Match of the Penguins

Okay, you caught me, I stole this not very ingenious post title from a card game I play with my 5-year-old daughter that involves closely comparing and contrasting some fashionably dressed penguins to note how their wardrobes differ ever so slightly.  (The game claims to be a “preposterous preponderance of penguin puffery” — and isn’t that exactly what the painfully penguin-parched game market was missing for so many years…)

I chose that title today mostly just to attract and disappoint one or two wayward penguin-lovers (remember, I’m just starting this thing and don’t have any readers yet so I’ll try any stunt), but also to give me a random segue to the word match.  The idea of a match for the savings of poor people is what got me interested in asset development, and thus in writing this blog.  (If you know all about asset development, you can skip the rest of this post, because I want to take a moment to explain, for those who may be uninitiated, this idea that gave me some hope for how our society could actually do something at last about the seemingly intractable poverty in our midst.) 

The logic is very simple (important ideas are often simple): 401k account-holders save more when there’s a company match; perhaps poor people (few of whom have access to any 401k account, much less a matched one) would save more, and have a better chance of clawing their way out of poverty, if their difficult efforts to save for the future were also matched (just to make my title look remotely relevant, picture penguins marching through the polar winter — that metaphor may suggest the discipline and sacrifice necessary to save on an extremely low income).  Michael Sherraden at the Center for Social Development at Washington University had that epiphany (well, not the goofy penguin part — I take full responsibility for that) and he wrote about it in his 1991 book, Assets for the Poor: A New American Welfare Policy.  He argued that asset development, as opposed to (or in addition to) income support, is what can give poor people a chance at financial security and real self-sufficiency. 

The beauty of the matched savings account is that the match can be used as not just an incentive to save but also a source of leverage about what to save for.  Matched savings accounts, dubbed individual development accounts (IDAs), allow low-income people who complete a required financial education program to use their savings and the matching funds (which are often a generous two or three times the amount saved by the individual, up to a certain limit) to invest in a productive asset such as a first home, higher education, or the capitalization of a micro-business; in other words, the kind of investment that has been shown to move many people permanently up the economic ladder, and though certainly not risk-free investments (which we are being reminded of with the current subprime mortgage crisis), they have proven to be more practical and effective than most other investment options for the poor.

IDAs aren’t a panacea, but the results so far (tracked by Sherraden and the terrific folks at the Center for Enterprise Development, CFED, who have been among the leading champions of asset development) indicate that IDAs are a tool that must be brought to scale in concert with expanded financial education and other asset-building policies.

When I started to learn about IDAs several years ago and realized that no asset development initiatives were in place in the Berkshires, my first response was to start bothering my local members of congress to get behind the legislation that CFED and others were advocating, including a proposed tax break for financial institutions that would agree to host and match the savings of low-income people in IDA accounts. I still recommend that folks do that, by the way — 2007 could be the year when the stars align for major new IDA support in congress, and CFED is leading another drive to help move the legislation through congress; everyone ought to contact their senators and representatives (with user-friendly messaging tools and stock messages that make you sound really smart, all provided by CFED) to encourage them to make that happen. 

But about a year ago I decided I could do more than just hope for congress to do the right thing, and I started talking to whoever would listen about the need for asset development strategies in the Berkshires.  People were surprisingly patient with my rants and raves, and soon we had a steering committee that agreed to develop an asset-building plan and seek the resources to implement it.  Key community partners are on board including the Berkshire Community Action Council (which had already been thinking along these lines), the Northern Berkshire Community Coalition, the local housing authority, students from the experiential education and community service programs at nearby Williams College (my alma mater — go Ephs!), and several banks (including the great hometown bank that has gotten my meager do-gooding business ever since we moved up here, Hoosac Bank). 

We managed to pick up some helpful planning grants over the past 6 months and folks have given a lot of volunteer time; now we have some small implementation grants pending and continue to seek other funds.  It feels like we have some momentum, which is partly why I thought it would be a good time to be blogging; as we actually get going on this initiative we’ll have lots of questions, make lots of mistakes, feel really proud one day, get really frustrated the next, etc., all of which will, I hope, generate some lively posts you find worth reading, whether you want to commisserate, lend us advice, borrow an idea or two, or just shake your head at our folly.