SAN FRANCISCO — If someone supporting a family of four on about $35,000 a year in pricey San Francisco can manage to save a big chunk of income, what's stopping the rest of us from saving more?
We can learn a few lessons, or at least get some savings inspiration, from the low-wage workers participating in a program offered by Earn, a San Francisco-based nonprofit that helps low-income people save money for specific assets.
Participants in Earn have a household income of about $18,000, on average, yet manage to put aside almost 5 percent of their income each month. The U.S. savings rate in 2007 was just 0.6 percent.
For every dollar a participant saves up to $2,000, Earn pays $2. That means those who complete the program can walk away with as much as $6,000.
Utuma Belfrey did just that. A single mother with three children and a fourth-generation resident of San Francisco's gritty Bayview-Hunter's Point neighborhood, Belfrey managed to put aside $2,000 in one year, on an income of less than $35,000. Her motivation? After getting caught in the middle of a drive-by shooting, Belfrey was injured and out of work.
The savings plan "is very difficult, but it's necessary," she said. "Since I am a single mom I always need something to fall back on, just in case, because I am everything in the household. If something happens to me and the income that I have coming in, then we have nothing."
To get the match from Earn, savers must complete a series of financial-management classes, and the money must go to a specific goal such as buying a house, paying for college or starting a small business. For its matched-savings program, the nonprofit uses Individual Development Accounts, or IDAs, an asset-building tool first outlined in "Assets and the Poor," a 1991 book by Michael Sherraden, founder of the Center for Social Development at Washington University in St. Louis.
IDAs give people "access to the tools they need to support themselves and participate in the mainstream economy," said Bob Friedman, who has worked closely with Sherraden. Friedman is the San Francisco-based chairman of Washington-based CFED (formerly Corporation for Enterprise Development), a nonprofit focused on expanding economic opportunity. He's also on Earn's board of directors.
A safety net, such as welfare, is important, Friedman said, but won't get people out of poverty. "It's economic methadone — it mitigates the pain but doesn't offer a way out." That's where IDAs come in.
They seem to work: Savers who participate often continue their financial goal-setting long after they've invested in their initial asset. "Overwhelming percentages of IDA participants say they're more confident about the future, they take more initiative," Friedman said. "By a six-to-one margin over non-IDA participants, they identify a specific asset goal they are saving for," he said.
Kim Le, owner of Nurturing Spa for Wellness, a small business in San Francisco, is a good example. She revamped a nail-and-hair salon into a wellness spa that now enjoys a brisk business, thanks to that $6,000 ($2,000 of her money plus $4,000 from Earn). Now that her business is on track, she's saving up to buy her first house.
Le says learning how to save money on a low income requires what she called a "mind shift." "It's just a breakthrough, the frame of mind, in terms of poverty," Le says. "To be able to overlook the poverty, the fear and all that, and be able to say, 'Yes, I can do it.' "
Today, IDAs and other such tools are offered by about 500 community organizations nationwide, according to CFED. The federal government provides a $1 match for every $1 saved as long as the nonprofit adds another donated dollar.
How do these low-wage workers do it? It doesn't take rocket science. It does take tenacity.
Belfrey said she reduced her clothes-shopping trips to two per year, started packing her own lunch and stopped going to Starbuck's. Her teenagers soon joined in the effort.
"They were at the age where they wanted the Jordans and the name-brand clothes that everyone else was wearing," she said, "but they got to a point where they were on a budget with me and they stopped asking for unnecessary items."
Belfrey's savings went into starting a construction consulting business, Sustainable Futures. Her first contract, with the Port of Oakland, was just renewed. Like Le, she and her kids are still saving. "It's a habit now. I have to, even if it's $25, $50. I feel naked if I don't have something to fall back on," Belfrey said.
For Zenelia Roman, a mother of three who used her Earn savings to finish college, saving $2,000 required sharply curtailing any unnecessary expenditures.
"It was really, really tough to start saving at least $20 a month, especially when you're working making a minimum wage," Roman said. She and her husband clipped coupons and bought fewer clothes. Her kids reused their school backpacks, rather than buying a new one every year. Now she and her husband have moved into higher-paying jobs in the health industry, and both plan to go to medical school.
What happens to such programs in tough economic times like these? By all accounts, the savers continue saving. Earn was founded in 2001, during the last recession, said Ben Mangan, president and co-founder.
"People asked the same question — 'how on earth are low-wage workers actually going to be able to save?' The performance of our savers from the beginning was so astonishing that it belied a lot of stereotypes about what was possible and the choices people made," Mangan said.
"People who open accounts with Earn have a dream. They become very focused on their ability to buy a house or start a business or go to college," he said. "They make really hard choices because they have the incentive to do so and the structure to make that easier."
Even those who bought homes with an IDA account seem to be doing O.K. In February, CFED talked with some community groups nationwide and found that just two of 600 homeowners who bought homes with the help of an IDA account in the last five years had entered foreclosure.
Andrea Coombes is an assistant personal finance editor for MarketWatch, based in San Francisco.