The Match Game

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ALMOST A DECADE after credit unions, community development groups, banks and other organizations started opening Individual Development Accounts to give struggling Americans a boost, the results from this national experiment in promoting savings and financial planning have begun to emerge.

Take Tiffany B., a young woman who makes a compelling case for the magic of asset building and IDAs. Just a couple of years out of high school, pregnant and fleeing an abusive relationship that left her credit in tatters, Tiffany was forced to move back into her parents’ home and soon found herself coping with a debilitating disease. Like a godsend, Alternatives Federal Credit Union, one of the most respected community development institutions in the country, came to Tiffany’s rescue–with a dose of self-empowerment. Through her membership in Alternatives, based upstate in Ithaca, Tiffany used a portion of her $400 in savings to secure an additional $1,200 in matching grant dollars from the Alternatives’ IDA program.

The Alternatives IDA was transformative for Tiffany. She leveraged Alternatives’ matching money, financial education classes, and other resources to help her move forward with her life–to rent an apartment, finance her education, pay for health care and consolidate her debt. Tiffany speaks of an emotional and physical stability that she had never before experienced in her young adult life. “When I became pregnant, I had the future in mind, but I really had no idea what the future could possibly look like. I didn’t know what I had to do, much less how to do it,” says Tiffany. The IDA program, she adds, “was a decisive factor in my being able to find and fix things I perceived as problems in my life.”

Enterprising and inspirational, Tiffany is undoubtedly an IDA success story. She is also an unwitting representative of a much larger phenomenon. Qualified to participate in the IDA program because of her $27,000-a-year job and support from her family, Tiffany is an example of how asset-building strategies like IDAs, which were originally touted as pathways out of poverty, are increasingly focused on helping those who are employed and within reach of the middle class.

Forty years after Lyndon Johnson declared a war on poverty and almost 10 years into the end of welfare as we knew it, IDAs stand as a landmark in America’s dramatically shifting conversation about how to help poor Americans realize the American dream. IDAs have been largely successful in helping ordinary citizens turn a corner in their lives and build wealth. But the struggles of organizations trying to make IDAs work in the real world have muted some of the most ambitious claims of asset builders. So did the success of conservatives in limiting who could participate. After the first wave of IDAs, we still don’t know what government, foundations and financial institutions ought to be doing to lift up the underclass.


The Good Word
I first heard the gospel of Individual Development Accounts during a speaking engagement at the Yale School of Management in the mid-1990s, when I was board chair of the Central Brooklyn Federal Credit Union. During my discussion of financial service provision in low-income neighborhoods, a couple of students began to describe the wonders of a new social welfare vision. What was more disarming than the approach they described–encouraging the poor to save by offering them a sizable cash reward–was the comportment of the shiny, happy grad students who presented it. They spoke as if they had witnessed a revelation, one that promised to help turn the tide in the struggle against persistent poverty. Upon closer inspection, IDAs seemed like a pretty crude way to give the poor a leg up: Save a dollar, receive two or three more, plus interest.

IDA account holders must save a minimum amount on a fairly regular basis, within a certain time frame, and ultimately use their savings for specific asset-building purposes, such as the purchase of a home, the building of a small business or the acquisition of an adult education. The maximum that can be matched is usually less than $2,000, and match rates range anywhere from one to three times the amount saved, depending on the program.

During the 1990s IDAs were regarded as the next “new thing” in antipoverty thinking. Today, more than 30 states authorize IDA programs and have integrated them into their welfare programs. Households with IDAs now number in the tens of thousands, and an estimated 400 to 500 programs are up and running throughout the country. What’s more, IDAs captured the imaginations of the nation’s largest foundations and stimulated more than a quarter of a billion dollars in public and private investment. The asset-building paradigm helped reshape the social welfare debate as we know it.

Since then, proponents have tried to prove that IDAs can be converted into enduring national policy. Over the years, IDA legislation has received support from Republicans and Democrats alike and recently made an appearance on President Bush’s domestic policy agenda. Today, Congress is considering legislation that would create 300,000 IDA accounts nationwide and grant tax credits to investors in IDAs to the tune of millions of dollars.

Despite this stunning success, IDAs have had a consistent chorus of critics, who are skeptical of their focus on individual enterprise and the neoliberal–some would say Trojan–horse IDA advocates rode in on in the era of welfare reform. “The danger here,” wrote Alvin Schorr, a veteran social welfare scholar, “is that IDAs would be exploited quite as IRAs and other tax policies have been exploited, at great cost to the government and largely to the benefit of those who are already the wealthiest.” At a time when the American antipoverty brain trust is bereft of new, big ideas, there’s a legitimate fear that the rush toward IDAs is helping to usher in a new generation of privatized social welfare alternatives ultimately designed to benefit everyone but the poor themselves.

Recent research has further primed such concerns. In 2002, Michael Sherraden, the founder and director of the Center for Social Development (CSD) at Washington University and the intellectual progenitor of IDAs, conducted an evaluation of the American Dream Demonstration (ADD)–the first national, foundation-funded wave of IDA programs. With his evaluation, Sherraden set out to prove his own central thesis: that low-income people were just as capable of saving money as anyone else.

Indeed, that’s what he found. In the American Dream Demonstration, participants saved an average of about $700 per year. “Income,” he concluded, “is not related to being a saver, and has only small effects on the amount of savings.” It had been conventional wisdom among economists that the more people earned, the more they saved, particularly if they came into sudden windfalls of cash. Not true, concluded Sherraden: “Neither greater recurrent income nor greater intermittent income is significantly related to being a saver.”

However, in what seems to be emblematic of the wider IDA experience, it wasn’t just the underclass that was able to take advantage of the project. The mean monthly income of participants was $1,496, and adjusted for family size was 116 percent of the poverty line. And many families were far better off. In deciding who was eligible to enroll in their IDA programs, organizations typically sought clients who earned between 150 percent and 200 percent of the poverty level.

Sherraden’s evaluation, perhaps unwittingly, revealed that only 48 percent of the more than 2,300 participants in the American Dream lived below the poverty line. Twelve percent actually had incomes that were twice to almost seven times the poverty guidelines. Seventy-eight percent of the participants had either full-time or part-time employment. Two-thirds owned a car, and 60 percent had attended college. Fifty-two percent had health insurance and 79 percent had bank accounts prior to joining the IDA program. Sherraden admits in his evaluation that “compared to the U.S. low-income population” participants in the demonstration program “are better educated, more likely to be employed and more likely to have a bank account.”

Sherraden’s study strongly suggested that the lower tier of low-income people, employed or otherwise, were not the prime targets of a multimillion dollar, foundation-supported program established to fight poverty.

There has been no comprehensive study of the IDA programs that function outside the American Dream Demonstration project. But among the 20 or so programs I researched across the country, I found the lion’s share of IDA work was being done among employed, highly motivated working-class individuals who had been treading water economically and were searching for a catalyst to help them achieve a long-coveted goal in their lives. Some participants were even solidly middle class. Most IDA programs have limited enrollment; for participants to even find their way to the program suggests that they are self-selected and even uncommonly entrepreneurial.


The Best Intentions
This is not how it was supposed to be. All evidence indicates that IDA programs were originally created to provide an incentive and structure for poor people to accumulate assets and build wealth, by offering to match consistent, targeted savings. Offered as a reform-era alternative to welfare, IDA programs were originally proposed as a structured incentive for people receiving public assistance to escape dependence on the government and become greater stakeholders in public life.

Back in 1991, Sherraden’s book, Assets and the Poor: A New American Welfare Policy, the manifesto for the IDA movement, dropped like a bomb on the antipoverty scene and turned the heads of policy makers, foundation presidents and community development practitioners seeking a new way to attack poverty. In one stroke, Sherraden dismissed the way American policy makers traditionally viewed the mechanics of social mobility among low-income people. As he sees it, social-welfare thinking has been overly fixated on income maintenance and the notion that Americans can spend and consume their way out of poverty. Because welfare provided just enough money for recipients to get by, while penalizing them for acquiring assets, it was designed to keep the poor, in Sherraden’s view, running in place.

Sherraden’s most compelling observation was one that community development and economic-rights activists had been making for years: It is the gap in assets–not income–that truly separates the poor from the wealthy and it is this disparity that helps to sustain much of America’s economic injustice. Ray Boshara, the director of Asset Building at the New America Foundation, supports this point with dramatic statistics–such as the fact that the least prosperous 40 percent of Americans own less than 1 percent of the nation’s wealth.

While never discounting the need for financial safety nets, Sherraden maintained that “policy should seek to empower as well as protect.” And, he wrote, it ought to reinforce desirable economic behavior. “With assets people begin to think in the long term and pursue long-term goals. In other words, while income feeds people’s stomachs, assets change their heads.”

Like the traditional welfare policies he sought to replace, Sherraden’s IDA vision was overtly paternalistic, with a middle-class indoctrination twist. IDAs were originally conceived not simply as savings opportunities but as interventions into the lives and economic cultures of those who did not maintain functional relationships with financial institutions. Nowhere is this more evident than in the financial education and case management that are prerequisites to receiving IDA matching money. Account holders are required to participate in a sort of re-orientation process designed to prepare them for a life of responsible, fully enfranchised financial citizenry. IDA programs are housed by social service organizations in cooperation with financial institutions, which in some instances categorize the deposits the same way they would a child’s custodial account.


Conservative Politics
Sherraden sought to offer a new “asset-based policy … [which] would seek to combine welfare assistance with economic development.” But by the time policy groups and foundations launched the first generation of IDA programs, they’d moved beyond the prescriptions in his book and were no longer being fashioned just for welfare recipients and the poor.

In 1997 the Corporation for Enterprise Development (CFED), a Washington think tank, launched the Downpayment on the American Dream Demonstration Project–and the target population was now qualified as the “working poor.” Designed in large part by asset-building pioneer Bob Friedman, the demonstration project proclaimed itself the “first test of the efficacy of IDAs.”

Funding for administration, and the matching dollars, came from a five-year, multimillion dollar commitment from 12 of the biggest names in American antipoverty philanthropy, including Ford, Rockefeller, Mott and Fannie Mae. They planted 13 IDA programs in competitively selected organizations that included community development corporations, community development credit unions, social service agencies and regional collaboratives. The Clinton administration followed with a larger, public demonstration project of its own, Assets for Independence, administered through the Department of Health and Human Services. To date, Congress has appropriated $95 million.

Federally funded IDAs were neatly woven into the fabric of a new welfare system that emphasized employment above all else. Unlike the privately funded Downpayment on the American Dream project, participants in Assets for Independence program must either be eligible for Temporary Assistance for Needy Families or qualify for the Earned Income Tax Credit (EITC). But most important, any savings matched have to come from verifiable earned income–that is, from a job in the formal economy. The federal program also leaves wide discretion to the nonprofits overseeing the accounts to cherry-pick participants; regulations stipulate that “from among those eligible, the nonprofits will choose the ‘best suited’ candidates for the demonstration.”

IDAs stand as a signature of the Bill Clinton who rode into Washington as a moderate vowing to end welfare as we know it. Inherent in this conviction was the stereotype of a welfare roll full of non-value-adding deadbeats who were sucking the Treasury dry. The urban poor, who until then had loomed largely in the popular imagination as a monolithic block, became a more nuanced group that included those who were trying contribute to the American dream–people working in low wage jobs–and enemies of that dream, who allegedly refused to get off their lazy asses and work.

Today, Sherraden recounts that in this environment it was unthinkable to launch IDA programs without gearing them toward working people. “These were political decisions,” he wrote me in an email. “If you have had any experience trying to get legislation through state legislatures or the U.S. Congress, you will understand how this can happen, and indeed it was usually the only way we could pass IDA legislation.”

Bob Friedman had a similar recollection of what he calls a “Clinton-era consensus.” As he and his colleagues fought to enact an IDA that was inclusive of everyone, not just those with earned income, Friedman remembered that the “mantra on the Hill was, ‘This is not something for nothing; people have to pay an equity stake.'” In addition to the strong Republican and Clintonian neoliberal influences, Friedman says there was a less ideological faction of people shaping IDA legislation who nonetheless felt that “people who were married, employed and had stability could most relate to and benefit from IDAs.” Friedman conceded that what he originally envisioned as a universally available asset-building tool became narrowed into a vehicle for society’s more “stable” citizens. It “was not our preference,” says Friedman. It was the product of the legislative process, he says–“one of the compromises you make.”

Deregulation and Evolution
In the last few years, the IDA field has become increasingly diverse, and many programs now function largely outside of the American Dream Demonstration and AFI’s strict guidelines. As more observers have a chance to reflect on IDAs, even the model’s most passionate advocates concede that they are not always practical for people on the lowest rungs of poverty or the organizations that serve them.

Cathie Mahon, who has pulled together statistics on the 50 community development credit unions with IDA programs for the National Federation of Community Development Credit Unions, notes that “IDA programs tend to be a lot of work to start and maintain.” The prototypical IDA model includes intensive case management and financial education, complicated partnerships between financial institutions and social service agencies, and the ability to raise countless operating dollars and matching funds. As funding tightens, not-for-profit organizations who find IDAs useful are also under more pressure than ever to blend the savings accounts with existing programs while delivering dramatic results. This has prompted countless innovations in community development banking. But the poorest and most disadvantaged–the disabled, the chronically homeless, the underemployed–are often perceived, unfairly or not, to represent a level of intervention that struggling organizations simply cannot afford.

Yes, as Sherraden has proven, the poor can save. But are IDAs and other asset-building strategies the best way to help them build wealth? Joy Cousminer, CEO of Bethex Federal Credit Union in the Bronx, says she abandoned her attempts to enter the American Dream Demonstration program and open IDAs for her credit union members, most of whom receive public assistance: “It wasn’t a logical fit for us. They didn’t provide enough money and the programs didn’t fit our population.” Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project, is critical of the aggressive promotion of objectives that may not make sense for many struggling people. There is, she says, a “rhetoric and a strategic focus on [home]ownership and starting a new business that is simply unrealistic and unmanageable.” Most organizations with successful IDA programs, she contends, are working with a “self-selected pool where barriers of time, mobility and child care are not as significant.”

Ben Mangan, the founder of Earned Assets Resource Network, a Bay Area IDA program, saw what happened when his staff talked to poor San Franciscans about saving for homeownership. “People are looking at us like we are crazy. [They] need money for rent, and we were talking about a down payment for a house,” he recalls. Mangan has come to view IDAs as an “ideal tool for people who don’t come from a middle-class network but have never been on welfare and are connected in some way to the labor market.”

The Mount Hope Housing Company, in the Bronx, primarily targets low-income people, but its IDA program caters to hardworking strivers, some of whom have already climbed their way into the middle class. One IDA saver, a schoolteacher and mother of a teenager and two adult children, holds a master’s degree and a $52,000-a-year public-school teaching job. “I was looking to become a homeowner for a long time,” she recounts, and “was even about to close on a house before the deal collapsed after a three-year delay.” Then she found Mount Hope and entered its IDA program, which featured a course in financial management. “I used that education and $3,000 in matching dollars from Mount Hope to pay closing costs on a $260,000, two-family home that was marketed through another one of Mount Hope’s programs.”

Some local programs have been innovative in finding savings goals within closer reach than homeownership. The Fifth Avenue Committee uses IDAs to help clients pay for valuable commercial trucking licenses. Says Amanda Verdes, who runs the Fifth Avenue IDA project. “We see people who are earning between minimum wage and a living wage hit a plateau. They see where they want to go, but don’t have the resources to get there.”

Sherraden dismisses doubts about the viability of IDAs among the very poor, calling that view empirically unproven. He thinks the criticisms reflect the elitist conviction that the poor are too undisciplined and are pathologically incapable of saving. And yet tucked inside even the most patronizing and wrongheaded criticisms of IDAs are some simple, valid precepts–like the idea that you need money and resources in order to save and build on them in the first place.

Perhaps no one is more acutely aware of how badly the IDA model needs to be updated than those who originally shaped it. In my conversations with IDA pioneers like Friedman and Boshara, they seemed to regard the original IDA demonstration programs as land probes that successfully fed back information on what is practically and politically required to build more effective and widely available asset-building tools. Toward that end, IDA leaders are convening an IDA Learning Conference in New Orleans this September–an acknowledgement that IDAs are at an important crossroads and that it’s time to reconvene the generals and restrategize the war.

Birth Certificates
Boshara, one of the country’s most important asset-building strategists, is clear that he has always had a bigger vision in mind. “I am trying to systematically articulate a policy agenda that goes beyond account-based approaches,” he says. “It’s a heart and minds campaign to build awareness among members of Congress to affect public policy.” Accordingly, he recently unveiled a website,, designed to be a “clearinghouse on asset building, a one-stop shopping place for information.”

Clearly there is a much broader conversation about asset building in America that needs to happen, one that goes beyond IDAs. As the Corporation for Enterprise Development noted in a stinging report issued earlier this year, federal asset-building policy overall overwhelmingly favors upper-class Americans, through such tools as the home-mortgage tax deduction.

There are several overlapping attempts to shape an American policy dialogue around a future for asset building for those who aren’t already wealthy. The Growing Wealth Working Group (GWGW), which Boshara describes as “a nonpartisan and informal group of experts in tax, social and assets policy” organized by the Corporation for Enterprise Development and the Center for Social Development, has developed an asset-building policy platform that attempts to be broad in vision and overcome the limitations of the current IDA model. According to Boshara, who is a principal in the group, GWGW calls for a national asset-building policy that is open to everyone, easy to understand, focuses on greater wealth distribution to the poor, is sustainable, and gives participants individual voice and choice in the policy design and application. Ultimately, GWGW envisions a unified, national system of individual asset accounts that include IRAs, Medical Savings Accounts, 401ks, 529s (individual college savings accounts) as well as IDAs–all delivered through the tax system.

Another prominent asset-building thinker is Lisa Mensah, executive director of the Initiative on Financial Security at the Aspen Institute and a former funder of IDA programs at the Ford Foundation. Mensah spends her days mulling over how the private sector can help all Americans build assets from “birth through retirement.” She believes the future lies in profit-making financial products, in the same way financial institutions offer IRAs and 401(k)s. The government would play a subsidizing role by issuing vouchers to newborns on a sliding income scale. “If there were 4 million babies born each year and say we opened up 4 million vouchers, these would have to be held by the financial services industry in a regulated way,” explains Mensah. “You’d have to design it in such a way so that it makes sense for the consumer and is profitable for the financial services industry.” The first step toward that, she says, “is a political statement saying that this is a good goal for the country and something good to invest in.”

Right now, asset builders are focused on achieving in the United States what they’ve inspired Prime Minister Tony Blair to do in England: create a nationalized “baby bond,” a universal, matchable trust fund that every child in America would receive courtesy of the U.S. government. Boshara is promoting this idea in the form of the American Stakeholder Accounts (ASA), while Sherraden and Friedman’s organizations have launched a variation on this theme with a demonstration project called SEED, or Savings for Education, Entrepreneurship and Downpayment.

In July, Democratic Senator Jon Corzine and Republican Rick Santorum proposed a modest hybrid in the form of KIDS Accounts. Every child in the U.S. would receive $500 at birth, with an extra $500 for children in households under the national median income. Those poorer kids would then be eligible for another $500 a year in IDA-style matching funds, based on their families’ saving up to $1,000 annually.

Baby bonds, by creating “stakeholders” at birth, are designed to promote a level economic playing field. Unlike an IDA, they would not require equity from people who have been without land, education and other assets for generations. It underlines what the champions of race-based reparations have been arguing for years: By some estimates, almost 80 percent of American wealth is inherited; the idea that Americans get ahead simply through hard work and grit is a destructive myth.

Benita Melton, a program officer at the Mott Foundation, is convinced that IDAs represent a “march toward progress.” She remains a staunch supporter, despite signs that the ground in the IDA industry may be shifting beneath her. Yet in explaining Mott’s long-term commitment to funding asset building, she raises the bar on any social welfare policy or tool that claims to address the root causes of poverty. “Mott will have to answer the question, five, 10 years, maybe even further down the line: Are their homes still there, have their homes appreciated, are people better off, have they adopted new savings and checking behavior? We may even have to look at the effects on their children.”

IDAs are not about to lead poor people to the promised land. And any newfangled asset-building tools like baby bonds will have to answer to critics leery of privatized, indivdualized responses to America’s structural and social failures. But IDAs and their supporters may have already helped to fundamentally move the antipoverty debate from a static, income-based analysis to a consideration of how people are able to project a change in their social status across generations. Hopefully, the next “new thing” in the antipoverty struggle will have to answer to a higher authority–the future.

Sidebar: Individual Development Account programs in New York City

    Fifth Avenue Committee
    Objective: To obtain training and licensing for higher-paid employment.
    Participants to date: 38
    Matching funds: Each $1 saved matched by $3 for depositors up to 100 percent federal poverty level; each $1 matched by $2 for up to 200 percent poverty level.
    Total deposited: $35,877
    Amount saved: Up to $4,800.
    Sponsorship: U.S. Department of Health and Human Services (Assets for Independence Demonstration Program), Independence Community Foundation

    Mount Hope Housing Company
    Objective: To help Bronx residents buy a home, start a business or obtain higher education.
    Participants to date: 132
    Matching funds: Each $1 saved is matched by $2.
    Amount saved: Up to $4,500 per depositor.
    Total deposited: $343,755
    Sponsorship: U.S. Department of Health and Human Services, Citibank, Fleet Bank, NYC Community Foundation, HSBC, Con-Ed, Deutsche Bank, M&T Bank

    New York Association for New Americans
    Objective: For refugees seeking to start a business, purchase a home, pay tuition, enroll in job training courses or purchase technology.
    Participants to date: 776
    Matching funds: Each $1 saved is matched by $2.
    Average amount saved: Up to $3,000 for individuals and $6,000 for families.
    Total deposited: $1.9 million
    Sponsorship: Dept of Health and Human Services Office of Refugee Resettlement

    Lower East Side People’s Federal Credit Union
    Objective: For credit union members, savings for tuition or small business start-ups.
    Participants to date: 30
    Matching funds: Each $1 saved is matched by $1.
    Amount saved: Up to $2,000.
    Total deposited: $60,000
    Sponsorship: U.S. Department of Health and Human Services, AFIA demonstration project