Short of an inheritance, ill-gotten gains or spoils from legalized gambling, building wealth takes time and patience. It rarely happens overnight. For those starting a financial journey with nothing, the path is especially difficult. Tracie Jackson, a Baton Rouge mother of three, says digging out of the hole tested her own mental health during a period when only prayer was a comfort.
Her story is a familiar one these days. In 2005, Hurricane Katrina pushed Jackson, 37, and her young children out of their Westwego home and initially onto Interstate 10, where they were stranded with hundreds of others. She made her way to Baton Rouge and, a few months later, landed a nice family home in the suburbs off Siegen Lane, thanks to a federal housing program.
It was more than she ever expected, but it was only a temporary fix. As 2006 came to a close, the feds arrived to reclaim their property. Jackson was offered the opportunity to make the first bid, "but we didn't have the money," she recalls. "I mean, we didn't have anything. I was terrified about my kids ending up on the street. We didn't have anywhere to go, and housing has become so difficult to find around here."
To add insult to injury, her federal loan application was denied. The governor's Road Home program, which is charged with distributing housing aid, could have helped, but it was moving at a snail's pace. That's when Jackson reached deep for the financial equivalent of a Hail Mary -- a conventional loan from her bank, which she knew she wouldn't get. But she did discover an innovative wealth-building program sponsored by the state.
She closed on her home in December.
The program runs counterintuitive to most social welfare programs in that it offers a hand up rather than a handout. Through the Department of Social Services and Southern University in Baton Rouge, the initiative partners participants with banks to explore options for a savings account and give them the opportunity to attend financial literacy courses. The program centers on the creation of an Individual Development Account, commonly referred to as an IDA.
IDA programs were originally developed in 1991 by Professor Michael Sherraden through his work at Washington University in St. Louis. Sherraden wanted to create a program that served low-income families on two levels: accumulating wealth and making strategic life choices. Despite these lofty ambitions, growth has been slow. Today, only 30 states sponsor IDAs and, over the past decade, federal and state governments have dedicated a meager $183 million to related initiatives.
The core element of Louisiana's IDA program is a special savings account that helps low-income families save money for a new home. Any money that participants place in their accounts is matched four-to-one. Louisiana is above the national average in this regard and, due to savings constraints, a participant can walk away with as much as $5,000 in cash by completing the program. Jackson came up with her $1,000 in savings through a job at the local YWCA. Matching dollars are provided by the federal Temporary Assistance for Needy Families program.
Of course, $5,000 isn't enough to buy a house or even secure a home loan in most instances. That's why partnering banks offer financial literacy courses on building wealth, financing homes and living on a budget, says Alexis Anderson, who oversees the program for LA DOTD Federal Credit Union, which serves Orleans Parish. Anderson says that when Jackson combined the training with her savings, it became worthwhile for a bank to make an otherwise risky loan.
"It's not just about getting them married up to an asset," Anderson says. "It's about equity, and this is where the education can make a difference. We're not only opening a door for them, but helping them make valuable decisions."
The banking industry could very well become the face of IDAs in the future. According to a recent study by the U.S. Treasury Department, banks are attracted to the program because it offers them opportunities to cross-sell a variety of other products. After all, successful IDA participants will eventually need additional savings and other credit products to secure their financial goals in the short and long terms. IDAs also bring new customers into banks, but, more importantly, they keep financial institutions in touch with nonprofits and the community at large.
Still, it's an uphill battle, and the statistics are grim. Last year, savings rate percentages dropped below zero as disposable income disappeared. To put it into perspective, saving percentages haven't been this low since the Great Depression. One-in-four Americans are asset poor, one-in-five have no assets at all and up to 30 percent have never used a bank. It's no wonder financial institutions and state governments want to help people like Jackson.
The program is designed for working families with at least one dependent child and an annual income that is less than 200 percent of the national poverty level. In all, $2 million has been assigned to the program in Louisiana. About 200 people are presently enrolled and another 150 can come onboard, says Drew Murray, director of asset building programs at the state Department of Social Services. While anyone from Louisiana can take part, a large number of participants are from the areas devastated by Hurricane Rita in the Lake Charles region, Murray adds.
The fact that the storms have perpetuated Louisiana's cycle of poverty in some areas is among the many reasons IDA money has been confined to home ownership this year. If the state rallies for stronger levees and better flood protection but doesn't address the underlying causes of poverty, nothing will ever be accomplished.
"It's such a crucial element in our recovery," Murray says, "but home ownership is also seen as a productive step towards helping working poor families escape poverty."
Jackson says the IDA program was the only help she could find in Katrina's aftermath, and it made sense to her. She saved money and made an effort to build wealth, and she's reaping the rewards now.
"I just wish there were more programs like this, something that thinks outside the box," Jackson says. "People are working hard to get back on their feet, but it doesn't always work. It takes years to get everything you have, but it's harder to get it back when you lose it. I was tired of pretending everything was okay for my kids, but now it is."
Jeremy Alford can be reached at email@example.com.
- Karron Clark
- Tracie Jackson and her children lost their Westwego home in Hurricane Katrina. Using the IDA program, she now owns a home in Baton Rouge.