Helping Low-Income Families Grow Assets

May 04—Ona Porter, president and CEO of the nonprofit Prosperity Works in Albuquerque, says building assets is the key to improving one's financial lot in life.

Porter's organization focuses on asset building to help low-income families in New Mexico climb their way up the financial ladder.

"We believe in the concept that income gets you by, but assets get you ahead," she said. "Asset building creates a safety net for people to leverage more opportunities. It seeds dreams."

To help people build assets, Prosperity Works manages a statewide program that provides free financial-management training for individuals, plus "matching savings accounts" that allow participants to receive up to $4 for every $1 they save.

Those funds, known as individual development accounts, or IDAs, allow people to receive dollar-for-dollar grants on up to $1,000 in personal savings, for a total of $4,000 in matching funds. Once the participant reaches his or her savings goal, that nest egg then can be invested in one of three assets: a first-time home, the launch or expansion of a business, or higher education.

Those things help program graduates embark on a long-term road to self-improvement, Porter said.

"It's a coach-based empowerment model that helps people build financial stability and create opportunities for themselves," she said.

IDA participation is limited to individuals who earn up to 200 percent of the federal poverty level, or $42,000 for a family of four.

But the free training in financial management and asset building is open to everyone.

"We reserve 25 percent of seats in the classes for the community at large," Porter said.

Graduates say the 10-week class can benefit almost anyone who wants to improve his or her financial situation.

"Even if you don't qualify for match-up funds, the financial literacy course alone is worth its weight in gold," said Rick Noland, who completed the program in 2010. "It's totally worth doing."

Bike rental expansion

Noland, 43, did qualify for IDA participation. He used IDA funds to expand his bike rental business, which he launched in 2010 with just 16 bikes. The IDA money allowed him to buy more, generating income growth that has helped him continue to expand to 70 bikes today.

Noland recently moved his business, dubbed The BikeSmith, into an 800-square-foot shop near Old Town. This year he hired his first employee.

Apart from the IDA funding boost, Noland said the program's financial training was just as important in growing his business.

"It forced me to take a comprehensive look at all my finances, put things into perspective and create a new plan for the future," Noland said. "It helped me better control and manage things, and now, several years later, I've become essentially debt free."

The program helps build three types of assets — financial, social and personal, Porter said.

In terms of finances, that means liquid and real assets, including savings, insurance policies, stocks and bonds, owning a home and more.

Personal assets can mean building a good credit score, furthering one's education, or even obtaining a driver's license and appropriate documentation for financial transactions.

"Things you need to navigate the world," Porter said.

Social assets refer to knowing and tapping into community resources.

"We see the asset world as a stool with three legs," she said. "Often the legs are not even. But if you have some strengths in each area, it may wobble a little, but you can endure through crisis situations, be it a job loss, an injury that keeps you from working, or a divorce."

IDA programs are not unique to New Mexico. They emerged in the 1990s through asset-based policy research that aimed to improve poverty-alleviation strategies.

The U.S. Department of Health and Human Services provides grants for IDA programs to state agencies and nongovernment organizations nationwide through its Assets for Independence program. That totaled about $20 million in grants to 48 states in 2013.

Recipients such as Prosperity Works, which has received $3 million in grants, must provide matching funds for all federal dollars received. A broad array of local sponsors have helped with that, including banks and credit unions, plus a number of foundations, such as Kellogg, McCune and Mott.

Strong success rate

IDA programs have a very high success rate among participants. Since 1999, more than 84,000 individuals have participated nationwide, saving more than $76 million in earned income, according to an AFI fact sheet. More than 36,000 individuals have used IDA savings to purchase a home, higher education or a small business.

And, thanks in large part to the financial literacy attached to IDAs, graduates appear more capable of retaining and building on their assets. For example, a recent national study on people who used IDA savings to help purchase a home showed that those individuals were two to three times less likely to lose their homes to foreclosure compared to other low-income home buyers.

"People who purchased homes with IDAs weathered the recession much better than other low-income homeowners," said Shira Markoff, senior program manager at the Corporation for Enterprise Development in Washington, D.C. "Clearly, it had an important impact on their ability to manage finances and hold onto those homes."

In New Mexico, Prosperity Works says 90 percent of people successfully graduate from the program, achieving savings needed to receive matching funds and invest in an asset.

Apart from financial literacy, the requirement that participants achieve their own savings to receive grants greatly boosts the program's success, said Dawn Hommer, CEO of the Community Action Agency of Southern New Mexico, one of 30 entities statewide that receive funds through Prosperity Works to conduct local IDA programs.

"They're putting skin in the game," Hommer said. "It's their own money that their saving, and they work very hard to reach their goal. The program is not just throwing money at poverty but contributing to real long-term solutions."

As of March, Hommer's agency had graduated 167 people from the IDA program. Of those graduates, 66 used their IDA funds to start or expand a business, 51 purchased a home, and 50 spent their money on higher education.

"One-hundred percent of the people who purchased a home are still living there," Hommer said. "I believe that's because they've learned how to budget and be ready for emergency situations."

Statewide, nearly a thousand people have graduated from IDA programs managed by Prosperity Works affiliates. Of that total, 405 launched or expanded local businesses, 225 bought houses and 270 pursued higher education.

Jesse Daves, a farmer who grows vegetables and fruit on a 3-acre plot near Albuquerque'sSouth Valley, said IDA funds allowed him to purchase a walk-in cooler to store his produce before selling it. That's reduced his work and stress load, since he no longer has to race to market immediately with freshly picked crops.

The financial literacy training also helped improve his bottom line.

"Finances can be very complex, and the IDA course covered stuff I hadn't really learned about before," Daves said. "It opened my eyes to different ways of managing finances to maximize yields."

___

(c)2014 the Albuquerque Journal (Albuquerque, N.M.)

Visit the Albuquerque Journal (Albuquerque, N.M.) at www.abqjournal.com

Distributed by MCT Information Services