Saving from poverty: A critical review of Individual Development Accounts

Introduction

Over the last few decades, anti-poverty programmes have increasingly focused on removing barriers to the participation of low-income families in the market (Cooney and Shanks, 2010). Once these barriers are removed, it is expected that families can start to enjoy the benefits the market has to offer and as a result move out of poverty. The field of social work has contributed to this market-based anti-poverty strategy by developing and advocating for asset-building initiatives. Invented in the early 1990s, the idea of asset-building is built on the premise that low-income families can achieve long-term financial stability through savings and asset accumulation, such as a home (Sherraden, 1991). One important programme designed to help low-income families save and develop assets is Individual Development Accounts (IDAs). A substantial body of research has examined the impact of IDAs on participants’ savings behaviour, outlook on life, and asset accumulation. Based on this evidence, especially based on the finding that people living in poverty have the ability to save, some social policy researchers argue that asset-building has the potential to strengthen families financially (Cramer and Williams Shanks, 2014). As yet, this large body of research has remained fragmented and escaped critical scrutiny. Although asset-building has been critiqued and called into question at the theoretical level (Gregory, 2014; Prabhakar, 2013), a considerable amount of ambiguity still exists on what the evidence says about the value of asset-building as an anti-poverty strategy.

This article offers a comprehensive and critical review of the current state of theory and research on asset-building, paying particular attention to IDAs in the United States. On the basis of this review, I suggest a more nuanced evaluation of asset-building policy that problematises the claim that this policy achieves its goals of increased savings and asset accumulation. I argue that the picture portrayed in the literature on asset-building can be explained through a critical analysis of the existing political-economic structure in the US and other western democracies, which has dampened efforts to build savings and assets among people living in poverty.

Assets, savings, and IDAs

The idea of asset-building as an anti-poverty strategy was first introduced by Michael Sherraden, a social work professor at Washington University in St. Louis, in his much-debated book Assets and the Poor (Sherraden, 1991). Sherraden sees asset-building as helping low-income families save money, build assets, and acquire wealth so as to achieve long-term economic stability and become full members of mainstream society. ¹ A growing number of social scientists have joined Sherraden’s call for an asset-based policy for low-income families (Midgley, 2013; Reutebuch, 2001; Schreiner and Sherraden, 2007; Williams Shanks, Boddie and Rice, 2010). Many participants in the public policy-making process in the United States, Canada and Europe have followed suit and consider it today to be a sound strategy for helping low-income families escape poverty (Corporation for Enterprise Development, 2007; Federal Reserve, 2014; HM Treasury, 2001; Organization for Economic Cooperation and Development, 2003). It is particularly noteworthy that proponents of asset-building do not make the case that implementing asset-building initiatives will eliminate poverty, but they do claim that these initiatives have the potential to reduce poverty. As Sherraden and colleagues (2015: 5) note: “Focusing resources on improving the financial capability and asset building of vulnerable populations provides social workers with leverage in their efforts to reduce poverty and inequality.”

Sherraden (1991) defines assets as “capital for investment which, in turn, generates future flows of income” (p. 100). Asset-building programmes are mostly limited to tangible assets, “primarily financial assets (money savings and financial securities)” (Sherraden, 1991: 106), but they also emphasise the development of intangible assets, especially human capital. Elsewhere, Schreiner and Sherraden (2007) suggest the main way to accumulate assets is to teach low-income families how to use their money more wisely, educate them on the importance of saving for the future rather than spending in the present, and, perhaps most importantly, help them actually set aside money in the form of savings to help finance investments, particularly in housing and education, that will lead to a better future.

For Sherraden and others, asset-building does more for low-income families than just helping them have more money in the bank. It is also about developing ‘capabilities’ that promote family well-being and enhance quality of life. Sherraden (2003) states: “[T]he best social policy alternatives will move beyond the idea of consumption-as-well-being, toward what Amartya Sen identifies as capabilities. Building people’s assets is one policy pathway to both increase capabilities and eliminate the trade-off between economic growth and social development in the process.”

The asset-building approach grew mainly in response to what proponents see as the failure of the Keynesian welfare state and cash assistance in particular to reduce poverty rates since the early 1970s. Cash assistance programmes, asset-building proponents note, increase the day-to-day income of people living in poverty and help them maintain a minimal standard of living. Sherraden (2005: 5) observes that these programmes “obviously matter”. Yet, the asset-builders argue that “income support by itself is not sufficient as a public policy” because it emphasises the maintenance of an income needed to continue consuming at a particular level and as a result is not very useful in the long run (Sherraden, 2005: 4). Rather than just giving low-income families income to spend now, the asset-builders make the case that a more effective way to reduce intergenerational poverty is to help families save and acquire assets for long-term financial security. As Sherraden (2001: 3) concludes, “the pathway out of poverty is not through income and consumption but through saving and accumulation”.

Although they mention that current cash assistance programmes are important, the claims of proponents of asset-building nevertheless risk further undermining public assistance and stigmatising the families who rely on it. By questioning the efficacy of cash assistance programmes and sharpening up the distinction between asset-building and cash assistance, the asset-builders end up, consciously or not, reinforcing ascendant welfare policy discourses that frame public assistance as an ineffective anti-poverty strategy which ‘traps’ people in poverty. As a result, the idea of asset-building may lead politicians and policymakers to decide to shift funding away from public assistance in favour of asset-building. There is some evidence this has already started to happen. Under the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which dramatically changed the US welfare system, the federal government provides a block grant to the states, which use these funds to provide cash assistance to low-income families. The Act, however, includes an option for states to use this federal money to fund asset-building programmes. The most recent data shows that 17 states have used some of these funds to support asset-building programmes, although only a small share of overall asset-building funding comes from these funds (Warren and Edwards, 2005). In Israel, instead of increasing monthly child allowances, the government established asset-building programmes for children (Heruti-Sover, 2015).

One of the first policy initiatives created to support savings and asset accumulation is Individual Development Accounts (IDAs), which are matched savings accounts (Sherraden, 1991). For every dollar participants save, they receive match money. In most IDAs, the matching funds cannot exceed a certain amount over the course of the programme. The savings accrued can be used only for asset-based investments, including purchasing a home, acquiring post-secondary education or professional training, opening a small business, or doing home repairs. Participants who would like to withdraw the money for any other purpose can do so at any time, but the accumulated matching funds will be withheld from the amount they receive. In addition to participants’ saving and receiving of the subsidy, IDAs promote financial literacy that leads to the making of economically rational decisions. Participants are therefore required to attend financial education classes, which cover topics such as the importance of saving and establishing or improving a credit history.

The scope of IDAs has turned asset-building into an international social movement. In the US, for example, there are hundreds of IDA programmes targeted at people living in poverty across the country. According to the Corporation for Enterprise Development (CFED), a non-profit organisation that develops knowledge on asset-based policy, there are 570 human service agencies across the country that implement IDA programmes as of 2015 (http://cfed.org/programs/idas/directory_search). Elsewhere, CFED (2013) estimates that there were about 115,000 accounts across the US in 2011. Inspired by the US experience, nearly 23,500 accounts were active in the UK as part of the Savings Gateway pilot, which ran between 2002 and 2007 (Harvey et al., 2007). In 2016, the former Prime Minister, David Cameron, announced the launch of the Help to Save scheme, which offers IDA-like accounts to 3.5 million low-income workers (Hill, 2016).

IDAs are most often public–private partnerships involving the government as well as non-profit and for-profit agencies. They are largely operated by the non-profit sector and rely on both public and private funding. In the US, the largest source of funding comes from federal grants and it is roughly $185 million per year (Boshara, 2005). At the state level, “42 states have enacted or administratively created state IDA programs, though not all are currently active or have current state appropriations” (Corporation for Enterprise Development, 2013: 2). IDA programmes in the US also receive funding from private foundations, non-profits, businesses and corporations, and banks and financial institutions (Corporation for Enterprise Development, 2007). The level of total private funding is currently not available. The Federal Deposit Insurance Corporation (2007) did find that 25 percent of the programmes across the US rely on funding from banks.

Following the implementation of IDAs, savings accounts for children have been proposed in recent years as another asset-building policy (Sherraden and Stevens, 2010). Child Development Accounts (CDAs) are universal savings accounts for children that allow families to save money for their children for asset-building purposes. The programme deposits an initial cash gift into each new account and provides matching funds for deposits made by low-income families. This article, however, focuses on IDAs. Unlike CDAs, IDA policy is not universal since it is specifically targeted at low-income families.

It is noteworthy that much of the literature on asset-building collapses all people on the bottom of the socioeconomic ladder into one category – the poor. For instance, in a testimony he gave to the President’s Commission on Social Security, Sherraden (2001) used this category 40 times. Deploying the term ‘the poor’ marks people as different and implies that they are inferior to the rest of society. It also robs them of their individuality and agency. Ultimately, the asset-builders’ use of the category of ‘the poor’ reinforces the ‘othering’ of people who are at the margins of society and sustains ascendant notions of ‘us’ versus ‘them’.

To assess the full value of asset-building as an anti-poverty strategy, its underlying assumptions about the ‘poor’ and the ‘market’ need to be unpacked. First, asset-building, consciously or unconsciously, rests on the moral assumption that low-income families are in a dire financial situation because they have poor money management skills and feckless spending habits. Thus, the solution to their poverty problems is clear: if families learn how to manage their finances more wisely and save on a regular basis, they would get closer to achieving economic prosperity. Asset-building, then, implies that people’s poverty problems are rooted not so much in structural factors but more in their deficient values, beliefs, and behaviour. Second, asset-building rests on the idea that owning a home is a major solution to people’s poverty-related problems. While there might be some merit in this assumption in theory, it overlooks the fact that home-owning today is a risky venture for many low-income families. Consider, for example, the 2007–08 mortgage-foreclosure crisis that resulted in many low-income homeowners across the United States losing their homes, while many others were on the brink of losing them and were sunk in debt. Another related assumption informing asset-building is that attaining higher education will lift families out of poverty because the market benefits people with more education. This assumption, however, ignores the fact that the promise of higher education today is increasingly not translated into decently paying jobs (Aspen Institute, 2015), and that many low-income students drop out of school, often because they could not afford to keep studying (Goldrick-Rab, 2016).

In sum, asset-building programmes emphasise savings and asset accumulation as an important vehicle to promote long-term financial security among impoverished families and communities. In the process, structural impediments to escaping poverty are de-emphasised while normative assumptions about the market’s ability to bring prosperity for all are given pre-eminence.

Asset-building: Two theoretical frames

Among the various theories about poverty, the literature has relied on two theoretical frames in an attempt to understand the logic and operations of asset-building. As already suggested, Sherraden (2003) notes that asset-building emphasises the development of capabilities among people living in poverty. This is founded on ‘capability theory’, which can be traced to Amartya Sen (2010). Capability theory takes a positive view of human development and suggests that if people are given opportunities and resources they use them to promote development for themselves, their families and communities. This approach originated in the study of less-developed countries, where efforts have been made to both increase standards of living and enhance economic growth (Midgley, 2013). Capability theory, its proponents claim, seeks to transcend the conventional opposition between ideas of income redistribution in the Keynesian welfare state, which were popular from the 1930s until the 1960s, and ideas of economic growth and self-sufficiency, which have proliferated since the 1970s. Capability theory offers a vision of social welfare that integrates both sides of this debate and is focused on what will best promote sustainable development. In this view, social welfare policy should reallocate resources but in ways that build people’s capabilities, increase their economic participation, and contribute to national economic growth.

Asset-building programmes are also grounded in a market-based approach to combating poverty (Cooney and Shanks, 2010). Such market-based anti-poverty programmes are often characterised as reflecting a neoliberal outlook (Schram, 2015). Neoliberalism is discussed in the literature as ideology, intellectual movement, economic theory, and political project (Gray et al., 2015). Much like classic economic liberalism, neoliberalism champions markets as the central mechanism for allocating resources in society (Gray et al., 2015). Yet, neoliberalism takes things a step further and “disseminates economic rationality to be the touchstone not just for the market but for civil society and the state as well” (Schram, 2015: 4). It operates to get social actors in all fields of endeavour to behave in ways consistent with dominant standards of economic rationality so as to better buttress market operations throughout society. State practices are restructured to reflect market rationalities, promote a competitive market order, and impose market discipline (Garrett, 2009; Gray et al., 2015). Foucault (2008) suggests that neoliberal rationality conceives of the subject as a form of human capital, occupied with enhancing his value and strengthening his position through investments in himself. Casting people as human capital redirects attention away from the structure of society to the behaviour of individuals.

Neoliberal logics are particularly evident in the transformation the welfare state has undergone in recent decades. Social welfare programmes in the neoliberal era have been restructured to immerse low-income people in market experiences so they could develop their human capital and exercise personal responsibility. Asset-building initiatives articulate a neoliberal logic since their role is to re-fashion people into disciplined market actors who save and accumulate capital so as to enhance their own capacities and better compete in a market-centred society. Through these critical lenses, Sen’s capability theory becomes associated with the individualism and market-friendly approach which are central features of the neoliberal doctrine.

The current state of research on IDAs

Many studies have evaluated the IDA programme, especially in the United States. These studies have explored three major areas of research: the effects of IDAs on participants’ savings behaviour, the effects of the programme on clients’ outlook on life, and its long-term impact on asset accumulation. The most comprehensive and ambitious study on IDAs is the American Dream Demonstration (ADD), which ran from 1997 to 2002. The purpose of the ADD was “to find out whether IDAs are successful, in what ways, and for whom” (Sherraden, 2008: 3). The project followed 14 IDA programmes operated by 13 community-based organisations across the country. The ADD mostly targeted the ‘working poor’ and, overall, about 2,400 IDAs were evaluated by the project. As a large-scale and long-term research project, the ADD employed multiple research methods such as account monitoring, surveys, cost-effective analysis, a randomised experiment, and in-depth interviews.

Discussion

This article offers a nuanced and critical perspective on asset-building literature. A growing number of scholars and policymakers have championed the idea that low-income families should have the opportunity to save money and acquire assets so they could achieve long-term financial stability. For this purpose, matched savings accounts, called Individual Development Accounts (IDAs), were developed. Much of the research on IDAs has been conducted in the United States. Studies have typically involved quantitative evaluations of the programme’s impact on clients’ savings behaviour, their outlook on life, and the long-term impact of the programme. On the basis of these findings, the asset-builders conclude that IDAs are an effective and promising anti-poverty policy. As Sherraden notes (2009: 209), “there is reason to be cautiously optimistic about the long-term savings outcomes and the impacts of the IDAs and similar savings strategies that include the poor”.

This article challenges this “optimistic” conclusion and argues that asset-building programmes, namely IDAs, are not as promising as some researchers and policymakers claim they are. While some studies do show that clients in IDAs report feeling more financially secure and confident about their lives, a careful review of asset-building literature raises three significant issues that suggest that the claim that IDAs are a success is overrated and premature. In the following discussion, it is maintained that processes of neoliberalisation have contributed to the relatively poor outcomes in IDAs. First, findings from the ADD experiment, the most ambitious study on IDAs, indicate that at least half of the participants (48 percent) were non-savers at the end of the programme. This is a significant number of clients and it is a finding that problematises the taken-for-granted claim of the asset-builders that “the poor can save” (Schreiner and Sherraden, 2007: 305). The truth is that only half of them can; the other half cannot. A possible explanation for this relatively high number of non-savers is that people living in poverty face many difficulties, which have intensified over the last four decades of neoliberal reforms, as they try to set aside money and build a better future for their families. Indeed, poverty researchers have documented the obstacles and hardships low-income families encounter as they try to save (Halpern-Meekin et al., 2015). If this is the case, then the high number of non-savers implies that encouraging low-income families to save might not be a viable strategy in an era of neoliberalism whereby these families have been made even more precarious and there are reduced economic opportunities for them.

Furthermore, when determining whether low-income families can save, ADD researchers, for the most part, did not examine whether it was in fact the programme that had a positive impact on clients’ saving behaviour. In order to estimate the impact of the programme, ADD researchers should have used (but they did not) a Randomised Controlled Trial (RCT), the ‘gold standard’ for evaluating programme effectiveness. This means that they should have randomly assigned clients to control and intervention conditions, and then analysed both groups’ levels of savings. The ADD did randomise across clients in one of the agencies that participated in the study, but the data from this randomised experiment was mostly used to evaluate whether IDAs have a long-term effect on asset ownership among low-income families. The lack of random assignment in the ADD findings regarding the impact of IDAs on clients’ savings behaviour is a serious limitation of the body of evidence on IDAs, preventing researchers from compellingly arguing that IDAs are the cause of participants’ levels of savings. Other studies of IDAs, which were not part of the ADD, did use experimental and control groups, but they did not randomly assign clients to these groups. These studies also suffered from other major limitations. In any case, their findings are inconclusive: some show that IDAs have a positive impact on clients’ savings behaviours while others find no effect. In short, researchers of IDAs (both from the ADD and outside of it) have largely not been able to provide sufficient evidence that there is a causal link between participation in the programme and savings behaviour.

Second, even if we examine the ADD sample as a whole (while overlooking the issues discussed above), other concerns about the programme’s effectiveness can be raised. Studies show that among programme participants, the average amounts of savings are relatively low. After adding the matching funds that they received while in the programme, IDA participants who were part of the ADD experiment saved an average of $48 per month (or $16 per month before they received the match). The literature on asset-building tends to overlook the question of whether this modest level of savings matters relative to the problems of poverty clients confront. The case can be made that these amounts are not sufficient to move people out of poverty and they also serve to highlight that the argument made by the asset-builders about how savings can have a transformative effect on poor people’s lives is overrated. In other words, it is unlikely that $16 each month would create a better future for low-income families. These low levels of savings can be linked to the growth of economic inequality in recent decades. Neoliberalism has involved “vast transfers of income to the richest groups in society” (Garrett, 2009: 17), coupled with a negligible increase in the household incomes of families at the bottom of the income distribution (Congressional Budget Office, 2014). As a result, many low-income families were able to save (at best) only a small share of their income. The state has not been there to protect these families from the ravages of the neoliberal economy in ways that would help them increase their savings. Instead, the state, which plays a key role in funding IDAs, is used as an instrument for enforcing saving discipline, irrespective of whether it helps people living in poverty produce significant levels of savings needed to move them out of poverty.

Third, long-term studies show that asset-building does not have an impact (or has a non-significant impact at best) on asset ownership. In contrast to studies on the programme’s impact on participants’ savings behaviour, the studies on the long-term impact of the programme were conducted using a random assignment, hence they offer strong evidence. This evidence raises serious questions about whether IDAs are actually able to accomplish one of their primary goals: to enhance asset accumulation among low-income families. Existing studies have a clear answer: they do not. One possible explanation for these findings is that the neoliberal economy, which is rooted in the idea that inequality is a necessary characteristic of the market system (Mirowski, 2013), has rejected the attempts of the asset-builders to help low-income families acquire assets and be incorporated as equal members of society. Put differently, the context of neoliberalism has mattered more than the efforts of the asset-builders to increase wealth, efforts which have so far proven futile. The state plays a critical role in this context as its practices maintain and generate a highly unequal society. The neoliberal state, however, has not been challenged by the IDA programme.

Of course, the criteria for success adopted by IDA researchers could also be challenged. Most of the asset-builders conduct outcomes research in order to determine whether the programme is effective. This involves measuring whether the programme has produced change in a particular outcome variable (e.g., homeownership or level of savings). While an outcomes research undoubtedly has merit, focusing solely on it can be problematic in some respects. First, outcomes research fails to appreciate the context in which IDAs are being implemented. For example, is buying a home in a poor racially segregated neighbourhood the same as acquiring a home in a middle-class white neighbourhood? Or is buying a home as a single-parent family the same as acquiring a home as a two-parent family? IDAs outcomes research does not demonstrate the appropriateness of the programme for a particular client, community or neighbourhood. Furthermore, an emphasis on conventional outcomes research privileges one particular source of knowledge over other sources of knowledge that are also critical for evaluating whether IDAs ‘work’. In most IDA studies, researchers use quantitative methods to investigate the programme’s effect on the material well-being of clients, but there is little focus on interpretive and critical inquiries into clients’ own experience of the programme and their struggle to save and acquire capital under challenging economic circumstances. The question of whether the IDA programme is a ‘success’, then, cannot be fully answered without exploring the perspective of the clients in the programme and the structural barriers that constrain their ability to accumulate wealth.

In conclusion, this article draws on a careful review of the literature on IDAs to raise some concerns regarding the effectiveness of asset-building as an anti-poverty strategy. A possible explanation offered highlights the ways in which large structural forces, which reflect a neoliberal character and are rooted in the idea that greater competition and inequality are major drivers of progress, have blocked poor people’s efforts to be assimilated into the market through asset-building. In other words, efforts to reduce poverty via asset-building are undermined given the neoliberal character of the market economy in recent decades. The article, then, challenges researchers, policymakers and practitioners to rethink asset-building policy, as currently implemented.

Implications for research and social policy

The review of the current state of IDAs implies the need for a critically informed research agenda for asset-building. The first task is to conduct more rigorous studies that examine whether there is in fact a causal relationship between the programme and clients’ savings behaviour. More qualitative evaluations of asset-building would also be useful. Researchers should conduct observations of the everyday practice at the agencies implementing these programmes and spend time with clients in order to better understand the nexus between the implementation of the programme and clients’ lived experience of poverty. Moreover, future research should examine how the programme fits into the broader context of neoliberalism. Accordingly, studies should examine the extent to which asset-building programmes reflect a neoliberal logic and the implications for how clients confront their problems of poverty. Finally, additional critical assessments of outcomes in IDAs outside of the US are also needed.

As mentioned above, the findings reviewed in this article offer a call to rethink the implementation of asset-building policy, namely IDAs. On the basis of the literature reviewed in this article, it seems safe to argue that IDAs have not been extremely successful in producing significant savings among clients and increasing their assets. To make it more effective, actors involved in the asset-building field should make neoliberalism part of the national conversation on why the people living in poverty do not own any assets, and design programmes that work with clients on confronting the neoliberal economic order (rather than adapting to it). For example, rather than teaching them how to be good solo participants in the prevailing mainstream capitalist economy, asset-building can help clients act collectively via alternative forms of banking such as credit unions and cooperatives, which do not engage in predatory practices that sometimes turn people’s dreams of upward mobility into a nightmare. It can also counter the capriciousness of the private housing market by promoting affordable housing that is funded and regulated by the government. Creating these types of changes in asset-building policy can produce what Sanford Schram (2015) calls “radical incrementalism”, which focuses on the need to make small and realistic changes in power dynamics that not only avoid the reproduction of inequality but also lay the groundwork for larger, transformative changes in the future. In short, activists and practitioners should push for changes in asset-building policy that explicitly address the obstacles that the neoliberal economy poses to low-income families who struggle to build wealth.