What can we learn from some of Canada's lowest-income earners? A recent project gives a surprising answer: how to save.
The project, called learn$ave, was set up to promote adult learning and entrepreneurship for low-income Canadians. The Social Research and Demonstration Corporation, a non-profit research group with the fascinating mission of developing and testing new social programs, adopted in Canada a U.S. idea of IDAs, individual development accounts.
Participants were told that every dollar they saved would be matched by $3 in virtual credits. In other words, if a person saved $1,500 over three years, he or she had access to $6,000 - to be used for training, education or starting a small business. The project was sponsored by Human Resources and Skills Development Canada.
In all, 3,583 low-income Canadians participated in the program in 10 communities across the country.
"The idea behind the IDAs was more than just getting [participants]into education," says Norm Leckie, project manager at SRDC. "The secondary objective was to create a regular saving behaviour that would hopefully continue beyond the life of the project - and teach them how to budget and purchase wisely."
Mr. Leckie's group reported on its project on Tuesday, outlining the participants' success in signing up for adult education, particularly certificate or degree programs. Mr. Leckie is justifiably proud of the educational achievements, but I was amazed how much these people saved.
Sure, the participants were offered a financial incentive to save money, but I can't help but be impressed by how many of them managed to do it.
And let's face it, if these people were able to save, anyone can.
These are people who, to qualify for the program, had household income that amounted to no more than 120 per cent of the low-income cutoff and had no more than $3,000 in household assets.
The low-income cutoff, as defined by Statistics Canada, is "the income level at which a family may be in straitened circumstances because it has to spend a greater portion of its income on the basics (food, clothing and shelter) than does the average family of similar size."
For purposes of this project, for example, participants from Vancouver and Toronto had a household income of less than $36,000 for households of three.
I can't imagine how any of these people could save, yet the average deposits were about $1,100 over three years.
And according to SRDC's report, 57 per cent of the participants set up a budget to meet their savings target. They were also given financial management training.
For the primary goals - setting up small businesses and pursuing adult education - the project was a huge success, Mr. Leckie says. While 20 per cent of the participants saved but didn't take advantage of the extra credits, the others pursued their goals.
How this will serve the participants in the long run may never be known. While Mr. Leckie would love to continue to pursue long-term results, he knows there won't be money to do so.
"We had follow-up for only six months," he says. "That's not a long enough time to measure impact on net wealth accumulations over time."
It would be fascinating to monitor the long-term effects, but for now, we have to be satisfied with the short-term accomplishments. And they are inspiring.
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