Beyond annual income, owning your own home, having retirement savings, having savings to start a small business, or having savings to put your children through school can mean the difference between financial security and economic exclusion. For middle and higher income earners, the benefits of saving and building financial assets have been obvious. However, only recently has any attention been paid to the impact that assets can have on the lives of families and individuals at lower income levels.
Saving and asset-building is fast being recognized as an innovative approach to alleviating and preventing poverty. It is an approach that has started to capture the imagination of policymakers, researchers, advocates, and community-based practitioners in Canada as well as in other countries including the US, the UK, South Africa, Sweden, Australia and Taiwan.
Financial health improves well-being
An individual’s current well-being depends in part upon a belief in future well-being. This belief is created by the accumulation of assets, not only the consumption of income. There are causal relationships between the ownership of assets and increases in long-term income and general well-being. Assets have impacts that cut across economic, psychological and institutional effects.
SEDI‘s asset-building projects are built on the concept of Individual Development Accounts (IDAs), a social innovation that has been proven to expand economic opportunity for low-income people. For every dollar saved in a project, savers receive a corresponding match, which serves as a reward and an incentive to encourage saving habits.
Depending on the project, the matching credit can be financed by governments, foundations, or other sources. Saving is not easy, so project participants receive financial management training and case management services to help them meet their savings goals. The combined personal savings and matching credits can be spent by the participant on project-specific uses that will enhance longer-term economic well-being. For example, paying for housing, returning to school, or starting a small business.
Low-income people can and do save
In the fall of 2011, SEDI initiated the Opportunities Account for Youth in Care project, in collaboration with the Children’s Aid Society of Toronto (CAST) and the Catholic Children’s Aid Society (CCAS), to deliver financial literacy education to 300 youth in care, plus the opportunity for 20 youth to participate in a matched savings program. Within six months, these youth saved more than $5,000, which will be matched by SEDI to use for rent, tuition or supports to learning and employment.
Montana, a social work student at Humber College and recent graduate of the Opportunities Account for Youth in Care project, is using the money to help pay for her studies.
“The SEDI project is an amazing opportunity to obtain funds for your desired goal,” says Montana. “The financial literacy I went over with my worker helped me understand more about saving, the financial aspect of life, and was practical and applicable. Overall, this was a fantastic opportunity and words cannot express how easy this project made it to save and reach my goal.”
Projects move people toward financial independence
SEDI’s Independent Living Account (ILA) Program assists individuals living in shelters to gain the skills and tools they need to move to independence. It combines financial literacy training with a matched savings account. Since 2006, more than 350 people have participated in the program and over 95% of program graduates have not returned to shelters. The ILA Program has received two Vital Ideas Awards from the Toronto Community Foundation, allowing for research identifying that for every $1 invested in the ILA, a $2.19 return is realized. This program is currently running in six Toronto shelters and efforts to expand the program across the country are underway.
The Saving to Achieve Real Transformation (START) project is based on the assumption that low-income Ontarians, living in, or on the waitlist for, social housing, will respond positively to financial incentives in order to set and achieve personal goals and improve their economic prospects. SEDI received funding through the Housing Services Corporation (HSC) to pilot the START project. In addition to matched savings incentives, supports such as financial literacy training and case management are provided to participants by community-based partners. The project aims to reach up to 500 individuals living in three locations: Ottawa, North Bay and Windsor.
Through these and past projects, SEDI is building the case that asset-building for low-income Canadians plays a vital role in the fight to end poverty. With the evidence generated from these projects, along with the research conducted with a wide range of partners, SEDI is demonstrating to policy makers and the private sector that when it comes to the financial world, people with low incomes can no longer be overlooked.
Karolina Perraud and Courtney Fitton are Project Coordinators at SEDI, a charitable nonprofit organization whose mission is to expand economic opportunity for Canadians living in poverty through program and policy innovation. To learn more about SEDI’s latest initiatives, the Canadian Centre for Financial Literacy and the TD Financial Literacy Grant Fund, please visit www.theccfl.ca and www.sedi.org/grantfund.