BE BOLDER (via mc):

New savings program for poor gaining attention: Lawmakers searching for ways to move beyond Social Security (Elana Schor, 5/27/05, Medill News Service)

A new program to promote savings of low-income Americans is attracting increased attention on Capitol Hill as Congress remains deadlocked over adding private investment accounts to Social Security and lawmakers search for other ways to help Americans save for their retirement.

The savings tool that some lawmakers are beginning to shift their political capital to is individual development accounts or IDAs, which Congress authorized in 1998 as part of government aid for the needy. Participating financial institutions offer IDAs to low-income individuals and match their contributions to the accounts on either a partial or one-to-one basis, but several proposals attracting attention on Capitol Hill would require the government to contribute to IDAs.

IDA holders receive their free money under one condition: they must undergo financial literacy education that is intended to prepare them for a life of cautious savings and no debt. President Bush has steadily increased the yearly budget for IDAs, but this year Sen. Rick Santorum has been the accounts' most tireless promoter.

IDAs are state-sponsored in Pennsylvania, home of Santorum, the Senate's third-ranking Republican and head of its Social Security subcommittee. He has leveraged his leadership to pitch two IDA proposals, one that would make government-funded IDAs available to anyone who meets income requirements (typically around $38,000 per year for a family of four) and one that would bestow an IDA on every child born in America.

"IDAs are one of the most promising tools that enable low-income and low-wealth Americans to save, build assets and enter the financial mainstream," Santorum told members of his subcommittee at an IDA hearing last month. [...]

Especially worrisome to fiscal conservatives is the easy access to IDAs. Social Security benefits cannot be spent until retirement, but both of Santorum's plans permit IDA accountholders to take money out for any purpose, from education to home purchasing to Christmas presents. [...]

Though IDAs were created to increase savings and assets for poor Americans and not as a part of the Social Security issue, some legislators who have signed onto Santorum's bills refer to universal IDAs as a partial fix for the national asset vacuum that throws Social Security's solvency problems into such sharp relief.

"I think that's part of the risk for the (IDA) field - that we'll be inadvertently linked to the privatization of these accounts that the field as a whole really believes ought to remain risk-free," Mangan said.

Paul O'Neill's approach is better, give them more money up front, but don't let them draw it down.

Posted by Orrin Judd at May 31, 2005 3:42 PM