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Incentives for Poor People To Save

August 12, 1998

WASHINGTON (AP) _ When Jacqui Fulton got depressed, she’d reach into the cookie jar for a bit of cash and treat herself to a good meal and a manicure.

No more. Now she heads to the bank, depositing at least $10 a week into a special account where her investments are matched by a state program. Now Fulton has $800 in the bank, earning interest.

``I almost skip to the bank,″ says the 65-year-old Philadelphian, who hopes to buy the condominium she now rents. ``That feels so much better for such a longer time.″

The Philadelphia program is one of dozens taking a new approach to the fight against poverty: Give people an incentive to save, even if it’s just a few dollars, and with help, they will work their way into the middle class.

Most programs are supported with private money, although a few states finance them, too. And the Senate has approved a bill that would authorize spending $25 million a year to bring the program to 50,000 Americans.

The programs have never been studied formally, so there is no evidence they help people who wouldn’t have helped themselves anyway.

But backers argue it’s the right thing to do, practically and philosophically, noting that the government already gives middle class Americans incentives to save, usually through the tax code. People pay no taxes on home mortgage interest, or the money set aside for retirement.

For every dollar participants save, local programs add at least $1 _ or as much as $6 _ toward the purchase of a home, tuition for school or the start-up of a small business. Participants also receive training on money management, including how to clear up a poor credit record.

``Everyone would agree America is a better nation because we have more homeowners, more educated people and more businesses. We’re doing it for the non-poor. We should also do it for the poor,″ said Ray Boshara of the Washington-based private Corporation for Enterprise Development. His group is helping 2,000 people open accounts.

Boshara’s group recommends including not just people coming off welfare, but also the working poor, for instance anyone with income below twice the poverty line: $32,900 for a four-person family.

Many programs combine the savings accounts with other social programs: In Atlanta, participants save to buy homes in neighborhoods targeted for redevelopment. In Tulsa, Okla., they are encouraged to invest tax refunds from the Earned Income Tax Credit program for the working poor.

That’s what Julia and Jason Atherton of Bartlesville, Okla., did with their $630 tax refund. They dream of moving their four children out of a cramped three-bedroom rental home into a larger place of their own. The program lets them accumulate $2,200 a year, so they should have enough for a down payment in a few years.

``I feel like we’re getting where we’re going to be part of the middle class,″ said Mrs. Atherton.

The programs are a twist on traditional welfare policy. Before states began changing welfare in the early 1990s, people with more than $1,000 saved could not get assistance, the reasoning being that someone with money in the bank didn’t need welfare.

New welfare policies, on the other hand, reason that limiting savings may have kept people from cheating, but it also kept them poor.

Yet to succeed, such programs must change the attitudes, and the habits, of people who feel they have too little money to set any aside.

``My approach to money was just living paycheck to paycheck, ″ said Venetta Blue, who learned at a community center about the Philadelphia program, the private Women’s Opportunities Resource Center. ``Saving to me was hiding money in your house. My parents never had a bona fide bank account.″

She began putting aside $10 a week more than a year ago, earning $5 for each $10 she saved toward the purchase of a house. Then a June car accident forced her to quit her job. Like half the Philadelphia program’s participants, she stopped making payments.

Still, she continues using the lessons she learned in a money management class. Cable TV wasn’t a necessity, she decided. And a monthly transit pass _ while initially more expensive _ actually saves her money.

She plans to begin saving again when she finds work, and she hasn’t touched more than $500 already in the bank.

``I want to buy a home,″ she said. ``This money is for that and that alone.″

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