New program would help

by Amy Olson

If state Sen. Linda Berglin has her way, this time next year Minnesotans with low incomes can start climbing out of poverty with help from a new pilot program.
Berglin, DFL-Minneapolis, has been working with University family social science professor Jan Hogan and community members to develop an Individual Development Account program in Minnesota.
The program, which will be put before the state Legislature in the next session, would encourage people with low incomes to save money for education or buying a house. It would provide incentives, like matched funds through money appropriated by the state and donations from foundations.
Under the proposed program, which is still in the developmental stages, a person with an Individual Development Account who saved $20 would get an additional $20 in a one-to-one match from the state. Depending on the amount of money contributed by charitable foundations, Hogan said the match could be as much as three-to-one or four-to-one. That could mean that a person who saved $100 might get as much as $400.
Hogan said the matched funds would be an added incentive to save for those who have trouble making ends meet.
“Let’s face it, in poverty, you’ve got all you can do to pay rent and put food on the table,” Hogan said. In addition to the matched funds, the accounts would accrue interest.
There is a catch. Hogan said the matched funds must be used for education or job training, making a down payment on a house or starting a small business. In an emergency, account holders would be able to take out their own contributions, but the matched funds would stay in their accounts.
Hogan added the program is intended to help people move out of poverty and into the middle class.
“The idea is that poor people can save and set goals,” Hogan said.
Similar programs have been tried in Pennsylvania, Indiana and Wisconsin. Berglin said she wants to model the program after the pilot program started in Fond du Lac, Wis.
Berglin said under the Wisconsin pilot, the original goal was for people to save $500 over two years, but people who were able to save about $200 of their own money were considered successful. She added the people who were most successful at saving money were those who received an unexpected tax return, inheritance or gift.
Although the legislation is still tentative, Berglin said there could be as many as eight pilot programs established around the state by next year. The pilot programs would allow a limited number of trial families with dual incomes in the low $20,000-a-year range to open an account.
Starting early could pay off.
“If we had started the program 18 years ago, we figured the average account could have about $13,000,” Berglin said.
Peter Bell, president of the TCF Foundation, became interested in the concept after reading about a test program in the Chicago area a few years ago. He said the concept of the Individual Development Account has support across party lines.
“Conservatives like it because they see it as a way to encourage saving, thriftiness and delayed gratification,” Bell said. “Liberals like it because it is a tool to promote equity.”
Berglin said she expects the Legislature to consider a bill that would appropriate state funds for the program during the next session, which will begin in January.