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
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.
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)
Childrens 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 (CSDs 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 Ssweamalas goal of an account for all orphans in
Uganda, and eventually all children in Uganda.
Center for Social Development
Washington University in St. Louis

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)

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

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.

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)
Childrens 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 Socioeconomics 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(1&2), 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
Center for Social Development
for childrens savings accounts, Child Welfare, 79(6), 661-687. Washington University in St. Louis

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

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.
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,
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.
Center for Social Development
Washington University in St. Louis

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.

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 63130 USA
314-935-7433
http://gwbweb.wustl.edu/csd/publications/

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.

Center for Social Development

Washington University in St. Louis