Securing a slice of the American dream

March 21, 2000|By Irene Skricki

Imagine your vision of the American dream for a family. What do you see -- owning a home, going to college, running a small business on Main Street? If that's your vision, it is out of reach for many families in Maryland. Many families lack any financial assets at all to build such a dream.

A family's assets -- in the form of savings or homeownership -- are at least as important as income in determining who is poor. Assets are the nest eggs that give people something to rely on if they run into hard times, such as the loss of a job or medical problems. Not only do assets stabilize a family's income, but they also allow people to further their education, start a small business or pursue other activities that will increase future income.

While assets are clearly critical to family well-being, many families have no assets to fall back on. In fact, asset inequality is much worse than income inequality. The top 20 percent of all American households earn 43 percent of all income but hold 87 percent of all net financial assets. One-third of American households have no assets at all. For some of these asset-poor families, even a relatively minor cash flow problem can precipitate a financial crisis. Thus, an alternative strategy to helping children and reducing poverty is to focus on asset development strategies -- ways to help low-income families save and invest.

This idea is not a new one. Historically, the government has encouraged asset development through the policies such as the Homestead Act and the GI Bill. The federal government supports asset development through tax incentives for homeownership and retirement savings. Through policies such as mortgage interest tax deduction and Individual Retirement Accounts, the government subsidizes asset development at a level of about $180 billion annually.

Unfortunately, many low-income families are not able to take advantage of these policies. In fact, savings by low-income people is actually discouraged in government programs, including welfare, Medicaid and food stamps. People who try to save money in these programs are penalized by having benefits cut or eliminated. Such policies clearly discourage asset accumulation for the families who need it most.

To encourage incentives for asset accumulation, one proven approach is the Individual Development Account (IDA), a savings account for low-income individuals and families. Holdings are matched by public or private funds. IDAs can only be used for specified purposes, such as buying a home, starting a small business or participating in higher education.

Obviously, low-income IDA participants are limited in how much they are able to save in the short term. However, even if a family can set aside $20 a month in an IDA, and if matching money is available (usually at a matching rate ranging from 1: 1 to 3: 1) from public or private charitable sources, a family can accumulate several thousand dollars over several years -- enough to put a down payment on a house or pay for an education program. IDA programs have been started in communities across America over the past five years. There are almost 300 programs nationwide. Most are public-private partnerships, with community-based organizations running the IDA program, and the federal government, the states and private foundations and businesses kicking in some support.

In Maryland, there are small IDA programs in Garrett County, the Eastern Shore, and East Baltimore. But plans are under way to expand IDA programs to reach more low-income families in Maryland. The Maryland Center for Community Development recently convened a working group of community development corporations, advocates, banks, funders and state officials to discuss how to increase the number of IDA programs across the state. With support from the state and other funders, we could make savings and investment in homes, businesses and higher education part of the future of every child in Maryland.

Irene Skricki is a program associate on income security issues for the Annie E. Casey Foundation in Baltimore.

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