New savings program for poor gaining attention

IDA holders receive their free money under one condition: they must undergo financial literacy education that is intended to prepare them for a life of cautious savings and no debt. President Bush has steadily increased the yearly budget for IDAs, but this year Sen. Rick Santorum has been the accounts' most tireless promoter.
"IDAs are one of the most promising tools that enable low-income and low-wealth Americans to save, build assets and enter the financial mainstream," Santorum told members of his subcommittee at an IDA hearing last month.
The nonprofit Corporation for Enterprise Development runs IDA pilot programs under which low-income residents of major cities have opened more than 10,000 privately administered accounts. CFED's most recent study, in 2001, found an average monthly savings rate of 2.2% for their IDA holders, the majority of whom made no more than $2,000 per month
The Earned Assets Resource Network has also started IDA pilots as part of its work with the California state government and Citibank to generate low-income savings opportunities. IDA holders in EARN's programs "put away 6% of their gross income, while the national savings rate is effectively zero," said EARN director Ben Mangan.

Mangan exaggerates the national savings rate, but not by much. The average savings rate for all Americans in 2004 was less than 1% of U.S. gross domestic product, according to government figures.