Some organizations have found a way for low-income people to save money, then build on those savings over time. One such program in Tulsa, Okla., has brought life-changing financial security to local residents, some of whom were able to build a business.
Dawn and Mike Ferrill live in a small, three-bedroom house in Tulsa. And their four children, all home-schooled, a dog and a cat make their house seem even smaller. It's a household that today is hectic, but comfortable.
But back in 1997, they were struggling. Mike had recently started his own appliance repair business and Dawn, who managed the family budget, was trying to make ends meet on just $300 per month.
That's when they heard about a program for people with low incomes that was too good to ignore. It would match, dollar-for-dollar, savings used for things such as buying a home or building a business.
Mike saw it as a great opportunity.
"For people that didn't make much money, it was kind of like a poor man's 401k. If we could put $62.50 per month away, they would match it dollar-for-dollar," Mike says.
Dawn remembers that money was so tight, she couldn't even afford clothes at the thrift store.
"I had to beg friends, 'Do you have any clothes that don't fit your kids anymore?' So to scrape $62.50 was really, really hard," she says.
But by scrimping just a little more, the Ferrills say they were able to begin putting the money away and open something called an Individual Development Account. After more than a year, they had enough money for a big ad in the telephone directory for Mike's appliance-repair business. Business started picking up.
Today, with an income of about $30,000 for their family of six, the Ferrills are far from wealthy. But they say they're comfortable, and they've started a second business: supplying and servicing vending machines.
Another important change: They've learned to save. That includes the children, who often choose to save instead of spend.
The Ferrills were part of a demonstration project conducted in 13 cities across the country. It looked at whether low-income people could be encouraged to save money and use the savings in ways that would improve their lives.
In Tulsa, the program was run by a nonprofit group called Community Action Project.
CAP Director Steven Dow says the results were encouraging. More than one-third of the people who enrolled were able to save money, get the match, and use the funds to build assets.
"The notion of living beyond our means has been demonstrated by the federal government and by middle- and upper-income families all across this country," Dow says. "Even in the face of that as a national culture, poor people, given the incentives, could and would save. They are so eager to have a different future for themselves that they will do what the rest of us are not doing."
Hundreds of organizations and more than a dozen states are now using Individual Development Accounts to help clients buy homes, set up businesses and save for school.
There are about 50,000 such accounts around the country. But that number may grow. President Bush has budgeted money for a federal program. And a bill currently in Congress would provide more than $1 billion to set up about 900,000 IDA accounts.
As promising as IDAs are, they don't always work. Studies have shown they've been used most effectively by people with steady jobs who are strongly motivated to improve their financial situation. And the programs are expensive. Along with the money needed to match savings, IDAs are costly to administer, requiring close supervision by caseworkers.