FEATURES • Fall 2000

The original, groundbreaking work of Professor Michael Sherraden has led to a nationwide savings program that is helping lower-income working people make some significant changes, by helping them save for homes, businesses, and education.

by Judy H. Watts

Call up five friends who have never heard of Michael Sherraden or Individual Development Accounts (IDAs). Then tell them a social work professor has come up with a plan to get people out of poverty by helping them save money. The chances are you'll be able to recite their response as they speak: "How can the poor save? If they had any money, they wouldn't be poor." Such reactions are typical, says Sherraden, the Benjamin E. Youngdahl Professor of Social Development at the George Warren Brown School of Social Work (GWB). But the fact is that poor people can and do accumulate assets, and Sherraden has the data to prove it. Participants in programs of matched savings called IDAs, which resemble 401(k) retirement plans, have saved an average of $33 per month and 71 cents of every dollar that could be saved or matched. Interestingly, the 43 percent of participants monitored whose incomes are below the poverty line save almost as much as other program members, and save a much larger portion of their income.

"We believe the saving is a response to the program structure, which shapes their behavior," Sherraden says. "People are basically trying to reach the expectation—the matchable amount of savings." Sherraden's institutional theory of saving holds that expectations, information, incentives, access, and facilitation may have as much to do with saving behavior as individual characteristics. After all, he says, "In the typical American household, people have most of their assets in a home and a retirement account, and in both cases the structures are defined, regulated, and heavily subsidized by public policy through the tax system."

In January 2000, the School of Social Work's Center for Social Development (CSD), which Sherraden directs, published its first wave of research on saving patterns among some 1,300 participants in 14 IDA programs nationwide. The programs are part of te American Dream Demonstration (ADD), a four-year IDA project planned by the Corporation for Enterprise Development (CFED) in Washington, D.C. The center designed an accompanying six-year evaluation process, the first major study of IDAs. Administered through nonprofit agencies, IDA programs use federal, state, and/or local monies to match the accountholder's deposits at ratios depending on the savings goal, up to a predetermined maximum. Depending on the particular program, accounts may be used for college education or training, to buy a first home, or to start a small business.

While the first research results are positive, many questions remain. The ADD research design includes multiple sources of data collection. The basic saving data are collected with the computer software program MIS IDA, the GWB-designed Management Information System for Individual Development Accounts, which is being licensed to IDA program sponsors across the country.

Looking Homeward

F. Stephenson's experience supports Sherraden's conclusions about the importance of savings structures. A single mother and surgical technician at DePaul Hospital in St. Louis County, Stephenson is saving for a home through an IDA program administered by Beyond Housing, with funds from United Way of Greater St. Louis. "The only amount they will match is $50—but I've been able to do it," she says. "Fifty dollars may not sound like a lot of money, but I'm raising three kids [aged 14, 12, and 10] on one income. It's kind of hard."

Because Stephenson's goal is home ownership, her program matches up to $600 of her savings a year for three years at a ratio of 2 to 1. At the end of that time, her accumulated assets will be $5,400 plus interest. "I feel blessed to be part of it all, to be honest with you," she says softly.

"It's a fantastic concept," says Chris Krehmeyer, executive director of Beyond Housing. "We're pleased to participate in a wonderful public policy. It's not about getting a paycheck and just getting income; it's about how hard-working families—but nevertheless lower-income families, the working poor—can make some significant changes."

A Fresh Idea

Sherraden's IDAs have been praised not only by beneficiaries of community agencies and their administrators but by people across academic, governmental, and political camps. "The foundations are all over it; they love it," says Ray Boshara, policy director of CFED. "Politicians—this is perfect! I've never seen an idea generate so much bipartisan support. It's because the idea is fresh, it's interesting, and it makes good sense."

Sherraden's idea captured imaginations from the start. GWB Dean Shanti K. Khinduka, who says Sherraden is doing "first-rate original work," recalls that in 1990 he had taken the manuscript pages of Sherraden's now widely known book Assets and the Poor: A New American Welfare Policy (M. E. Sharpe, 1991) to read on a trip to Taiwan for a three-nation conference on social policy. Sitting in the audience at one of the sessions, Khinduka was astonished to hear the speaker discussing Sherraden's new idea, which had been published in the journal Social Policy only weeks before. (And the city government of Taipei is now implementing an IDA program.)

An Act to Follow

Today, after years of effort by hundreds of dedicated people, IDAs have moved into the political mainstream. President Clinton included IDA concepts in his two most recent State of the Union addresses. In 1999 he proposed Universal Savings Accounts, a name Sherraden devised; Cliff Kellogg, then with the U.S. Treasury Department and now a member of the Economic Advisory Council, told William Bole of the American News Service (Albany, New York, Times Union, July 18, 1999) that "the IDA experience provided inspiration, and, more important, some real field data for the Administration's initiative." In January 2000, Clinton asked that IDAs be taken "to a new level, with new retirement savings accounts" for low- and moderate-income households through "a dollar-for-dollar" matching program. In April 2000, George W. Bush added IDAs to his platform; Al Gore came out in favor of the programs soon after.

Although these giant steps in national policy remain to be walked, two levels of federal policy support have already been reached. IDAs have been allowed or included as an option in certain existing federal programs and have been mounted as two federally funded demonstration projects. And now, a $5 billion bill pending in both houses of Congress, the Savings for Working Families Act of 2000, could make IDAs available to all of America's working poor. Introduced by Senators Joseph Lieberman (D-Conn.) and Rick Santorum (R-Pa.), the bill, Sherraden says, is in large part the work of Michael Stegman, director of the Center for Community Capitalism at the Kenan Institute at the University of North Carolina, and until 1997 the assistant secretary of HUD in the Clinton Administration. The author of Savings for the Poor: The Hidden Benefits of Electronic Banking (Brookings Institution, 1999), Stegman is part of an informal Growth Wealth Working Group, co-chaired by Sherraden, that under the auspices of CFED periodically brings together two dozen or more scholars, practitioners, and policy-makers. "We wouldn't be able to try to answer some of the questions we do if Michael hadn't been good enough to share his national evaluation data with us," Stegman says. "And let me tell you, it is extremely rare for academic researchers to share data in the middle of a project."

The Savings for Working Families Act would finance a national IDA program through the tax-expenditure system. Stegman calls it "the first national program really tailored to helping lower-income working people save that's financed the same way as the Roth IRAs and retirement and savings incentives for other people." Among other features, it would grant tax credits of 90 percent to financial institutions for providing matching funds. Because it would not be dependent on annual appropriations, Stegman says, the IDA system wouldn't be subject every year to "the politics that go with how many crumbs can we throw to working people." The bill is attractive because it would open a new market to banks—which in turn would establish themselves in poor neighborhoods and anchor communities. Cost-cutting electronic-funds-transfer technology would assist both banks and IDA participants, who would receive interest in return for leaving their funds for a certain period.

Meanwhile, Stephenson will continue to save for her own home. "I hope to live in Florissant, Missouri, one day," she says. "I like quiet neighborhoods. I'd love to live over there."

That Sherraden "takes very seriously the idea of inequality and the plight of the poor" has earned him the respect of the chair of WU's economics department, Steven Fazzari. Ray Boshara adds: "Michael's work is more amazing than people even realize. I have this vision that one day, five or 10 years from now, we'll wake up one morning, turn on NPR, and hear a news announcement that Michael Sherraden has won the Nobel Prize. And in the one minute they'll have to explain that, they'll say: 'Michael Sherraden said we should think about assets, not just income, when we're thinking about poor people.' And everybody will say, 'Yeah, that makes sense!'"

Judy H. Watts is a free-lance writer based in Santa Barbara, California, and a former editor of this magazine.

For more information, visit the George Warren Brown School of Social Work Center for Social Development Web site: gwbweb.wustl.edu/users/csd/.


"There are very, very few innovative, original, positive ideas for dealing with poverty, and Michael Sherraden's concept is one of them," says economist Murray Weidenbaum, the Edward Mallinckrodt Distinguished University Professor, who headed the Council of Economic Advisers under President Ronald Reagan.



















The nationwide savings program helps lower-income working people save for homes, businesses, and education.