In an effort to help more Americans buy a home,start a business,or further their education,two Pennsylvania congressmen are trying to expand their state's asset-building plan,commonly called IDAs.
Rep. Joe Pitts (R-Pa) and Sen. Rick Santorum (R-Pa) are proposing legislation to nationalize Pennsylvania's Individual Development Account program,which creates special savings accounts that also earn money from the financial institution that handles it.
The account owner,usually a low-income adult,can earn a dollar match for each dollar saved,up to $500,from the institution that handles the account. In turn,the institution – a bank,credit union or nonprofit organization – gets a tax break for the contribution,said Fred Abrams,division chief in the Pennsylvania Department of Community and Economic Development.
Before receiving the funds,the account holder must save a predetermined amount. In addition,they can spend the money only on buying a home or business,paying college tuition,or expanding an existing business,although some emergency purchases may be approved,Abrams said.
Housing in the United States,which most Pennsylvanian IDA holders are saving for,reached an average cost of $211,800 this May,according to a June 26 news release from the U.S. Census Bureau.
But Pennsylvania,with more than 1,000 growing accounts since its June,1998 inception,isn't the only state offering IDAs,Abrams said.
“This is a growing concept in the United States. It's a hot ticket right now,“ he said.
Eight states – Illinois,Missouri,Montana,Nevada,North Carolina,South Carolina,Vermont and Washington – have pilot IDA programs,according to information compiled by the Center for Social Development.
Several other states,including Florida,Maryland and New York,are building legislation to start IDA programs,according to the center's web site (gwbweb.wustl.edu/csd/statepolicy/overview.html). Abrams said different states have different matching amounts and eligibility requirements,but operate along the same principles.
“The whole idea of this is an asset program,where people can get a jingle in their pocket,” Abrams said. “If you walk into the bank and you don't have that jingle in your pocket,banks will treat you differently than if you do,” he said.
With that “jingle in their pocket,” low-income Americans can build good credit history,learn to control their spending and access loans easier. Children pick up money-management skills through their parent's example,Abrams said.
Passage of either congressman's bill would start IDA programs in every state,but neither has stirred much controversy so far.
Santorum's plan is tucked into the first part of his Savings Opportunity and Charitable Giving Act of 2001,or Senate Bill 592,introduced to the Senate on March 21,2001. The legislation was sent to the Senate Finance Committee,where it has been read twice.
Pitts' plan is comprised in his Savings For Working Families Act,H.R. 2160,existing solely to pass the IDA initiative. Introduced to the House of Representatives on June 13,the bill was referred to the House Committee on Ways and Means. Additional steps on both bills could come when Congress reconvenes this week after its weeklong Independence Day recess.
The Savings for Working Families Act has gained 40 cosponsors in the House,including Rep. Jo Ann Emerson (R-Mo.) who recently jumped on as a co-sponsor of the bill.
“Anything that we can do to encourage people to become more aggressive savers or keep more of their money is a good concept,” said Michelle Dimarob,communications director for Emerson.
INFO FOR GRAPHIC
Individual Development Account requirements
– applicant must be a low-income citizen or legal resident age 18-61,not attending school
– account must be obtained through a qualified financial institution: bank,credit union or nonprofit organization
– account-holder must save toward a certain amount
– account-holder must save for a specific purchase: first home,college tuition,business,or business expansion