Individual Development Accounts: empowering low-income Canadians
October 27, 2003
By Louise Chatterton Luchuk
What if it was possible to save one's way out of poverty?
While at first
this idea may sound improbable, it is the basis for the idea
behind Individual
Development Accounts (IDAs). An IDA is a savings account held
by a low-income
person. The individual deposits savings into the IDA and the
saved dollars
are matched - sometimes at rates as high as four to one - and
go towards
specific goals like continuing education, skills training,
self-employment,
or even housing. Not only is there a financial incentive, but support
in the form of financial literacy and case management helps
participants
learn how to manage and make informed decisions about their
growing assets.
IDAs are not simply a handout; they empower the individual
and the individual's
family.
IDAs - a new concept
The IDA concept was first proposed in the early 1990s in the United States by
Dr. Michael Sherraden, professor of Social Development
and director
of the Center for
Social Development
(CSD) at Washington University in St. Louis, Missouri.
He advocated
that by building assets, people develop a different way of looking at
their future. In 1997, the IDA concept was tested for the
very first time
in North America through a partnership between CSD and the Corporation
for Enterprise Development. The American
Dream Demonstration Project offered approximately 2,500
IDA accounts
to allow low income Americans in 14 different projects to
save for education,
micro-enterprise capitalization, training, and home
ownership. The research
phase of the project is just now finishing.
Canada - home of the world's largest IDA project
Several other IDA projects have since followed, including the world's largest
asset-building demonstration project of IDAs for learning -- a project
that began in 2000 right here in Canada.
Social and Enterprise Development Innovations (SEDI) is a national
charitable organization dedicated to assisting people
struggling economically
- people such as the working poor, youth at-risk, the
jobless, and single
mothers. Dr. Sherraden's work is the basis of SEDI's LearnSave
project, which is infused with $32 million from Human
Resources Development
Canada (HRDC). RBC Royal Bank, the Assiniboine
Credit Union
and Caisse d'economie Desjardins are the financial institution
partners.
Approximately 3,500 Canadians signed up for the LearnSave
project so that
they can access post-secondary education, skills training, or
self-employment
opportunities. There are three random assignment sites
(Toronto, Vancouver,
Halifax) and seven case study sites (Calgary, AB; Winnipeg,
MB; Grey-Bruce
Counties, ON; Kitchener-Waterloo, ON; Montreal, QC;
Fredericton, NB; Digby
and Annapolis Counties, NS).
Different sites test different variables. Barb Gosse, director
of the asset-building initiative, explains that some sites will offer
additional counseling to project participants while another site tests
a higher match rate (combined with a lower ceiling on the amount that
the individual contributes to their IDA). Yet another site, she says,
targeted those living at even lower income levels than in the
other projects.
Tracking the variables will help the LearnSave project
isolate the most
important factors in asset-building for low income Canadians
because LearnSave
is not simply a program but a research project with the Social
Research and Demonstration Corporation (SRDC). SRDC will release a
final research report in 2009.
Too good to be true
Lutherwood CODA oversees
the Waterloo region
LearnSave project in Ontario. There are 150 participants but
Meredith
Miller, case manager, says "it was a challenge to find 150 people
who fulfilled the eligibility requirements and would believe
in the project.
They thought it was too good to be true that they would receive money
for free. It took a while to get the message across about
the LearnSave
project." In fact, it took two years and two months to find those 150
people (as compared to another site that filled the same
number of spaces
in nine months).
IDAs work on a smaller scale
While SEDI may be spearheading the world's largest IDA demonstration
project tied
to learning opportunities, the concept also works on a
smaller, community-based
scale. For instance, Future
Foundations (part of Employment
and Community Development MCC BC) is an IDA project that
runs in Abbotsford,
Mission and Chiliwack, BC with 16 participants depositing
$20-50 per month
(for a minimum of one year) into a VanCity Credit
Union bank account.
A partnership with VanCity Credit Union plus funding from the
VanCity
Community Foundation, the Co-operators, the
Motz Foundation,
the Abbotsford Foundation, and the Vancouver Foundation
makes Future Foundations possible.
The savings are matched 3:1 as participants save during a two
year period
toward goals of home/co-op ownership, education (for
themselves or a child),
or small business start-up. At the end of the savings time, the vendor
receives the cheque directly (e.g. to the educational
institution or to
the lawyer in escrow for a home purchase). Participants
agree to attend
financial workshops, peer group meetings, and one-on-one
sessions to learn
about budgeting, consumerism, credit, financial investments,
and banking
basics.
Future Foundations program manager and facilitator James Siebert
observes that the program introduces an element of accountability that
participants have often not encountered when saving on their
own. Stacey
Major, one of the program participants, states that "most
importantly,
this program has shown me that I'm not alone...So far I've looked at my
credit rating, consolidated my debt, moved to a better living
situation,
and started a budget to keep me out of debt with a good credit rating
to hopefully pursue home ownership."
Sustainability
While anecdotal evidence and early research reports indicate that
IDAs work, there
is also the question of long-term sustainability. Funding is obviously
key, but as Siebert points out, "if we have funding, we have
the expertise
and experience." SEDI agrees that the IDA concept is sustainable. "We
firmly believe that by creating demonstration projects with
solid research
to show that IDAs work," states Gosse, "we will be a catalyst to move
government and decision-makers to implement and not just
think about IDAs."
SEDI wants to see asset-building as public policy. In the
meantime, they
want to use the IDA concept to make affordable housing
accessible to low-income
individuals and families through HomeSave and Independent
Living Accounts.
Poverty is not just about income levels; it's also about the
lack of assets
or the ability to accumulate assets. Individual development
accounts are
an active step towards helping low income Canadians build
assets to accomplish
goals they never dreamed possible. IDAs empower individuals
and families
to break the cycle of poverty.
Louise Chatterton Luchuk is a freelance writer and consultant who combines
her love of writing with experience at the local, provincial and national
levels of volunteer-involving organizations. For more information, visit
www.luchuk.com.
