This month of December 2018 marks the end of nearly 20 years of Opportunity Fund offering savings incentives and financial education to over 6,000 thousand Bay Area residents as part of our Savings Program. Collectively, our savers invested nearly $20 million in their futures through this program. This blog celebrates the extraordinary accomplishments of the savers, donors, partners and employees that were part of the program.
We made the decision over a year ago to wind down our Savings Program after the FY 2017 federal budget completely eliminated a federal program called Assets for Independence (AFI - further described below), which provided 50% of the funding for our work. AFI was a nearly 20-year-old, highly impactful program, and its $25 million annual price tag was a very small drop in the federal bucket. Thus, the only federal program that provided financial incentives to save to very low-income Americans was sacrificed to make way for tax cuts for corporations and the wealthy.
“My dad taught me that it doesn’t matter how slowly you go, what matters is that you’re going somewhere. And Opportunity Fund helped me every step of the way!"
- Fernanda, Opportunity Fund Saver
Launching an Innovative Program
In 1999, Opportunity Fund and the Silicon Valley Community Foundation launched an ambitious experiment. Our two organizations had become aware of a new kind of savings account called an “Individual Development Account,” or IDA. The IDA was the brainchild of a professor at Washington University in Saint Louis named Michael Sherraden. It was created to help people of limited financial means save money and build assets. Sherraden and others, in what came to be known as the “asset building” movement, pointed out that the federal government goes to enormous lengths to subsidize savings and asset building on the part of middle class and especially wealthy people, but does virtually nothing to help those with lower incomes save and build assets.
Think about it. Wealthy and middle-class homeowners get to deduct the interest they pay on their mortgages every year. Their contributions to their 401ks and IRAs aren’t taxed. And the income they get from their investments is taxed at a lower rate than their salary income. Meanwhile, lower-income families rarely own homes, so they take no mortgage interest deduction. More often than not, they have jobs that don’t provide retirement benefits, and they have little to no money invested in a way that would generate capital gains. And even if they did, the fact that these goodies are delivered via federal income tax policy means they still wouldn’t benefit, because the clients Opportunity Fund serves are making too little to owe any income tax. (Though they do pay plenty in payroll taxes.)
In fact, the government foregoes over $700 billion in tax revenue every year, and the vast, vast majority of that foregone tax revenue stays in the bank accounts of wealthy people, helping them build assets faster. Last year the average millionaire received over $160,000 in tax givebacks to help them build wealth, while the average median income family got a benefit of just $226. (Thanks to Prosperity Now for these statistics.)
The IDA was created to test whether low-income people, if offered financial education coupled with financial incentives to save, could succeed at building wealth and assets the way higher income people do. An IDA is essentially a matched savings account. The account holder makes a deposit every month and the program sponsor matches the deposit. In our case, we matched every $1 saved with $2. At the end of a saver’s time in the program, they can use the amount they have saved to purchase a home, invest in a business, or pay for higher education. We also ran initiatives that enabled people to save for the cost of applying for citizenship and to build up a rainy day fund.
"Making ends meet is hard, but this program inspired me to try, and I really succeeded!"
- Melissa, Opportunity Fund Saver
Early experiments with IDAs were promising, and in 1998 Congress passed the Assets for Independence Act, which created a $25 million stream of federal funding annually to support IDA programs around the country. ($25 million is .04% of the $700 billion federal budget, by the way). Opportunity Fund jumped into the IDA pool the next year. IDA programs around the country up until that time had been relatively small. Our goal, in partnership with the Community Foundation’s Center for Venture Philanthropy, was to see if we could take the IDA product to scale.
We received a large federal grant, the Community Foundation raised the matching private funds we needed, and we were off. We used a Community Partner model, under which other organizations that had trusting relationships with low-income clients recruited savers and we provided the financial education and the account management. Citibank was our financial institution partner, as well as a donor to the program for many years. The program was an immediate hit, enrolling nearly 200 people in its first full year (versus only 16 small business microloans that year, but that is another story). Soon we had the largest IDA program in the country and were traveling to other states to talk about it. Due to the great work of our Community Partners (see list below), our courageous savers stepping forward, own staff’s efforts, and steady funding raised by the Community Foundation, enrollment in the program continued to grow.
Helping People Follow Their Dreams
But the IDA program hasn’t been just about numbers and scale. It has really been about people and impact. For 20 years we have been providing a key financial intervention to help determined people reach an important goal—people like Cindy. A first-generation college student, Cindy joined our program track called College Savers to afford transferring from community college to UC Davis. At UC Davis, she used her $6,000—the $2,000 that she saved, plus a 2:1 match from Opportunity Fund and our donors—to pay for books and a computer. Cindy graduated last year and is now using her degree to work in affordable housing: “Being from a low-income background, I want to create a better, brighter future for myself and others.” That also includes being a role model for her 11-year-old sister, who saw Cindy walk at graduation and now understands that she can go to college too.
Cindy, first-generation college student and Opportunity Fund College Saver
As I mentioned, our ambitious experiment was to see if we could take a financial product that had been piloted with a few hundred people and take it to scale. I’m not sure if we succeeded completely, but we certainly took the IDA concept farther than it had gone before. Over 6,000 people got high quality financial education, and 5,500 used their savings and the matching funds to invest in life-changing things like higher education, citizenship, homes and small businesses. People with monthly incomes averaging about 25% of area median income proved that they could save on a regular basis when given the proper incentives and support. A large majority of them were women and people of color, and many had never saved before. Over 20 years, this group invested $19.3 million in their own futures.
This post marks the end of our Savings program. So I’ll close with a quote from one of our final savers, Jackie:
“I just want to say thank you so much for all your guidance and support. I don’t know what I would have done without you guys and this program! Thank you so much once again. Take care and happy holidays!”