Article on Poverty Missed Key Points

To the Editor:

In “An Idea to Help the Poor Runs Into Snags” (April 15), Michael Anft makes some sweeping statements about the experience to date of individual development accounts. Unfortunately, he does not base his statements on research data that are readily available.

Studies show that the poor do save in IDA’s — a net average of $19 per month — and that IDA savings are used for investments in homes, education, and small businesses. There are more than 500 community-based IDA programs and at least 40 states have some type of IDA policy. The federal government has enacted a major IDA-demonstration program. Legislation for a much larger IDA policy has just passed both the U.S. House and Senate, and has the support of the White House.

Those are notable achievements of which a reader of The Chronicle would have little knowledge from reading the article.

IDA’s are relatively new and there is a great deal that we do not yet know. But it should be noted that IDA’s have introduced the idea that the poor should have opportunities to save and accumulate assets.

This is a common discussion today, though it did not exist a dozen years ago.

Michael Sherraden
Director
Center for Social Development
Washington University in St. Louis
St. Louis

To the Editor:

Your article on individual development accounts misrepresented the intent of my comments by failing to add the broader context in which they were given.

There has been little activity in the development of new savings products for low-income individuals and individual development accounts are an innovative tool for helping low-income people save toward asset accumulation. The IDA field now has considerable data on how low-income families can and do save when provided the opportunities and incentives. The most fundamental challenge to achieving scale for IDA’s results from a lack of stable sources of funds to match the account holder’s savings. Without adequate matching funds, the programs are unable to plan for and implement large-scale delivery of accounts.

Existing programs are currently forced to patch together matching funds, devoting considerable time and resources to responding to multiple funder needs, separating accounts based on funder requirements, reporting requirements, segregating matching funds based on funder needs, etc. This forces higher costs, limits the programs’ ability to grow, and prevents them from ultimately paying for themselves.

While the question of the ideal infrastructure for delivering accounts efficiently remains a critical one, it is one that will be more readily resolved once the issue of how to achieve a steady stream of incentives to save is addressed.

The importance of establishing a savings structure for all Americans is more important than ever as consumer debt reaches record levels, and home foreclosures are on the rise, threatening to reverse the gains in homeownership and asset-holding among low-income and minority populations. Shifting this paradigm requires a vigorous commitment on the part of the public sector as well as the philanthropic community to influence savings behavior by creating a universal savings framework.

For this reason, many of our colleagues have shifted their focus to policy and advocacy work, in addition to program support. The IDA field should be recognized for the contribution it has made toward establishing a new structure and vehicle. Our research demonstrates that the time has come for policy to help the field move these vehicles beyond the pilot phase.

Kirsten S. Moy
Director
Economic Opportunities Program
Aspen Institute
Washington

Editor’s note: Mr. Sherraden rightly notes that the House and Senate have passed the tax-credit increase legislation that was mentioned in the article but numerous experts interviewed by The Chronicle said they did not expect it to be signed into law in its current version because of the cost of the measure. The Chronicle stands by the quotations it published from Ms. Moy.