aWANTEDmag.com, Inc

Statistics show that the average American household saves nothing. That can spell trouble for people at all income levels,  especially for the poor. Not saving perpetuates a cycle of poverty that can last generation after generation. Unless, of course, someone steps in. Fade to black, back to 1988. Enter economy professor Michael Sherraden, the pioneer of a concept called matched savings accounts in which those who live in poverty gain the support of private investors and federal grants to build a better life, not just for now but for future generations.

“The way that the American Dream works is through building assets, through becoming a first-time home owner, getting a college education, starting a small business,” said Amanda Byrd, development and communications director for San Francisco-based non-profit, EARN (www.earn.org), now the largest provider of such matching savings accounts or Individual Development Accounts (IDA’s) for low-wage workers.

EARN, one of more than 500 IDA programs across 49 states, has since its inception in 2002 helped more than 3,000 low-income families save toward their dream, one dollar at a time. On average, these savers are families living on less than $20,000 a year in San Francisco. Despite such low income, these families have been able to consistently save around $75 a month or roughly 5% of their income over a two-and-a-half year period, dollars that are matched by private dollars EARN raises from corporate and individual sources and then, also, by matching federal grant funds.

“People say that it is insulting to suggest that people living below poverty level should be saving, but it actually isn’t,” Ms. Byrd said. “It’s extremely empowering. No one ever spent their way out of poverty.”

EARN President Ben Mangan was part of the founding group of forward-thinking San Francisco leaders who hatched the idea for the non-profit at the end of the 90s, when Silicon Valley was making lots of people rich but, still, there were many who were not reaping the benefits. The idea was tested in a national demonstration in San Francisco, the American Dream Demonstration, which was to kick off the program in a grand scale, helping to open 10,000 IDAs over the next few years. Then, the bottom fell out. It took a few years, but Mr. Mangan and his team in 2001 began to re-envision how EARN could still have tremendous local impact and drive public policy to help lower-income families change their future.

Today, EARN has achieved that goal. More than 3,000 families have enrolled in the matched saving program and have reached their goal of saving $2,000, which has then turned in to $6,000 to be invested in a home, small business or education. That translates to roughly $4 million that low-wage earners in San Francisco have been able to save of their own money.

How? Where does the money come from? The success stories are inspirational. One saver achieved her goal of buying her son a computer to get ready for college by quitting smoking. Another bought a home in Oakland and is getting her Junior College degree just by keeping track of exactly where her money went. Thousands have been able to leave abusive relationships, educate their children, and find some safety and stability, simply through saving.
     
“These people want something better, mostly for their children, and if you show them strategies, things as simple as ‘bring your lunch to work,’ or ‘ask for a lower interest rate form your credit card,’ they can do it,” Ms. Byrd said. “We don’t realize the power that we have, but when people are getting $2 for every $1 they save, it motivates a behavior change and gives them a sense, even after the match ends, that they can do this their whole life.”

In fact, in recent research, EARN found that 83% or 25 out of 30 alumni of the matched savings program continue to save even after completing the program. In addition, the research found that the program helps formerly disengaged people get more involved in their communities and boosts their confidence dealing with mainstream financial institutions, both fact that EARN is using to develop workable public policies for other organizations and for the government that help teach people—even mid- and high-wage earners—the importance of saving.

To help foster saver’s efforts, EARN offers workshops that include topics like budgeting, credit repair, filing tax returns and an extensive series for first-time home buyers. Even after they reach their goal, EARN is trying to offer alumni more and more services to continue to help them reach their financial goals on their own, to leverage their assets and to keep on moving up. Pilot programs in financial coaching have sprouted up in the last few years, among them a partnership with the San Francisco Financial Planners Assoc. that offers low-income communities more than just a blueprint of their situation but practical advice on how, exactly, to move forward.

Beyond the matching savings program, EARN developed a Bank On San Francisco program in 2006 that has offered free no-strings attached checking accounts to more than 30,000 low-income people who were formerly forced to spend hard-earned dollars at check-cashing and Payday lenders. Those outlets, often the only options for low-income people with poor banking records, command $40 million annually, often stealing the exact 5% of income that EARN has helped so many people save to great ends.
 
While EARN plugs on, helping low-income Californiana “plug the spending leaks,” and save their way to a better future, other organizations like them are doing the same around the country. Washington, DC-based Corporation for Enterprise Development (www.CFED.org), is a national non-profit that helps to expand economic opportunities for low-income families and communities through programs such as American Dream Match Funds and Asset Building for Children.

It just makes good economic sense, Ms. Byrd said of the efforts. “For every federal dollar matched, there is $5 pumped back into the economy.” And, she said, “all of a sudden, we have put people on a vastly different track.”
     
www.earn.org