Poor to Get Incentive to Save Under Program

A group of major foundations, seeking to boost the low savings rates of the poor, will announce today an innovative test program to provide $8 million to match poor people’s savings for homes, college and new businesses.

Individuals who open a savings account under the program can obtain matching funds of up to $500 per year for four years.

The program will be open to 2,000 participants in 12 communities, including San Francisco, and could be the forerunner of a new way to put capital into the hands of America’s working poor.

It marks a drastic departure from traditional welfare-type programs, which provide grants or food stamps to the indigent. Instead, the new savings approach would give poor people money to combine with their own savings for a future investment.

The foundations, which include the Ford Foundation and the MacArthur Foundation, will run the matching program for four years, and then spend two years analyzing the results to decide whether to commit major additional funds.

Meanwhile, the concept may win some direct government support. A coalition of conservative Republicans and liberal Democrats is promoting legislation to provide $100 million in federal funds as matching money for savings accounts opened by 50,000 poor people.

In the program being unveiled today, the maximum income for eligibility will be $25,000 for a family of four, but the vast majority will have incomes far below that level, according to Robert Friedman, chairman of the San Francisco-based Corporation for Enterprise Development, which organized the savings project.

The basic framework allows participation for those with incomes up to 200% the federal poverty level, which is defined as $7,890 a year for an individual.

The foundation effort, in effect, would create for poor people access to pools of savings like the individual retirement accounts, or salary set-aside programs such as 401(k) accounts, now popular among the middle class.

Savings accounts are “the price of hope for the poor,” said Friedman. “This only works if the individual and his or her family adds their own labor and energy and vision.”

Poor people lack the disposable cash to help them climb into the middle class. One-third of all American households and two-thirds of African American households have no assets at all to invest--in other words, no money in the bank and no extra cash, according to Friedman. Half of all households have less than $1,000 in financial assets.

By offering to match any savings, the foundations are encouraging poor people to make the Herculean effort to wring some savings from their meager budgets.

To prepare for the project, community groups and religious organizations carried out local surveys among the poor, who indicated they might be able to save from $10 to $50 a month.

The special accounts can be tapped for three purposes: to make a down payment on a house, to open a business or to pay for education beyond the high school level.

Pilot programs with matching funds for savings accounts have been operating successfully, though on a smaller scale, in recent years in Indianapolis and Chicago, operated by local community groups.

This is a “democratic investment system so people can begin to get out and earn money and develop an economic base,” said Friedman.

The matching program will begin next year with 13 projects: two in Chicago and one each in San Francisco; Austin, Texas; Barre, Vt.; Berea, Ky.; Fond du Lac, Wisc.; Indianapolis; Ithaca, N.Y.; Kansas City, Mo.; Portland, Ore.; Tulsa, Okla.; and Washington, D.C.

Besides Ford and MacArthur, other participants supplying funds are: the Joyce Foundation, the Charles Stuart Mott Foundation, the Levi Strauss Foundation, the Fannie Mae Foundation, the Kauffman Foundation and the Marion Fund.

The sponsors of the federal legislation, which was introduced recently, calling for $100 million in federal money for matching savings accounts are Sens. Dan Coats (R-Ind.) and Tom Harkin (D-Iowa), and Reps. John R. Kasich (R-Ohio) and Tony P. Hall (D-Ohio).

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