Center for Social Development Washington University in St. Louis Schemes to Boost Small Savings: Lessons and Directions Michael Sherraden Youngdahl Professor of Social Development Washington University in St. Louis, USA World Bank May 31, 2006

Center for Social Development Washington University in St. Louis Focus is on saving as a strategy for asset accumulation

Center for Social Development Washington University in St. Louis Increasing Questioning of Income as Sole Definition of Poverty and Well-Being Amartya Sen (1993, 1999) and others looking toward capabilities. Assets can be seen as part of this discussion: one measure of long-term capabilities. Assets are likely to lead to a number of positive effects in addition to deferred consumption (e.g., stability, investment returns, longer time horizons, social standing).

Center for Social Development Washington University in St. Louis Example: The “Asset Effect” (Bynner and Paxton, 2001) Methods: National Child Development Study, longitudinal, OLS regressions. Findings: (1) Holding assets at age 23 associated with later positive outcomes: better labor market experience, marriages, health, health behaviors, political interest. (2) Presence of the asset appears to matter more than the value of the asset.

Center for Social Development Washington University in St. Louis Example: Impact of Wealth on Child Developmental Outcomes (Williams, 2003) Methods: Panel Study of Income Dynamics, longitudinal data, OLS regressions Key findings: (1) Wealth positively associated with cognitive development, physical health, and socio-emotional behavior. (2) Effects occur even among very income-poor families. (3) Wealth seems to be a better predictor as children grow older (income is a better predictor when younger).

Center for Social Development Washington University in St. Louis Example: Assets, Expectations, and Educational Performance (Zhan & Sherraden, 2003) Methods: National Survey of Families and Households, Longitudinal data, logistic and OLS regressions Findings: (1) Single mothers’ assets are positively associated with children’s educational attainment. (2) Results occur in part through expectations of the mother: assets are associated with expectations, which are in turn associated with educational attainment. (3) Income is not associated with educational achievement when assets are in model.

Center for Social Development Washington University in St. Louis 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.

Center for Social Development Washington University in St. Louis Asset-Based Policies in the US: Large and Regressive Over $300 billion annually in US tax expenditures for assets (homes, investments, accounts) Over 90 percent of this goes to households with incomes over $50,000 per year At same time, welfare policy provides disincentives for the poor to accumulate assets (Sherraden, 1991; Howard, 1997; Seidman, 2001; Corporation for Enterprise Development, 2004)

Center for Social Development Washington University in St. Louis One Policy Strategy for Inclusion: 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

Center for Social Development Washington University in St. Louis 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 was the major supporter, with partnerships from CS Mott, Citigroup, Fannie Mae, EM Kauffman, MetLife, FB Heron, Levi Strauss, Rockefeller, and other foundations)

Center for Social Development Washington University in St. Louis Income and Savings Outcomes in ADD (Schreiner, Clancy & Sherraden, 2002; Schreiner & Sherraden, forthcoming 2006) Method: Account monitoring research Key Findings: (1)Controlling for other factors, 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.

Center for Social Development Washington University in St. Louis IDAs and Future Orientation in ADD (M.S. Sherraden et al., 2004) Method: In-depth interviews with IDA participants and controls Key finding: Greater future orientation: (1) IDA participants say they can “see more clearly” and better “visualize a future” than before IDAs. (2) IDA program said to “create goals and purpose.” (3) IDA program said to provide “way to reach goals.”

Center for Social Development Washington University in St. Louis 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: (1)IDAs have positive impacts on home ownership, durable goods, education, self-employment, and net worth (2) Home ownership effects are prominent, and stronger for African-Americans than for whites.

Center for Social Development Washington University in St. Louis Influence of IDA 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)

Center for Social Development Washington University in St. Louis Reflections on US Policy Progress IDAs introduced a change in thinking about poverty and policy. Saving and asset building by the poor is now common in US policy discussions. But IDAs in the US are in a “demonstration” phase of community-based projects, which is not a “scalable” model. Some proposals for inclusion of the whole population: Universal Savings Accounts (Clinton, 1999) Children’s Savings Accounts, ASPIRE Act (New America Foundation, 2004).

Center for Social Development Washington University in St. Louis Supported Savings Abroad “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 “Learn$ave” demonstration in Canada (Kingwell et al., 2003) Matched saving in Australia (Russell and Fredline, 2004) and Uganda (CSD’s AssetsAfrica initiative).

Center for Social Development Washington University in St. Louis Example: Matched Savings with HIV/AIDS Orphans in Uganda Fred Ssewamala (Ssewamala and Curley, 2005) High risk population, including likely HIV infection later Aiming for US$600 for secondary schooling Savings of US$200 matched with $US400 Pilot successful Now larger project with US NIH funding, significance: One of few NIH grants outside of US One of first NIH grants to test economic intervention on health Step toward Ssweamala’s goal of an account for all orphans in Uganda, and eventually all children in Uganda.

Center for Social Development Washington University in St. Louis Incentives Information Expectations Access Facilitation Restrictions Security (Simplicity) (Beverly and Sherraden, 1999; Sherraden, et al., 2003; Sherraden and Barr, 2005) Institutions Matter: Factors that Affect Saving and Asset Accumulation

Center for Social Development Washington University in St. Louis Examples of Institutional Effects in IDA Research (Schreiner et al., 2002; Schreiner and Sherraden, 2006; M.S. Sherraden et al., 2004) Match cap (expectation) is associated with a 40 to 50 cent increase in savings for each dollar increase, a large effect. Increased match rate (incentive) about a low level has little effect on savings. Financial education (information) up to about 10 hours is associated with increased savings; above 10 hours, no effect. IDA savers are positive about limited uses (restrictions).

Center for Social Development Washington University in St. Louis Continue to clarify institutional constructs, and test in different contexts: build a systematic body of knowledge that can inform policy Organize effective constructs into designs of savings plans (Clancy, Cramer, and Parrish, 2005; Rutherford on saving plans in Grameen II) Roles for both government and commercial financial sector Test savings plans in developed and developing contexts Aim for large-scale, inclusive policies. Theory and Policy Directions

Center for Social Development Washington University in St. Louis Promising Direction: Universal and Progressive Accounts for Children Sherraden (1991), Lindsey (1994), Goldberg (2005) Child Trust Fund in United Kingdom (Nissan & Le Grand, 2001; Paxton et al., 2003) Children’s accounts in Uganda (Ssewamala & Curley, 2005) SEED demonstration (Ford, Citigroup, CS Mott, and other foundations), and ASPIRE Act (2004) in the United States

Center for Social Development Washington University in St. Louis References Beverly, S.G., & Sherraden, M. (1999). Institutional determinants of saving: Implications for low-income households and public policy, Journal of Socio- economics 28, 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(1&2), Bynner, J.B., & Paxton, W. (2001). The asset effect. London: Institute for Public Policy Research. Cheng, Li-Chen (2003). Developing Family Development Accounts in Taipei: Policy innovation from income to assets. Social Development Issues 25(1/2), 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 children’s allowances for children’s savings accounts, Child Welfare, 79(6),

Center for Social Development Washington University in St. Louis Edwards, K., & Mason, L.M. (2003). State policy trends for Individual Development Accounts in the United States, Social Development Issues 25(1&2), 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, 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 Learn$ave. Ottawa, Canada: Social Research and Demonstration Corporation. Kelly, G., & Lissauer (2000). Ownership for all. London: Institute for Public Policy Research. References (cont.)

Center for Social Development Washington University in St. Louis References (cont.) 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. 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, Russell, R., & Fredline, L. (2004). Evaluation of the Saver Plus pilot project. Australia: RMIT University. 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.

Center for Social Development Washington University in St. Louis References (cont.) 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, New York: Russell Sage Foundation. Sen, A. (1993). Capability and well-being. In M. Nussbaum & A. Sen, eds., The quality of life, Oxford: Clarendon Press. Sen, A. (1999). Development as freedom. New York: Knopf. Sherraden, M.S., McBride, A.M, Hanson, S., & Johnson, L. (2004). The meaning of saving in low-income households, paper at annual meetings of Eastern Economics Association, Washington, February (forthcoming in Journal of Income Distribution). Sherraden, M. (1988). Rethinking social welfare: Toward assets. Social Policy, 18(3), 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 & Eric Belsky, eds., Building assets, building credit: Bridges and barriers to financial services in low-income communities. Washington: Brookings Institution.

Center for Social Development Washington University in St. Louis Sherraden, M., Schreiner, M., & Beverly, S. (2003). Income, institutions, and saving performance in Individual Development Accounts, Economic Development Quarterly 17(1), Ssewamala, F.S., & Curley, J. (2005). Improving life chances of orphan children in Uganda: Testing an asset-based development strategy, working paper St. Louis, Center for Social Development. Williams, T. (2003). The impact of household wealth and poverty on child outcomes: examining asset effects, doctoral dissertation, Washington University in St. Louis. Yadama, G., & Sherraden, M. (1996). Effects of assets on attitudes and behaviors: Advance test of a social policy proposal, Social Work Research 20(1), Zhan, M., & Sherraden, M. (2003). Assets, expectations, and children’s educational achievement in single-parent households, Social Service Review 77(2), References (cont.)

Center for Social Development Washington University in St. Louis CSD Reports and Working Papers Center for Social Development Campus Box 1196 Washington University St. Louis, MO USA

Center for Social Development Washington University in St. Louis 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.