Program helps low-income workers
Life is going well for Joyce Mason. She and her five
children live in a nice house in a quiet Washington, D.C., suburb.
She has a good job as an office assistant at the Securities and
Exchange Commission and is finishing school to become a paralegal.
A far cry from 1996 when Mason was living in a home
for battered women, had no money and no real job skills.
One of the keys to Mason's transformation was the
Individual Development Account program. It assists low-income people
in getting started with a savings program.
IDA participants must contribute a minimum amount
each month to a savings account. The monthly contribution is matched
with federal money. Most programs give the participant $2 for every
dollar they contribute, but at least one organization at one time
matched $12 to $1. Federal guidelines limit the annual match per
person to $4,000. Participants can stay with the program for a maximum
of three years.
The catch is that the money must go toward the purchase
of a first home, to starting a small business or toward post-secondary
educational costs. All participants attend financial literacy classes,
and if they plan to use the money to buy a home or start a business,
they attend classes on those specific subjects. Classes are free
and are often run by the IDA program or by an educational program
in the community.
"I had to take a 10-week literacy course which
taught me how to buy a house, how to talk to a real estate agent
and how to talk to a lender," Mason says.
"I had to save $50 a month; I could put in more
if I had it. At the time, they matched three-to-one, so for every
$50 I put in they put in $150. By the time I was ready to purchase
a home, I could put down my own down payment without any government
assistance. I had enough for a home inspection and the first month's
The origins of IDAs
IDAs came into existence as a demonstration project in the late
1990s under the federally funded Assets for Independence Act. The
demonstration ended in 2001, and there is no central program running
Instead, IDAs are run by a variety of agencies and
organizations across the country. There are an estimated 450 programs
and about 20,000 participants.
The IDA Network, which developed the demonstration
project, helped local agencies and organizations start their own
IDAs. Each program determines its matching-funds ratio and also
sets limits as to how much of a participant's contribution is matched.
"I see it as a way of making dreams come true,"
says Heidi Loughlin of the Maine Family Development Accounts Coalition.
"The financial literacy is a huge component.
It gives them a chance to understand finances, their goals and reality.
The matching money enables them to do that at a much faster pace.
We don't want to set somebody up for foreclosure. We want them to
understand what it means to own a home."
All IDA programs have income limits. At Loughlin's
coalition it's 200 percent of the federal poverty level. An individual
could earn a maximum of $17,960 and qualify for the program.
"We match $2 for $1, and the coalition limits
participants' savings to a maximum of $80 per month. We're talking
about establishing savings patterns and getting people to squirrel
"It's not quick. Someone has to have a goal that's
a little ways out there. They have to save for at least six months
before they can touch the matching funds. During that time they
have to complete home-buyer's education or small-business training
in addition to financial literacy training."
Keeping local IDA programs up and running isn't easy.
Local programs receive matching federal funds, but they have to
find local donations to draw down those federal dollars. It's a
tough challenge in a difficult economy.
At least one IDA program temporarily stopped accepting
new people because of a lack of funding.
"We were still doing some very minimal services
for people -- sending their statements, doing their withdrawals.
But as far as getting new people into the program, we weren't doing
any of that," says Diana Blackburn, IDA program coordinator
for the People Inc., in Abingdon, Va.
The program recently received enough funding to carry
it through another year. It will only be able to enroll 10 people.
It's a brief reprieve in a rural area hit hard by unemployment.
Local agencies don't have much money to contribute and without those
dollars, the IDA program can't receive the federal match.
"It's frustrating," Blackburn says. "We
have $266,000 from the Assets for Independence Act, but we haven't
been able to draw it down. People Inc. has 20 to 25 programs and
all have their hand out."
Going after tax credits to fund
The IDA Network is spearheading an effort to create a more substantial
and sustainable funding method for IDAs.
The "Savings for Working Families Act" would
fund the program through tax credits.
"Like the home mortgage deduction; that $300
billion a year that goes to middle- and upper-income people. It's
a long-term tax tool used to get people to build assets; in that
case, a home," says Melissa Koide, senior project manager at
"Let's use the tax code to set up a long-term
system to help low-income people build assets like a home or a small
business or get a post-secondary education."
The bill calls for $450 million over seven years to
create 300,000 accounts.
"If you think of where we are now at, 20,000
accounts, it's huge," Koide says. "There are millions
of people out there who need this. We're barely touching the surface."
The bill has passed the Senate and is winding its
way through the House.
If the legislation is enacted, Koide says program
guidelines will become much more uniform because of the use of tax
Until then, people who think they qualify for an IDA
should compare programs if they live in an area that has more than
one IDA program. It's possible one might have a better match or
a shorter waiting list.
"It's not a bad idea to shop around," says
Koide. "In San Francisco, there are multiple programs. You
also have to consider the availability for enrollment in a particular
program. I was in Louisville, Ky., a couple weeks ago and the program
had a waiting list of 600 people."
If you'd like to find an IDA program, the IDA
Network has an interactive you can use.