ASSET-BUILDING and IDAs

ASSET-BUILDING PROGRAMS AIM TO HELP low-income people accumulate funds for buying homes, obtaining post-secondary education and job training, and attaining other investments. Owning these assets has both short and long-term benefits. In the short term, those who hold assets are more likely to defer some purchases, enabling them to accumulate wealth. Assets are also a safety net for emergencies. In the long term, assets strengthen individuals, their families, and neighborhoods by giving people a stake in their future and the community. Assets help to increase wealth, and their value can be passed down to following generations (Sherraden*).

The poor are much less likely to have accumulated this wealth than higher-income people (Oliver and Shapiro*). Although the official level of poverty has hovered between ten and twelve percent of the population from 1980 through 1995, the level of asset-poverty—those who do not have enough saved to live on for three months—rose throughout the 90s, reaching about twenty-five percent of the population by 1995. Poor families in debt have a median level of assets of $200 (Wagmiller*). Many people who are not poor in terms of income have few assets, or are even mired in debt. In addition, the racial gap in asset poverty is large. Blacks and Hispanics have about twice the rate of asset poverty as whites (Haveman and Wolff*).

We know that in order to help the poor build assets, institutional incentives, information, and access are crucial. Researchers have found that the most important reason the poor build fewer assets is not due to a lack of motivation or impulsive buying habits, but because they do not possess the resources to take advantage of incentives such as Individual Retirement Accounts that subsidize saving for the middle class (Schreiner, Clancy, and Sherraden*).

Strategies for closing this asset gap usually try to make financial lending and banking institutions more accessible to low-income people through loans, no-cost saving accounts, and individual development accounts, or IDAs. Created by community-based organizations with public and private funding, IDAs are matched savings accounts which can be withdrawn for purposes such as buying a house, starting a business, or obtaining post-secondary education or job training.

The time may be ripe for communities to address asset building. Since the 1996 welfare reform legislation, most states have raised the amount of assets families can own and remain eligible for welfare, and twenty-five states have included IDAs in their welfare plans. In addition, the federal Assets for Independence Act, passed in 1998, makes $25 million available annually for use in IDA accounts for the poor (Page-Adams*).

Research shows that IDAs are an effective savings tool. As of 2004, 20,000 people had IDAs, and over 500 community organization have created IDA programs (New America Foundation*). The average amount saved yearly in these programs is $700 (with a 2:1 matching rate). Of the 32 percent of individuals who withdrew funds, the majority used withdrawals to buy or repair a home, start a business, or attain postsecondary education (Schreiner, Clancy, and Sherraden*).

Asset-building organizations
There are several types of organizations that are committed to helping families build assets through IDAs and other programs. The most common are community development finance institutions, or CDFIs. CDFIs are financial institutions that have community development as their primary mission. CDFIs generally include:

	Community development banks
	Community development credit unions
	Community development loan funds
	Community development capital funds
	Microenterprise development loan funds

Developing a CDFI can be a complex undertaking. A few fundamentals include:

Large organizations with a history of providing banking or funding services to local neighborhoods are more likely to be successful than smaller, newer institutions with little history in the area. A small or newer organization will find it helpful to form partnerships with older and more traditional financial services, such as mainstream banks. This is particularly important because one of the largest challenges for these programs is consistent fundraising (Page-Adams 2002*; McLenighan and Tholin*).

Different types of organizations can be successful: nonprofits, community development organizations, banks, and credit unions (Sherraden et al.*).

Reaching participants and building enrollment

	Asset-building programs are most helpful for the working poor who are trying to attain self-sufficiency. Participants with severe financial and personal problems should be referred to other, more appropriate assistance (Abt Associates*).
	Expect enrollment to build slowly. Many potential participants are suspicious of lending institutions. Word of mouth is often the best recruiting tool (Sherraden et al.*) but it is also helpful to market programs to realtors and nonprofit housing organizations (Tholin *).
	Don’t be discouraged by infrequent participation or erratic saving among participants. Even those with the highest incomes have trouble saving on a regular basis (Schreiner, Clancy, and Sherraden*).
	Potential participants might be deterred by lack of money to start an account. Linking establishment of an account to the receipt of the federal Earned Income Tax Credit has been helpful in encouraging initial enrollment (Beverly, Tescher, and Marzahl*).

Expanding incentives to save
The opportunity to have individual savings matched is the greatest incentive to save. Additional strategies include:

	Helping participants consolidate their debt and improve their credit rating. These steps are necessary in order to qualify for most loans and signal participant willingness to build assets (Tholin*). Setting high savings goals makes people save more, but it also means that fewer people will meet their goals (Sherraden et al.*).
	Those offering low-cost bank accounts might want to lessen the time it takes for a check to clear, a concern for many living from paycheck to paycheck (Kim*).

Provide Information

	Providing several hours of financial education increases the amount that IDA holders save, but the impact diminishes with more than eight hours of instruction (Schreiner, Clancy, and Sherraden*)
	The best type of financial education combines general education (how to manage a budget, credit and debt management, credit repair) and education specific to the program (for example, how to use IDA matching funds to make purchases). If staff have the necessary expertise, tax preparation assistance is often helpful because depositing all or part of a refund in savings is easier for some families (Schreiner, Clancy, and Sherraden*). Examples of curricula can be found at the Federal Reserve Bank of Dallas, and the Fannie Mae Foundation (PDF).
	Create one-to-one, informal relationships between staff and participants (Page-Adams*) to continue to meet participants’ information needs.

ASSET-BUILDING RESOURCES: PUBLICATION FINDER

	Building Family Assets (PDF) Annie E. Casey Foundation This guidebook describes promising strategies for enabling low-income working families to accumulate assets: IDAs, microenterprise development, financial literacy, financial incentives, and earned income tax credits. Both the opportunities and challenges to developing assets in communities are discussed. Baltimore, MD: The Annie E. Casey Foundation.
	Evaluation of Asset Accumulation Initiatives Final Report (PDF) Abt Associates, Inc. A descriptive study of 16 state asset-building programs. Includes a thorough description of program operations (background, funding, implementation) and a helpful summary of lessons learned. Cambridge, MA, 2000.
	Individual Development Account Programming, Policies, and Resources Prepared by the Welfare Peer Technical Assistance Network of AFYA, Inc. A summary of a workshop that assembled program representatives, federal agencies, and private sector organizations to highlight current information on IDAs. Includes an overview of state policies as well as the federal perspective on IDAs. Denver, CO: A Joint DOL and DHHS Workshop, February 2002.
	Recommendations from the Field: Individual Development Accounts as Part of a Universal Asset-Building System (PDF) Robert O. Zdenek and Beverly Stein This report, based on interviews with state-level IDA practitioners and policy advocates, and representatives from national IDA networks, presents lessons and issues related to bringing IDAs to scale in communities. Themes include program design and administration, barriers, reaching new constituencies, connecting with other stakeholders, funding, and promotion. St Louis: Center for Social Development, Washington University, 2003.

ASSET-BUILDING RESOURCES: WEB SITE FINDER

	Assetbuilding.org A project of The New America Foundation, this site is a clearinghouse on asset ownership. The overview section is a helpful primer on the topic, with topics such as creating a program, essential reading, and statistics. Other sections hone in on research, policy, and related news.
	Center for Social Development, George Warren Brown School of Social Work, Washington University This site contains a wealth of IDA evaluation research, links to IDA policy publications, and a state-specific database on IDA programs. IDA pioneer Michael Sherraden heads the Center.
	Corporation for Enterprise Development This site highlights the organization’s work in three areas: assets policy, program demonstrations, and IDA program services. Assets Newsletter, an interactive web site for the IDA field, and a report card on state asset building are also featured.