Saving a Better Future for Low Income Families
Posted by Anne Kim, Director of The Middle Class Project Thu, 22 Mar 2007 20:40:00 GMT
The New Rules Economy of today demands that individuals and families increasingly take charge of their own financial futures. It’s a major challenge and source of anxiety for middle-class families, who are coping with the shift away from traditional pensions toward 401(k)s, and for whom real wealth now means owning a stock portfolio as well as a home.
It’s an even bigger challenge for low-income families, for whom having even a small amount to save is a far bigger concern than how to save it.
That’s why we enthusiastically support the reintroduction of the bipartisan Savings for Working Families Act (S.871), cosponsored by Senators Joseph I. Lieberman (D-CT), Jim Bunning (R-KY), Blanche L. Lincoln (D-AR), Olympia J. Snowe (R-ME), John Kerry (D-MA) and Susan Collins (R-ME).
This bill is based on a trailblazing innovation first proposed nearly two decades ago by Professor Michael Sherraden of Washington University: individual development accounts (IDA’s). The idea behind IDAs is to encourage low-income people to save by matching their savings with government or private-sector contributions. When coupled with financial education, IDAs have proven immensely successful in encouraging even the lowest-income families to save. So far, however, access to IDAs has been limited.
The Savings for Working Families would change that by taking IDAs mainstream. The legislation would fund the creation of 900,000 IDAs by encouraging banks and other financial institutions to offer IDAs among their mix of products. The bill would achieve this by offering financial institutions a tax credit for matching contributions they make to IDAs and by providing an additional $50 per account to allay the administrative cost of managing an account with a relatively small balance.
This legislation works with the markets, not against them, to provide low-income families with greater opportunities to save. It’s also a great example of how government can help to create modern tools that equip all individuals to succeed in a changing world.
Third Way applauds this bipartisan bill, which will improve lives by helping people navigate the new rules of our economy.