed a 23% return to the federal government in taxes generated and reductions in welfare and Medicaid payments.
