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Strategies
August 26, 2022
Wealth building

Wealth building

Strategy overview

  • Building wealth for low- and moderate-income households: Wealth is distributed extremely inequitably in the United States, with the top 10 percent of households holding nearly 76 percent of wealth, compared to the bottom 50 percent of American households, which hold about 1 percent of wealth. Strategies to increase wealth for lower-income households include subsidized savings programs and renter and shared-equity programs.
  • Matching savings: Individual development accounts (IDAs) are subsidized savings accounts for low- and moderate-income households. When participants deposit money into their IDA, the program sponsor deposits a matching contribution. These matching funds are eligible for withdrawal for qualified expenditures like home purchases, postsecondary education, and small business development.
  • Savings accounts for children: Child development accounts (CDAs) are savings or investment accounts that allow children to build assets over time. Typically, a government agency or other sponsor provides an initial contribution and then encourages parents, relatives, and others to contribute additional funds as the child ages. In some cases, the sponsoring agency incentivizes additional contributions with matching funds.
  • Baby bonds: A related strategy is baby bonds, which are investment accounts established by a public or non-profit agency when a child is born. The agency provides initial seed money for the account, with higher amounts typically allocated to children in lower income or wealth households. Additional annual contributions may also be provided.
  • Leveraging federal support: Another large-scale wealth-building strategy is the Family Self-Sufficiency program, run by the U.S. Department of Housing and Urban Development. In this program, residents of subsidized housing work with a case manager to build skills, attend trainings, and engage in financial counseling and education. As participants earn more, they pay increased rent, but an amount equivalent to this increase is placed in an escrow account, helping to build savings. The program is run by public housing agencies, which often collaborate with social service nonprofits to deliver components of the program.
  • Owning a home: Homeownership is often the most powerful way for households to build wealth, but down payments and other borrowing constraints prevent many low- and moderate-income households from purchasing a home. Under the shared-equity homeownership model, a government or non-profit organization purchases or builds affordable housing and then applies resale restrictions to those properties to keep them affordable in the future. This allows low- and moderate-income households to purchase a home and build wealth from the appreciating value of that home, while preserving affordability.

Rigorous evaluations of multiple practices supporting wealth building demonstrated positive, significant results in building savings and accumulating assets. However, further comprehensive research is needed. 

  • A 2018 research synthesis found that individual development accounts can be associated with an increase in asset accumulation. However, additional research is needed to confirm effects. 

  • A 2017 randomized controlled trial found that Family Self-Sufficiency program participants graduated the program with an average of $3,800 of savings in escrow, while those who received additional incentives had an average of $4,900 in savings.

  • A 2021 quasi-experimental study found that residents who worked with Compass Working Capital, a non-profit that partners with housing authorities to deliver the Family Self-Sufficiency program, had annual household earnings 21 percent higher between one and three years after enrollment and 23 percent higher up to five years after enrollment than in the comparison group.

  • A 2021 research synthesis found that experts generally support child development accounts as a strategy for increasing asset accumulation and college enrollment.

Before making investments in this strategy, city and county leaders should ensure this strategy addresses local needs.

The Urban Institute and Mathematica have developed indicator frameworks to help local leaders assess conditions related to upward mobility, identify barriers, and guide investments to address these challenges. These indicator frameworks can serve as a starting point for self-assessment, not as a comprehensive evaluation, and should be complemented by other forms of local knowledge.

The Urban Institute's Upward Mobility Framework identifies a set of key local conditions that shape communities’ ability to advance upward mobility and racial equity. Local leaders can use the Upward Mobility Framework to better understand the factors that improve upward mobility and prioritize areas of focus. Data reports for cities and counties can be created here.

Several indicators in the Upward Mobility Framework may be improved with investments in wealth building. To measure these indicators and determine if investments in these interventions could help, examine the following:

Mathematica's Education-to-Workforce (E-W) Indicator Framework helps local leaders identify the data that matter most in helping students and young adults succeed. Local leaders can use the E-W framework to better understand education and workforce conditions in their communities and to identify strategies that can improve outcomes in these areas.

Several indicators in the E-W Framework may be improved with investments in this strategy. To measure these indicators and determine if investments in this strategy could help, examine the following:

  • Minimum economic return: Percentage of individuals that earn at least as much as the median high school graduate in their state plus enough to recoup their total net price plus interest within 10 years of completing their highest degree or leaving education.

  • Economic security: Percentage of individuals who reach median levels of wealth 10, 15, 20, and 30 years after completing their highest degree or leaving education (high school, workforce training, or postsecondary education).

  • Economic mobility: Percentage of individuals who reach the level of earnings needed to enter the fourth (60th to 80th percentile) income quintile in their state or above 1, 3, 5, 10, and 15 years after completing their highest degree or leaving education (high school or postsecondary).

  • Access to jobs paying a living wage: Percentage of jobs in a county or metropolitan statistical area (MSA) for which the ratio of average pay to the location-adjusted cost of living is greater than one.

  • Cumulative student debt: Median student debt.

  • Identify a consistent source of funding: All subsidized savings programs, but especially those for children, make long-term commitments to the individuals they serve. Programs should seek funding commitments from reliable sources to build buy-in and trust among community members. Additionally, programs aiming to serve a large number of participants will need to secure public funding to operate at scale.
  • Incentivize participants to contribute their funds: When possible, subsidized savings programs should use incentives like matching funds to encourage participants to make their own contributions. By doing so, the program can foster participants’ sense of ownership in the process and increase the wealth they accumulate.
  • Provide financial education: Building participants’ financial knowledge and helping them align their financial choices with their goals can complement wealth building programs. Financial education can enhance participants’ capacity to build and use their savings effectively.
  • Collaborate to build quality and capacity: Program sponsors may have limited expertise in aspects of subsidized savings or renter and shared equity programs. Working with community organizations with relevant experience (e.g., in setting up investment accounts or providing financial counseling) can improve program quality and capacity.
  • Emphasize strong relationships: Programs offering financial education, like many renter and shared equity programs, should train and provide coaches with resources to be empathetic, culturally competent, and supportive of program participants. By building stronger relationships with participants, coaches can encourage active participation in programming.

Evidence-based examples

Baby's First Years
Unconditional Cash Transfers for Low-Income Mothers
Stable and healthy families
Promising
Family Self-Sufficiency Program
The Family Self-Sufficiency program (FSS) offers case management, a range of support services, and financial incentives to eligible housing-assisted families.
Stable and healthy families Supportive neighborhoods
Strong
Financial Empowerment Centers
Provides free financial education and counseling to residents
Stable and healthy families
Promising
Grameen America
Grameen America provides microloans, financial training, and other services to women living in poverty planning to start or expand a small business.
High-quality employment
Strong
Paycheck Plus Program
A refundable tax credit program for low-income adults without dependent children.
Supportive neighborhoods
Strong
SaveUSA
An asset-building intervention that targets tax filers with low-income backgrounds.
Stable and healthy families
Strong
THRIVE East of the River

  • Direct cash assistance for low-income residents: The THRIVE East of the River program was a pilot of a direct cash assistance program that provided low-income residents an unconditional cash transfer of $5,500 and other assistance as a way to mitigate the impact of the COVID-19 crisis.

  • Partnering with CBOs to effectively deliver support: The THRIVE program, which ran over the course of five months, was implemented by four community-based organizations (CBOs) operating in a predominately Black and low-income neighborhood of DC with support from LISC DC and the Urban Institute. Each CBO took on a different role within the THRIVE program according to their organizational strengths.

  • Recruitment through CBOs: Program organizers intentionally set a low threshold for program enrollment: participants must reside in Ward 8, have household incomes below 50 percent of the area’s median income, and have had a relationship with with at least one of the CBOs prior to the onset of the COVID-19 pandemic. Each CBO recruited from among their current and previous client base.

  • Emphasis on flexibility for participants: A key pillar of the THRIVE program was offering participants options as to how they receive and allocate their funds. Clients were able to choose whether to take the $5,500 as a single payment or as monthly installments of $1,100. Participants received the money as a direct transfer to their bank accounts. For participants without a bank account, the THRIVE program offered other options to receive the funds, including prepaid debit cards. Participants also had full control over how they spent the money, with the most common uses being housing and food.

  • Additional optional services: As part of the THRIVE model, clients had access to a range of additional social services through the participating CBOs. These services include weekly groceries, monthly household goods, resource navigators, and financial coaching services.

 Stable and healthy families
Promising
Learn more:
US Dept. of HHS: Assets for Independence Program US Dept. of HUD: Family Self-Sufficiency Program HUD Exchange: FSS Program Resources Prosperity Now, Individual Development Account Overview Prosperity Now: Children’s Savings Accounts Prosperity Now: Baby Bonds Center for Social Development Research: CDA Policy Brief District of Columbia Child Wealth Building Act of 2021