Unique Passbook Offers Passage Out of Poverty

Three years ago, Tina Moynihan was pregnant and a high school dropout. Today, when she's not working part-time at an Indianapolis bank, she's caring for her son in her own two-bedroom bungalow.

Ms. Moynihan beat the odds with help from Indianapolis's Eastside Community Investments (ECI). The program helped her finish high school and become a homeowner.

"It wasn't hard at all," she says as she soothes Bailey, her toddler. "ECI had classes on managing money and buying houses, and I wanted this really badly."

Across the country, states seeking solutions to the challenge of trimming the welfare rolls are turning to the innovative antipoverty tool Moynihan used: a special savings account.

The so-called Individual Development Accounts (IDAs) are different from the standard savings account in two respects. To encourage low-income people to save, every dollar deposited is matched with an equal amount of money. The catch is that the savings can only be used to buy a house, get an education, or start a business.

IDAs are administered by community development organizations and the matching funds come from banks, churches, and civic groups.

Help in building assets

"There are incentives for asset-building investments for the non-poor, like 401(k)s, expanded IRAs, and mortgage subsidies," says Ray Boshara of the Corporation for Enterprise Development (CFED). "IDAs provide a vehicle for the poor to build assets."

Antipoverty advocates say the current system of cash benefits creates dependence, while assets build stability, give families a stake in their community, and help them climb out of poverty.

"Just as wealth is the presence of assets, poverty is the absence of assets," says Dennis West, who heads ECI. "And both are inherited. We work with eighth-generation Americans whose families have never owned property."

IDAs have been tried on a very small scale since the idea was introduced in 1991, but welfare reform has accelerated the rate and scope of their development. On Saturday, CFED launched a 10-year, $11 million IDA demonstration with foundation support to test the idea thoroughly among a range of communities.

"We want to demonstrate the idea to policymakers so they'll have the grounds to make it a more permanent feature of domestic policy," Mr. Boshara says.

There is already significant bipartisan support. President Clinton and former Republican vice-presidential nominee Jack Kemp have endorsed IDAs. Pennsylvania governor Thomas J. Ridge (R) recently submitted a budget that would allocate $1.25 million for matching IDAs. Illinois Sen. Carol Moseley-Braun (D) and Indiana Sen. Dan Coats (R) introduced the Assets for Independence Act in the 104th Congress, calling for a $100 million national demonstration of IDAs over four years.

"The benefits of the IDA proposal help not only families and individuals but also the communities in which they live and work," says Senator Coats.

Coats's bill didn't pass, but supporters did get a reference to IDAs in the welfare reform law, allowing states to incorporate IDAs in their welfare plans.

Already, 13 states have made provisions for IDAs, and dozens of programs are in the works. "We're really sold on the concept," says Marie Sandy of the Capital Area Asset Building Corporation in Washington, D.C. "Especially in an area with few social services that are going to get fewer. It's not a handout we're talking about, but long-term change."

Another form of welfare?

The concept does have its critics. Some conservatives charge that IDAs are just another form of welfare. And critics on the left say that existing social-service resources should be used first and foremost to help people eat and house themselves.

But advocates say that's not enough. "We say you need a ladder and a net," says Robert Friedman, head of the CFED. "The current income support structure keeps people afloat, but if you want to move people out of poverty, you have to invest."

The benefits accrue from there, says Michael Sherraden, the Washington University professor who first outlined the idea in his 1991 book, "Assets and the Poor." They include, he says, lower payments for public assistance, higher tax returns, increased home purchases, and more stable communities, along with psychological benefits. "Income feeds your stomach," he adds, "but assets change the way you think."

Democratizing asset building is essential to prevent the social-security system from becoming "even more regressive," says Professor Sherraden. "The idea of structuring policy around individual accounts is going to become much more prominent," he continues. "We already have the expansion of IRAs, defined contribution systems like 401Ks.... The question is, if we're in a world that's shifting in that direction, do we bring poor people along?"