Saving and Asset Accumulation:

1
Saving and Asset Accumulation Theory, Evidence,
and Policy Implications Michael Sherraden,
PhD Benjamin E. Youngdahl Professor of Social
Development Director, Center for Social
Development Washington University in St.
Louis Asset Funders Network New York, December
9, 2005
2
Why Assets? Key to Family Development
Income and consumption are essential, but are
not the keys to development (reaching
potential). Development occurs over the long
term through asset accumulation and investment
-- in education, career, home ownership, and
business capitalization. This applies to all
families, rich and poor alike.
3
Why Assets? Millions in the US Have Little or
None
In 1999, the net worth of the poorest 10 of US
households was negative 1,800 (Caner Wolff,
2004). Between 1983 and 2001, the average net
worth of the poorest 40 of US household
declined by 44, falling to 2,900 in 2001
(Wolff, 2004).
4
Why Assets? Basis of Racial Inequality (Oliver
Shapiro, 1995 Kochhar, 2004 Shapiro, 2004)
Ratio of white to non-white income is about
1.51 Ratio of white to non-white net worth
is at least 10.01 Asset inequality by race
is increasing. Recent measures of net worth
are WhitesHispanics 111
WhitesBlacks 141
5
The Goal Should Be Inclusion in Asset Building
Bring everyone into asset building. Make policy
progressive, with greater subsidies for the
poorest families. Make asset building
life-long and flexible. Seek adequate levels of
asset accumulation for social protection and
economic development.
6
Can Policy Aim for Asset Accumulation?
US already has large asset-based
policies Operate mostly through the tax
system The poor are left behind
7
Asset-Based Policies in the US Growing Rapidly
Individual account policies all in last 50 years
more of these all the time Tax expenditures for
asset building in homes and investments also
growing rapidly
8
Examples of US Asset-Based Policy
Home ownership tax benefits Investment tax
benefits Retirement accounts with tax
benefits 401(k)s, 403(b)s, 457s, etc. IRAs,
Roth IRAs Other asset accounts with tax
benefits Individual Training Accounts Education
al Savings Accounts State College Savings (529)
Plans Medical Savings Accounts Others . . .
9
Asset-Based Policies in the US Large and
Regressive
Over 300 billion annually in tax
expenditures for assets (homes, investments,
accounts) Over 90 percent of this goes to
households with incomes over 50,000 per year
(Sherraden, 1991 Howard, 1997 Seidman,
2001 Corporation for Enterprise Development,
2004)
10
The Poor Do Not Have the Same Opportunities and
Subsidies for Asset Accumulation
The poor are less likely to own homes, have
investments, or have retirement accounts, where
most asset-based policies are targeted (Haveman
Wolff, 2005). The poor have little or no tax
incentives, or other incentives, for asset
accumulation (Sherraden, 1991 Seidman,
2001). Asset limits in means-tested transfer
policies discourage saving by the welfare poor,
and probably also the working poor (Powers,
1998 Ziliak, 1999).
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Why not asset accumulation by the poor?
12

• One Policy Strategy for Asset Building
• Individual Development Accounts (IDAs)
• (Sherraden, 1988, 1991)
• Special savings accounts
• Started as early as birth
• Savings are matched for the poor, up to a cap
• Multiple sources of matching deposits
• With financial education
• For homes, education, business capitalization

13
Theoretical Perspective
Saving and asset accumulation are shaped
by institutions, not merely individual
preferences.
14
Institutional Factors that Affect Saving and
Asset Accumulation

• Incentives
• Information
• Expectations
• Access
• Facilitation
• Restrictions
• Security
• (Beverly Sherraden, 1999 Sherraden, et al.,
  2003 Sherraden Barr, 2005)

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Institutional Features of IDAs

• Matching deposits (incentive)
• Financial education (information)
• Monthly saving target (expectation)
• Eligibility if low-income (access)
• Automatic depositssometimes (facilitation)
• Limit on uses of IDA funds (restriction)
• IDA funds in financial institution (security)
• By intention and design, theoretical concepts
  have
• direct relevance to program design and policy.

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• Research on IDAs
• American Dream Demonstration (ADD)
• First major demonstration of IDAs
• Fourteen IDA programs around the country
• ADD from 1997 through 2001, research through
  2005
• Organized by Corporation for Enterprise
  Development
• Research designed by Center for Social
  Development
• Funded by twelve foundations (Ford, CS Mott,
• Citigroup, Fannie Mae, EM Kauffman, MetLife,
  FB
• Heron, Levi Strauss, Rockefeller, and other
  foundations)

17
ADD Research Agenda Multiple Methods, Productive

• Research methods in ADD have included
• Account monitoring research
• Cross-sectional survey of participants
• Survey of programs
• In-depth interviews
• Experiment (three waves of data)
• Detailed cost studies
• . . . Each research method makes unique
  contributions.

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Uses of IDA Savings in ADD Matched
Withdrawals (Large site at end of ADD, March
2004, CSD data)
Method Account monitoring research In March
2004, 268 of 472 participants (57) had taken a
matched withdrawal (purchased an asset). Of
these 29 for home repair 26 for retirement 25
for home purchase 14 for post-secondary
education 6 for microenterprise Home purchase
and repair continue to be popular (54). When
offered, retirement is a popular option (26).
19
IDAs Enable Long-Term Savings (Margaret Sherraden
et al., forthcoming)
In in-depth interviews, IDA participants express
that IDA savings are for long-term development,
for example The IDA is, is like a sacred
account, you know. . . Its money that I wont
touch. . . until the time comes when I am able
to spend it. That saving is, you know,
something you are gonna keep. You know, like if I
have a CD that Im not ever gonna touch. . . I
dont even pay attention to it.
20
Income and Savings Outcomes in ADD (Schreiner,
Clancy Sherraden, 2002 Schreiner Sherraden,
forthcoming, 2006)
Key Findings (1) Income is only weakly
associated with savings outcomes. (2) The poorest
IDA participants save a much higher
proportion of their income than less-poor
participants. . . . Institutions matter in
saving and asset accumulation.
21
Example of Policy-Relevant Findings Financial
Education and Saving in IDAs
Controlling for many other factors, financial
education, up to about 10 hours, has positive
impacts on IDA saving outcomes. Beyond 10 hours,
there is no clear effect. (Schreiner Sherraden,
forthcoming, 2006) Policy lesson Invest in up
to 10-hours of financial educationand save
additional resources for other program features.
22
Example of Policy-Relevant Findings Monthly
Target and Saving in IDAs
The IDA match cap (amount that can be matched
per month) becomes a savings target in the minds
of participants. Control- ling for many other
factors, a one dollar change in the match cap is
associated with 40 to 50 cents more saving per
month, a huge effect. This effect is much
stronger than that of the match rate (matching
amount for each dollar). (Margaret Sherraden et
al., 2005 Schreiner Sherraden, forthcoming
2006). Policy lesson If increasing participant
saving is the goal, it will be more effective to
invest in raising the match cap than in raising
the match rate.
23
Some Key Impacts of IDAs in ADD (Mills et al.,
2004 Center for Social Development, research in
progress)

• Methods Experiment, IDAs and controls randomly
• assigned, three waves
• Key findings
• IDAs have positive impacts on asset holdings,
  home
• ownership, durable goods, education,
  self-employment
• (2) Positive home ownership impacts appear to be
  stronger
• for blacks than for whites
• (3) When controlling for data problems, also find
  positive
• impacts on net worth

24
Influence of IDAs and ADD Research in US
Increases in welfare asset limits in nearly all
states during 1990s IDAs included as a state
option in 1996 welfare reform Act (Boshara,
2003) Federal Assets for Independence Act in
1998, first public IDA demonstration (Boshara,
2003) Over 40 US states have some type of IDA
policy (Edwards Mason, 2003)
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A Long Way to Go Reflection on US Policy Progress

• IDAs are leading a change in thinking about
  poverty
• and policy
• Inclusion in asset building is now much more
  common in
• US policy discussions. For example, proposals
  for
• Universal Savings Accounts (Clinton, 1999)
• Childrens Savings Accounts ASPIRE Act (New
• (American Foundation, 2004)
• . . . . But today far short of a large, inclusive
  policy.

26
Impacts of ADD Research Toward Inclusion
Internationally

• Saving Gateway and Child Trust Fund in the
• United Kingdom (Kelly and Lissauer, 2000
  Blair, 2001
• H.M. Treasury, 2003 Paxton, 2003 Kempson et
  al., 2004)
• Family Development Accounts in Taipei (Cheng,
  2003)
• IDAs and Learnave demonstration in Canada
• (Kingwell et al., 2003). Planned universal
  Childrens
• Savings Accounts for education in Canada.
• Matched saving in Australia (Russell and
  Fredline, 2004),
• Uganda (CSDs AssetsAfrica initiative),
  Colombia and
• Peru (International Fund for Agricultural
  Development)

27
Advantages of Asset Building

• Simple and clear
• Easy to communicate
• Widespread appeal and acceptance
• Flexible and adaptable
• A large proportion of aid can reach the poor
• Provides clear accountability
• Relatively easy to measure, can know if it is
  occurring
• Positive social and economic outcomes are
  likely
• Outcomes are testable
• Knowledge can readily inform policy

28
Promising Direction Universal and Progressive
Accounts for Children
Sherraden (1991), Lindsey (1994), New
American Foundation (2004), Goldberg
(2005) Child Trust Fund in United
Kingdom (Nissan Le Grand, 2001 Paxton et al.,
2003) Planned universal CSAs for education in
Canada SEED demonstration (Ford, CS Mott,
MetLife, EM Kauffman, Citigroup, and other
foundations) and ASPIRE Act (2004) in the United
States
29
Childrens Savings Accounts (CSAs) Potential in
the United States
Average childrens allowance in Western Europe
is 1.8 of GDP. US has no childrens allowance
and under invests in children. Even 0.1 of US
GDP would be enough for a 2,500 start in life
account for every newborn. (Curley
Sherraden, 2000)
30
Looking to the Future Prospects for
Asset-Building Policy

• Asset accounts may be ideally suited to the
  21st
• century economy and labor markets
• greater control, choice, and portability.
• Information age financial services will be
• a key to feasibility, risk reduction, and
  asset
• accumulation
• The greatest challenge will be inclusion.

31
References
Beverly, S.G., Sherraden, M. (1999).
Institutional determinants of saving
Implications for low-income households and public
policy, Journal of Socio- economics 28,
457-473. Blair, T. (2001). Savings and assets for
all, speech. London 10 Downing Street, April
26. Boshara, R. (2003). Federal policy and asset
building. Social Development Issues 25(12),
130-141. Caner, A., Wolff, E.N. (2004). Asset
poverty in the United States. Levy Economics
Institute, Bard College. Cheng, Li-Chen (2003).
Developing Family Development Accounts in Taipei
Policy innovation from income to assets.
Social Development Issues 25(1/2),
106-117. Clinton, W.J. (1999). State of the Union
address. Washington US Executive Office of
the President. Corporation for Enterprise
Development (2004). Hidden in plain site A look
at the 335 billion federal asset-building
budget. Washington Corporation for Enterprise
Development. Curley, J., Sherraden, M.
(2000). Policy lessons from childrens allowances
for childrens savings accounts, Child
Welfare, 79(6), 661-687.
32
References (cont.)
Edwards, K., Mason, L.M. (2003). State policy
trends for Individual Development Accounts in
the United States, Social Development Issues
25(12), 118-129. Goldberg, F. (2005). The
universal piggy bank Designing and implementing
a system of savings accounts for children.
In M. Sherraden, ed., Inclusion in the American
dream Assets, poverty, and public policy. New
York Oxford University Press. H.M. Treasury
(2003). Details of the Child Trust Fund. London
H.M. Treasury. Haveman, R., Wolff, E.M. (2005).
Who are the asset poor? Levels, trends, and
composition, 1983-1998. In M. Sherraden, ed.,
Inclusion in the American dream Assets,
poverty, and public policy. New York Oxford
University Press. Howard, C. (1997). The hidden
welfare state Tax expenditures and social policy
in the United States. Princeton Princeton
University Press. Kempson, E., McKay, S.,
Collard, S. (2003). Evaluation of the CFLI and
Saving Gateway pilot projects. Bristol,
United Kingdom University of Bristol. Kingwell,
P., Dowie, M., Holler, B., Jimenez, L. (2004).
Helping people help themselves An early look
at Learnave. Ottawa, Canada Social Research and
Demonstration Corporation. Kelly, G.,
Lissauer (2000). Ownership for all. London
Institute for Public Policy Research.
33
References (cont.)
Kochhar, R. (2004). The wealth of Hispanic
households. Washington Pew Hispanic
Center. Lindsey, D. (1994). The welfare of
children. New York Oxford University
Press. Mills, G., Patterson, R., Orr, L.,
Demarco, D. (2004). Evaluation of the American
Dream Demonstration, final report. Cambridge,
MA Abt Associates. New America Foundation
(2004). ASPIRE Act summary. Washington New
America Foundation. Nissan, D., LeGrand,
J. (2000). A capital idea Start-up grants for
young people, policy report no. 49. London
Fabian Society. Oliver, M., Shapiro, T. (1995).
Black wealth/white wealth. New York
Routledge. Paxton, W., ed. (2003). Equal shares?
Building a progressive and coherent asset-based
welfare policy. London Institute for Public
Policy Research. Powers, E.T. (1998). Does
means-testing welfare discourage saving? Evidence
from a change in AFCD policy in the United
States, Journal of Public Economics 68,
33-53. Russell, R., Fredline, L. (2004).
Evaluation of the Saver Plus pilot project.
Australia RMIT University.
34
References (cont.)
Schreiner, M., Clancy, M., and Sherraden, M.
(2002). Saving performance in the American
Dream Demonstration, research report. St. Louis
Center for Social Development, Washington
University. Schreiner, M., Sherraden, M.
(forthcoming, 2006). Can the poor save? Saving
and asset accumulation in Individual
Development Accounts. New York Aldine de
Gruyter. Seidman, L. (2001). Assets and the tax
code. In T. Shapiro E.N. Wolff, eds.,
Assets for the poor Benefits and mechanisms of
spreading asset ownership, 324-356. New
York Russell Sage Foundation. Sen, A. (1993).
Capability and well-being. In M. Nussbaum A.
Sen, eds., The quality of life, 30-53.
Oxford Clarendon Press. Sen, A. (1999).
Development as freedom. New York Knopf. Shapiro,
T. (2004). The hidden costs of being
African-American. New York Oxford
University Press. Sherraden, M.S. McBride, A.M,,
Johnson, E., Hanson, S., Ssewamala, F., Shanks,
T.W. (2005). Saving in low-income
households Evidence from in-depth interviews
with participants in the American Dream
Demonstration. St. Louis Center for Social
Development, Washington University.
35
References (cont.)
Sherraden, M.S., McBride, A.M, Hanson, S.,
Johnson, L. (forthcoming). The meaning of
saving in low-income households, Journal of
Income Distribution (paper at meeting of
Eastern Economics Association, Washington,
February 20-22, 2004). Sherraden, M. (1988).
Rethinking social welfare Toward assets. Social
Policy, 18(3), 37-43. Sherraden, M. (1991).
Assets and the poor. Armonk, NY ME
Sharpe. Sherraden, M., Barr, M.S. (2005).
Institutions and inclusion in saving policy. In
N. Retsinas E. Belsky, eds., Building
assets, building credit Bridges and barriers
to financial services in low-income communities.
Washington Brookings Institution
Press. Sherraden, M., Nair, S., Vasoo, S., Ngiam
T.L., Sherraden, M.S. (1995). Social policy
based on assets The impact of Singapore's
Central Provident Fund. Asian Journal of
Political Science 3(2), 112-133. Sherraden, M.,
Schreiner, M., Beverly, S. (2003). Income,
institutions, and saving performance in
Individual Development Accounts, Economic
Development Quarterly 17(1), 95-112. Wolff,
E.N. (2004). Changes in household wealth in the
1980s and 1990s in the United States, working
paper no. 407. Levy Economics Institute, Bard
College.
36
CSD Reports and Working Papers on Asset-based
Research and Policy
Center for Social Development Campus Box
1196 Washington University St. Louis, MO 63130
USA 314-935-7433 http//gwbweb.wustl.edu/csd/publi
cations/
37
Other Resources on Asset-based Research and
Policy
CFED www.cfed.org Institute for Public Policy
Research www.ippr.org.uk New America
Foundation www.newamerica.net
38
Recent Books
Sherraden, M., ed. (2005). Inclusion in the
American dream Assets, poverty, and public
policy. New York Oxford University
Press. Schreiner, M., Sherraden, M.
(forthcoming, 2006). Can the poor save? Saving
and asset accumulation in Individual Development
Accounts. New York Aldine de Gruyter.