Having assets (a bank account, a car, an insured home, a good credit rating) does more than help families weather a crisis. It can move them out of poverty permanently, with benefits to individuals, government, corporations, and society as a whole.Poverty ; Finance, Personal

Andrea Levere

English

Research Papers in Economics

Winter  2006 20
O
Helping the Poor Accumulate Assets
by Andrea Levere
Corporation for Enterprise Development, CFED
Over the last decade an entire field has
emerged from the idea that, given the right
incentives and supports, even very poor
people will save, accumulate assets, buy
homes, start businesses, and pursue higher
education. In the process, the thinking
goes, they are likely to improve their
knowledge of and participation in the
financial system—and pass along a sense of
possibility and empowerment to their chil-
dren, breaking the cycle of poverty. 
Organizations such as the Corporation
for Enterprise Development (CFED),
www.cfed.org, have embraced that idea
and are making strides in helping the poor
accumulate wealth. However, there is still
a long way to go. The daily struggles of
low-income people tend to be under the
radar, and media coverage of hurricanes,
tornadoes, and other disasters makes them
visible only for a while. 
The large-scale traumatic events of the
last few years underscore the value of basic
financial tools—a bank account, a credit
card, a strong credit rating, and knowledge
of how to navigate the financial system—
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in helping a family get back on its feet.
But dealing with disasters is not the
only reason to have assets. 
As lawmakers who have enacted
policies helping many Americans accu-
mulate assets recognize, planning for
the future, buying homes, preparing for
retirement, sending children to college,
and weathering unexpected financial
storms are all important for daily living.
If one includes the tax incentives for
mortgages, retirement savings, and the
like, the federal government has a large
stake in asset building. In 2003, for
example, it spent $335 billion (conserv-
atively measured) on asset building.
But do the government’s incentives
help the poor? CFED research suggests
that the incentives are largely uncoordi-
nated and disproportionately beneficial
to those who already have assets.
CFED’s analysis of the largest asset-
related spending categories in the feder-
al budget shows that more than one-
third of the benefits go to 1 percent of
Americans, those who typically earn
more than $1 million per year.
1 In con-
trast, less than 5 percent of the benefits
go to the bottom 60 percent of taxpay-
ers. For years, most of the low- and
moderate-income individuals and fami-
lies in the bottom 60 percent have not
been assisted by the federal government
to build assets at a level comparable to
the benefits received by people at high-
er income levels. 
Individual Development
Accounts and Assets
Interest in helping the poor build
assets dates back to at least the late
1980s, when Michael Sherraden, the
director of Washington University’s
Center for Social Development in St.
Louis, offered a theory of welfare and
assets. 
Two events coincided to get
Sherraden thinking along new lines:
conversations with welfare recipients
who were frustrated that they could
never get ahead; and lively discussions
among Washington University faculty
regarding the school’s new retirement-
savings program, a defined-contribu-
tion plan. Sherraden began to under-
stand that assets matter to people in
ways that income alone does not—and
that institutions have a role in deter-
mining who accumulates assets, just as
Washington University had a role in its
professors’ accrual of assets through the
retirement plan.
Sherraden’s 1991 publication,
Assets and the Poor, prompted interest in
a new tool: the individual development
account, or IDA. Just as an industry’s
employees feel encouraged to use a
401(k) because they know their
employer will add to their savings, the
poor may feel encouraged to save in an
IDA because it offers matching dollars. 
An IDA savings account is set up
to meet a specific goal—an asset such as
a home, an advanced degree, or a new
business. Government, private, or non-
profit agencies match the money for
reasons of their own. Private founda-
tions, for example, may support IDAs
to test how well an asset-building
approach can move people out of
poverty. Financial institutions may par-
ticipate for both philanthropic and
business reasons. Their funding quali-
fies for credit under the Community
Reinvestment Act, plus account holders
sometimes become consumers of mort-
gages and other bank products. 
The mid-1990s saw the first indi-
vidual-development-accounts programs.
But the big push started in 1997, when
a multimillion-dollar demonstration
project—the Downpayment on the
American Dream Policy Demon-
stration—was launched. The five-year
initiative was led by CFED in coopera-
tion with the Social Development
Center and several national founda-
tions. Within two years, CFED and its
partners had leveraged data from the
early years of the demonstration to
advocate for what would become the
Assets for Independence Act. That fed-
eral legislation and the funding it made
possible helped create a new field of
IDA practitioners, policymakers, finan-
cial institutions, and funders, who put
the tools for saving into the hands of
those whose opportunities were limited.
Increasing Ways for the
Poor to Build Assets
IDAs were the first concrete mani-
festation of a shift in focus from income
maintenance to wealth accumulation
for people outside the mainstream.
Perhaps even more important, they
became the catalyst for other asset-
building strategies. 
One adaptation has extended the
IDA concept to children. In 2003,
CFED—in partnership with the Center
for Social Development, the University
of Kansas School of Social Welfare,
New America Foundation, key funders,
and 13 community and experimental
partners—launched the Saving for
Education, Entrepreneurship, and
Downpayment (SEED) Policy and
Practice Initiative. 
The multiyear national program
develops and tests ways to match finan-
cial education for children and youth
with each of their savings-account
goals. The initiative partners are cur-
rently using SEED to test different
account structures, including standard
savings accounts, Coverdell education
savings accounts (tax-free college
accounts; formerly known as Education
IRAs), state 529 accounts (state-spon-
sored college investment accounts), and
mechanisms for rolling unused account
balances into individual retirement
accounts. 
In addition to savings vehicles,
increasingly creative ways to provide
financial services that help low-income
people build assets (such as stored value
cards that link people not only to trans-
action-related services but to mortgages
and other asset-building opportunities)
are becoming part of a bigger econom-
Asset limits on 
people who still
need some public
assistance may 
create barriers to
leaving poverty.Winter  2006 22
Helping the Poor Build Assets: Connecticut
by Ellen Scalettar, J.D., and Douglas Hall, Ph.D., Connecticut Voices for Children
Nationally, the bottom 60 percent on the economic ladder collectively holds less than 5 percent of the nation’s wealth.
1 In
Connecticut, asset inequality by race is particularly stark.The median net worth of Connecticut households headed by Caucasians was
$153,900 in 2002, 28 times greater than the $5,446 median net worth of minority-headed households.
2 Despite such extremes, pover-
ty-reduction measures have largely focused on reducing inequality in income only, through cash and cash-like assistance. It is true that
benefits such as Medicaid, Food Stamps, the Earned Income Tax Credit, and Supplemental Security Income have significantly reduced the
number of Americans living in poverty—in 2003, for example, by nearly half of what it would have been that year without such pro-
grams.
3 But federal programs have been less successful establishing long-term economic self-sufficiency.
4That is why Connecticut, for
one, is promoting a multifaceted approach that combines income- and asset-building programs for poor families.
Connecticut is paying particular attention to individual development accounts, the matched savings accounts that help poor families
accumulate enough cash to make asset-enhancing purchases. IDA participants’ savings are matched at a predetermined ratio by govern-
ment, the private sector, or nonprofit organizations.
In 1998, after the federal welfare law of 1996 let states include IDAs in their welfare-reform plans, CTE, Stamford’s community-
action agency, established the first Connecticut IDA program.The following year, State Treasurer Denise Nappier convened a task force
on how to structure an effective statewide program.With Treasurer Nappier’s advocacy, the resulting report led to a law establishing
the “Connecticut IDA Initiative” for low-income, employed people and qualified disabled people.
5
The legislation sets a maximum match rate of $2 for every $1
saved by a participant.The match must not exceed $1,000 in a cal-
endar year and $3,000 for the duration of the program.The legisla-
tion requires the state’s Department of Labor to establish an IDA
Reserve Fund to hold all state IDA appropriations and any supple-
mental grants, donations, and private contributions.
6
The Connecticut IDA Initiative allows saving for the following:
education and job-training costs; a home purchase; entrepreneurial
activity; and, in contrast to the otherwise comparable federal Assets
for Independence Act, the purchase of an automobile to obtain or
maintain employment and a lease deposit on a primary residence.
Since 2000, the Connecticut Department of Labor has managed
$2.9 million in support of IDAs, consisting almost equally of federal,
state, and private funds.
7To date, there have been more than 850
IDA accounts, both under the state program and independent of it.
Already, 257 account holders have reached their savings goals.
A good example of an IDA program created by a nonprofit
organization independent of the state statutory framework is the
Jim CaseyYouth Opportunities Initiative.The initiative combines
extensive financial education with an IDA account in an effort to
improve the financial outcomes of youth transitioning from foster
care to adulthood. Savings are matched 1 to 1 with private charita-
ble dollars.
The state’s IDA programs also provide financial education
before accounts are opened and ongoing asset-related training.
Crisis intervention or re-employment services are available if need-
ed.
Additional IDA funding came in 2005 from the Connecticut General Assembly, which included in its newly created Housing Trust
Fund some $300,000 of bond funds dedicated to IDAs that promote home ownership. However, because the IDA program did not
receive a General Fund appropriation, it is unclear whether, and to what extent, using IDA money for needs other than home purchases
will continue to receive state support.
0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
Households Headed by Whites 
Households Headed by Minorities
$153,900
$5,446
Asset Inequality in Connecticut, 2002
1 Ray Boshara, “Individual Development Accounts: Policies to Build Savings
and Assets for the Poor,” Welfare Reform and Beyond, Policy Brief 32
(Washington, D.C.: Brookings Institution, March 2005), p. 8,
http://www.brookings.edu/es/research/projects/wrb/publications/pb/pb32.h. 
2 Douglas J. Hall, Connecticut Family Asset Scorecard (New Haven:
Connecticut Voices for Children, May 2005), p. 10. According to 2000 U.S.
Census Bureau data, the average annual per capita income in Connecticut for
white, non-Hispanic residents is $32,000, compared with $13,000 for
Hispanics and $17,000 for black, non-Hispanics. 
3 What Does the Safety Net Accomplish? (Washington, D.C.: Center on
Budget & Policy Priorities, 2005), www.cbpp.org/pubs/accomplishments.htm.
4 Isabel V Sawhill and Ron Haskins, “Work and Marriage: The Way to End
Poverty and Welfare,” Welfare Reform and Beyond: Policy Brief 28 (Washington,
D.C.: Brookings Institution, September 2003), p 1, http://www.brookings.
edu/es/wrb/publications/pb/pb28.pdf.
5 A person must have a qualified disability or be earning income and be part
of a household with adjusted gross income not exceeding 80 percent of the area
median income. See Office of State Treasurer Denise L. Nappier, Legislative
Initiatives 2000, www.state.ct.us/ott/legislativeinitiatives2000.htm#ida. 
6 Office of State Treasurer Denise L. Nappier, Legislative Initiatives 2000,
www.state.ct.us/ott/legislativeinitiatives2000.htm#ida. 
7 One private-sector funder alone, the former Fleet Bank, contributed near-
ly one-third of these funds. 
Median Net Worth&Banking Communities 23
ic-opportunity picture.
The next question is how to help
the poor protect the assets they acquire.
Although any family may experience
misfortune that suddenly strips away
assets, low-wealth families are especially
vulnerable. Unexpected health-care
costs, unfair or predatory lending, and
asset limits imposed on people who still
need some public assistance all impede
upward mobility. Researchers are look-
ing into steps that federal and state gov-
ernments might take to monitor and
curb predatory practices. In addition,
nonprofit organizations are discussing
programs such as expanded financial-
literacy classes to help people keep and
build on what they have accumulated. 
New Tools
In May 2005, CFED released its
first  Assets and Opportunity Scorecard.
2
The scorecard is a tool for measuring
how easy or hard it is for U.S. families
in different parts of the country to
achieve the American Dream, which
CFED sees as resting on two pillars.
First is families’ ability to build assets
that they can use to send children to
college, weather unexpected financial
troubles, and create a sound economic
future. Second are safety nets and safe-
guards that provide financial security
after a job loss, medical emergency, or
other traumatic life event.
The scorecard can pinpoint local
needs and give planners ideas for help-
ing the poor build assets. It clarifies
issues state-by-state and looks at state
policies that help or hinder the ability
of citizens to get ahead. Among the
facts the scorecard reveals are the
increases in bankruptcy filings and the
decrease in numbers of Americans who
are covered by employer health insur-
ance or who use financial services. It
says that in 2002, for example, only 29
percent of Americans had a checking
account, down from 33 percent in
1996. It also addresses the role that state
policy can play in building wealth by,
for example, promoting homeowner-
ship, improving health-insurance avail-
ability, fostering entrepreneurship, and
encouraging banks to offer products
that meet the needs of all potential cus-
tomers. 
One sign that asset building, which
started with individual development
accounts, is growing more sophisticated
is the renaming of the asset-building
field’s biannual learning conference.
Once called the IDA Learning
Conference, this year’s event is dubbed
“2006 Assets Learning Conference—A
Lifetime of Assets.” Significantly, the
first IDA Learning Conference, in
1995, attracted only 150 people. In
2006, about 900 participants represent-
ing all aspects of the movement are
expected: account holders, practition-
ers, policymakers, funders, financial
institutions, and government advocates.
Similar events are in the works. For
example, a series of forums around the
country, coordinated by CFED and the
Federal Reserve System, will bring
together leaders in economic policy,
community development, philanthro-
py, and the financial industry to pro-
mote and support homeownership,
business ownership, savings, and invest-
ment. 
In fact, all signs point to an
increase in creative partnerships and
new ideas to further the potential for
families and communities to make good
on the American Dream. 
Andrea Levere is the president of
CFED, the Corporation for Enterprise
Development, a nonprofit organization
dedicated to expanding economic oppor-
tunity and based in Washington, D.C. 
Endnotes
1 Hidden in Plain Sight (Washington,
D.C.: Corporation for Enterprise Development,
2004), p 4.
2 See http://www.cfed.org/focus.m?paren-
tid=31&siteid=504&id=505.

Helping the poor accumulate assets

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Helping the poor accumulate assets

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