Schemes to Boost Small Savings:

1
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
2
Focus is on saving as a strategy for asset
accumulation
3
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).
4
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.
5
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).
6
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 childrens
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.
7
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.
8
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)
9

• 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

10

• 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)

11
Income and Savings Outcomes in ADD (Schreiner,
Clancy Sherraden, 2002 Schreiner Sherraden,
forthcoming 2006)

• Method Account monitoring research
• Key Findings
• 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.

12
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.
13
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 home ownership,
  durable
• goods, education, self-employment, and net
  worth
• (2) Home ownership effects are prominent, and
  stronger for
• African-Americans than for whites.

14
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)
15
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)
• Childrens Savings Accounts, ASPIRE Act (New
  America
• Foundation, 2004).

16
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 Learnave demonstration in Canada
• (Kingwell et al., 2003)
• Matched saving in Australia (Russell and
  Fredline, 2004)
• and Uganda (CSDs AssetsAfrica initiative).

17
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 US600 for secondary schooling
• Savings of US200 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 Ssweamalas goal of an account for
  all orphans in
• Uganda, and eventually all children in Uganda.

18
Institutions Matter Factors that Affect Saving
and Asset Accumulation

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

19
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).
20
Theory and Policy Directions

• 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.

21
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) Childrens accounts in Uganda (Ssewamala
Curley, 2005) SEED demonstration (Ford,
Citigroup, CS Mott, and other foundations), and
ASPIRE Act (2004) in the United States
22
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. 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),
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.
23
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.
24
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,
33-53. 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.
25
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, 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. 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 20-22
(forthcoming in Journal of Income
Distribution). 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
Eric Belsky, eds., Building assets, building
credit Bridges and barriers to financial
services in low-income communities. Washington
Brookings Institution.
26
References (cont.)
Sherraden, M., Schreiner, M., Beverly, S.
(2003). Income, institutions, and saving
performance in Individual Development Accounts,
Economic Development Quarterly 17(1),
95-112. Ssewamala, F.S., Curley, J. (2005).
Improving life chances of orphan children in
Uganda Testing an asset-based development
strategy, working paper 05-01. 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), 3-11. Zhan,
M., Sherraden, M. (2003). Assets, expectations,
and childrens educational achievement in
single-parent households, Social Service Review
77(2), 191-211.
27
CSD Reports and Working Papers
Center for Social Development Campus Box
1196 Washington University St. Louis, MO 63130
USA 314-935-7433 http//gwbweb.wustl.edu/csd/publi
cations/
28
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.