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A Bonus for the Working Poor

A pioneering program in L.A. lets low-income workers hold individual development accounts, which encourage saving by matching up to $2,000.


At a Mid-City novelty knitwear company, a group of immigrant workers gathers for an English lesson. Today, they interview for their dream careers. Edgar appeals for a loan to launch his business as a men's fashion designer; Jeanine applies to be a pharmacist.

The exercise is make-believe. But the low-wage employees at Suss Design are creating their own reality. Suss is part of a novel program that's being watched across the country. Its aim is to build savings--and assets--among the working poor while teaching them financial savvy along with nutrition, English, math and computer skills.

Part of a growing national movement of so-called individual development accounts (IDAs), the program offers a 2-to-1 match of up to $2,000 to workers who save at least $20 monthly for two years while participating in the requisite training. They can then use their nest egg to help them buy a home, finance post-secondary education or launch their own enterprise.

The logic behind IDAs is simple. It is not only low wages that keep poor people poor but the inability to accumulate assets. The program attempts to foster savings behavior and shepherd marginalized workers into the financial mainstream, offering incentives similar to those that middle-class people have long enjoyed through individual retirement accounts, 401(k) plans and other tax breaks.

But the Suss program, run by Los Angeles-based Community Development Technologies Center, adds an innovative twist to the standard IDA. While helping the poor build assets, it aims to bolster key local industries such as apparel and food processing by helping them retain trained workers in a highly competitive job market.

"It's hard to find people like these. Hand-crocheting is a dying art," said owner Susanne "Suss" Cousins, who pipes in soothing jazz and Celtic music to enhance the ambience and offers her workers Friday-evening margarita parties. Cousins employs 32 immigrant workers, predominantly Latinos, to create her hand-knit designs for retail sales and wholesale distribution to upscale clients such as Barneys and Nordstrom.

"We've tried to get health insurance for everyone. We have sick days now and vacation pay," she said. "This was one thing we could afford to do as a small company."

Employers such as Suss--among a handful of manufacturers in the program--contribute only time, allowing workers to attend on-site training. The rest, including the $2,000 granted to workers who meet their savings goals, comes from private contributors, among them the California Endowment, Union Bank of California and Merrill Lynch.

The program, now in its early stages, heralds the birth of the IDA movement in Los Angeles and underscores its momentum nationally, economic development experts say. In addition to Community Development Tech, Inglewood Neighborhood Housing Services recently launched a program geared to grooming first-time home buyers. And Charo Community Development Corp. in East Los Angeles will launch a program next month for clients who have participated in job training there.

Last year, a federal appropriation allotted $10 million to pilot programs nationwide, and a privately funded national demonstration project run by the Washington-based Corp. for Enterprise Development is collecting data on 1,000 IDA holders. Also, six states (California is not among them) have passed IDA legislation ranging from direct contributions to tax breaks for companies that pitch in.

"This was a relatively embryonic idea here, but [now] a lot of people are ready to go," said Ralph Lippman, executive director of the California Community Economic Development Assn. "Having assets is the greatest form of financial freedom there is."

Jorge Chavez puts it this way: "It's going to improve the life of workers and the families of workers with few resources."

The 36-year-old father of three, who learned the trade of making hand-crocheted samples in his native Guanajuato, Mexico, plans to launch his own knitwear production business with his savings match. But for now, he said, the commitment Suss has shown to him will keep him there.

Individual development accounts were the brainchild of Michael Sherraden, director of the Center for Social Development at Washington University in St. Louis, who pushed the idea into the policy spotlight nearly a decade ago.

The first programs weren't funded until the mid-'90s, said Robert Friedman, chairman of the Corp. for Enterprise Development and another pioneer in the IDA field. But with last year's federal funding and the launch of the private demonstration project, the concept has gained ground.

"Part of what we have been saying is what's good policy for the rich and non-poor is also good policy--or arguably better policy--for poor and moderate-income folks," he said. This year, asset-building federal subsidies such as home-mortgage deductions, preferential capital-gains rates and pension-fund exclusions will amount to more than $300 billion, he added.

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