Most Americans working in low-wage jobs do not have access to the investment opportunities that help them move out of poverty and towards financial security. Homeownership, the largest investment most of us will ever make, is out of reach to many poorer families due to high down payments and strict credit requirements. A college education and job training are increasingly necessary in the region’s high-skill economy, but these are frequently priced out of reach of the working poor — despite the recent attempts to make it more affordable. Small business start-up, a traditional path to economic prosperity, requires both capital and capacity to for the owner to succeed. Asset development programs can bridge these gaps.

These programs can take several forms.  Individual Development Accounts (IDAs) are the most supportive type of asset development program.  These programs are usually run by Community Development Corporations or other community-based nonprofits, and feature a combination of financial literacy and skills training with matching funds for individual savings.  Beginning in Fiscal Year 2007, the Commonwealth has provided grants to support a IDA programs at few community-based organizations.  This work is expensive and time-consuming, but is an incredibly effective way to ensure that individuals have access to the opportunities of education, homeownership, or small business development.

Another program designed to support saving is the Section 529 College Savings plan, known as the U. Fund in Massachusetts and administered by the Massachusetts Educational Financing Authority. This program provides the opportunity to save with the benefit that earnings grow tax deferred and qualified withdrawals are free from federal and Massachusetts state-income taxes.  This program is utilized primarily by families with higher earnings, and needs to be both more worthwhile and better marketed to lower-income families. A tax deduction for contributing to a 529 account, particularly one that provided greater savings for lower-income families who utilized the program, would encourage greater use of this savings tool. 

26.a        The Legislature should continue to increase the amount of funding for the Individual Development Account Program

26.b    Allow for an in-state tax deduction for contributions to 529 plans, with a substantially larger deduction available to low-income families

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