By MARY DEIBEL
Scripps Howard News Service
April 29, 2005
"I worked with a counselor to pay off small debts and negotiate payment plans with my creditors and wrote letters to the credit bureaus to correct mistakes," the Philadelphia single mother of three recalls. "At the same time, I got help saving for a down payment."
She kept shopping lists of needs, not wants; she bought store brands over name brands, and she collected a quick tax refund. She had her $2,000 plus $2,000 through Pennsylvania's version of Individual Development Accounts to land a mortgage and move into her new home in 15 months.
Beale's experience is being repeated in Pennsylvania and other states under a provision of the 1996 welfare-reform act that gives states the option of setting up these accounts to help lower-income families build assets and close a widening income gap between rich and poor.
"Individual Development Accounts have become a crucial tool in closing the gap," says Charles Palmer, former head of Iowa's human-services department who now heads a nonprofit venture that helps low-income families use the accounts to save and invest in homes, new businesses and the like.
Now Congress and President Bush are looking to take the accounts nationwide as part of a tax-code overhaul aimed at building what Bush calls an "ownership society."
But it's tough for lower-income families to build wealth when "few people have ever spent their way out of poverty," says Washington University professor Michael Sherradan, whose groundbreaking work in the book "Assets and the Poor" set the benchmark 15 years ago for up-by-the-bootstraps programs.
In a nation where wealth is concentrated at higher-income levels, more than 30 percent of households have a net worth of less than $10,000, according to the Federal Reserve Board's consumer finance survey.
But with 90 percent of the $300 billion worth of tax breaks to help buy homes, save for retirement and invest for retirement going to taxpayers who make more than $50,000, Sherradan worries that federal policy tilts against wealth-building for families of lesser means.
Analyst David John of the conservative Heritage Foundation says the evidence suggests taxpayer-subsidized Individual Development Accounts work: Under existing state programs, participants deposited money to their account seven of every 12 months for an average balance of $552.
Besides expanding Individual Development Accounts nationwide, Congress and Bush are considering other options, including:
- A KIDS Account of $500 to be opened automatically upon birth for every child born after Dec. 31, 2005, with another $500 deposited for children born to families with income below the median.
A KIDS Account would give a leg up to the 4-year-old "I Can Save" initiative that has St. Louis-area grade-schoolers banking their pennies, dimes and quarters for college, says Principal Victoria Gonzalez-Rubio of the Delmar-Harvard Elementary School. She reports her first- and second-graders have deposited $27,000 so far at a neighborhood bank, where their chore money and allowances get deposited monthly.
- A renewed Saver's Credit, enacted in 2001 but scheduled to expire next year. The credit provides a government match of up to 50 percent for contributions to tax-favored Individual Retirement and 401(k)-style accounts for taxpayers making up to $50,000 if they have income tax liability.
Sadly, polls show that 80 percent of taxpayers don't know about the Saver's Credit, says Bernard Wilson of H&R Block, which trained its tax preparers to help more than 3.6 million clients claim $600 million in Saver's Credits since 2001.
As for Beale, she reports increasing her 401(k) retirement contributions at work and opening Pennsylvania college-tuition accounts for her children, who contribute, too. But she credits her new savings habits to her decision to save to become a homeowner.
"These are the keys to my front door," she says as she jingles her key chain. "My heart soars every time I turn the latch."
Distributed by Scripps Howard News Service.