National Edition

Can the poor save?

Published: Tuesday, July 16 2013 6:25 p.m. MDT

Sherraden sees asset development programs as an important but overlooked part of any anti-poverty programs in America. These programs are “not a cure all, but there is convincing evidence that having a stock of capital can enable people to move themselves out of poverty,” he said.

A study of IDAs in New York City found that given the right incentives, people living well below the poverty line could find ways to save. Given a 2:1 match rate, savers accumulated an average of $561 over the course of the study, a significant amount of money, particularly considering that the average yearly income of participants hovered just under $18,000.

A 2011 follow-up study done by the Urban Institute showed roughly half of the households who participated would accumulate enough assets to escape poverty in 12 years.

The match is a crucial part of the program, according to Kim Manturuk, senior research associate at the UNC center for Community Capital. “Given the importance of encouraging savings, these programs offer insight and support for federal policy makers to implement such programs,” she said. “IDAs could help lower-income families build wealth in the same way that the mortgage interest deduction helps upper middle income families.”

Valid concerns

But not everyone is as enthusiastic about IDAs. Critics say that only one-third to one-half of the people who enroll for IDAs actually save money. In his 2013 study of IDAs, Ray Boshara of the Brookings Institute argued that these programs appeal to a very particular segment of the poor: people who are motivated to improve their financial situation and those who have a steady job. He argues the programs may not reach the poor most in need of assistance, such as people with disabilities or health problems.

Boshara's study revealed that the average IDA costs $64 per month just to administer, considerably higher than the average 401(k) or IRA. "This high cost may have a sobering effect on the expansion of IDAs," he wrote in his 2013 summary of findings. He recommends further research to determine whether the benefits of IDAs exceed their costs or if other programs aimed at poverty alleviation deliver more benefits for the same or less money. He believes there just isn't sufficent evidence to embrace IDAs as the best use of scarce public funds for economic development.

But supporters of IDAs say the fact that the program doesn’t work for everyone doesn’t mean IDAs aren’t part of a strategy for alleviating poverty. Finding a way to incentivize savings among a group that was not saving is a meaningful feat. “The notion of living beyond our means has been demonstrated by the federal government and by middle- and upper-income families all across the country,” said Steve Dow, who runs a Tulsa, Okla. IDA program, in an interview with NPR. “Even in the fact of that as a national culture, poor people given the incentives could and would save. They are so eager to have a different future for themselves that they will do what the rest of us are not doing.”