Families Need Just a Few Thousand Dollars to Transform Their Futures
Over the last forty years, an amazing variety of programs to help low-income people start businesses, buy homes, go to college and build savings have had one common denominator: providing a few thousand dollars to unleash dreams, talent and work. I argue in my new book that this is all families need to set them on a path to prosperity. The book is even named after that dollar amount!
The Self Employment Investment Demonstration (SEID), the first systematic test of self-employment and microenterprise for welfare mothers in the 1980s, provided “microloans” of $1,000 to $5,000. As the U.S. microenterprise field grew to hundreds of programs across the country, the very concept became defined as a very small businesses financed with “less than $5,000.”
In the American Dream Demonstration, the first systematic test of Individual Development Accounts (IDAs), the savings of low-income participants were matched at different rates, but with a total match of $2,000 to $4,000. Half the participants saved a significant amount and started businesses, bought or rehabilitated homes, or went to college. The federal Assets for Independence Act and Office of Refugee Resettlement programs provided more than 100,000 IDAs over twenty years in communities all over the country—matching savings with a few thousand dollars.
Low-income homeownership programs provided somewhat larger matches, but still usually in the $4,000 to $10,000 range. The Federal Home Loan Bank’s IDA program matched up to $2,000 in homebuyer savings four to one, for a total of $8,000. Self Help’s spectacular Community Advantage Program, which enabled 52,000 low-income families in North Carolina and neighboring states to buy homes, required 3 percent downpayments. On homes valued under $300,000, these downpayments were less than $10,000.
The Saving for Education, Enterprise and Downpayment (SEED) Policy Initiative— the first systematic test of child college development accounts—provided $2,000 per child to be apportioned among initial deposits, savings matches and benchmark deposits.
Of course, not every participant in these initiatives (and other programs like them) started businesses, bought homes, attended college or saved for retirement. But significantly, at least a third to a half of participants made these investments, and in many instances the impact was even higher.
The simple conclusion: for many potential entrepreneurs, homeowners, children and students, a few thousand dollars is transformative. We can turn this into a national policy by rerouting unfair tax incentives towards savings accounts for all.
Would more be better? Perhaps. It would certainly enable better-capitalized businesses (one of the most prominent reasons for business failure or stagnation is insufficient capitalization). Larger nest eggs might also provide more adequate reserves for the unanticipated costs and repairs of homeownership.
But a few thousand dollars are a beginning: a buffer from accidents and illnesses; a reason to dream, plan and prepare to invest in yourself and your future.
A Few Thousand Dollars is now available in major bookstores! Order a copy, and let us know what you think of the book on social media using #AFewThousandDollars.