|Volume 7, Issue 2, 2007||Federal Reserve Bank of Dallas|
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New Mexico Encourages Citizens to Save
Low-income residents in New Mexico now have more incentive than ever to save for a home, an education or their own business.
In the 2006 legislative session, the state provided $1.5 million to fund the Individual Development Account Act that passed in 2003. This onetime funding provided the first statewide access to matched savings. In the 2007 legislative session, New Mexico became one of only a handful of states to authorize permanent funding for IDAs.
IDAs are interest-bearing savings accounts in which deposits made by individual account holders are matched with funds from state and federal contributions. The accounts must be used for specific purposes, such as making a down payment on a home, paying for postsecondary education expenses, or starting or expanding a small business. They can also be used for home repairs or the purchase of a vehicle.
Account holders are required to deposit a minimum of $1 per month in the custodial account and complete an extensive financial education course to learn the basics of budgeting, credit and debt management, banking, insurance, long-term planning and avoiding predatory lending.
New Mexico's IDA program is one of many state-supported programs in the U.S. that are promoting self-sufficiency and helping working families build appreciable assets. State funding in these programs helps leverage federal funding available through the Assets for Independence grant program.
Recently, the Dallas and Kansas City Federal Reserve Banks hosted luncheons in New Mexico and invited representatives of local financial institutions and community leaders so they could learn more about state-supported IDA programs. Assets for All: Building a Future of Hope for Families and Communities luncheons were held in Las Cruces, Roswell, Albuquerque and Farmington.
Over 150 people attended the events, which featured presentations from the three New Mexico organizations selected to deliver the match to eligible savers: Community Action New Mexico, HELP–New Mexico Inc. and WESST Corp.
One speaker at the Albuquerque luncheon was New Mexico State Rep. Janice Arnold-Jones, who spoke passionately about the need for financial education. She told of growing up in a single-parent household in which her mom not only struggled to raise several children on a limited income but was further burdened by a lack of knowledge about the most basic financial tools.
One of the IDA program's strongest components is the requirement to complete 10 weeks of financial education classes. Savers are then equipped to acquire not only the asset they've been saving for but the financial skills to maintain it and build additional family assets.
Jennifer Silva of Las Cruces is an IDA account holder through Community Action New Mexico's program. Silva, a single mom who works full-time and goes to school part-time, told her story to attendees at the Las Cruces luncheon. She pays over $700 a month to rent a small apartment but is saving for her first home. She says she looks forward to the day when her son will have a yard to play in instead of an apartment balcony.
According to Ona Porter, executive director of Community Action New Mexico, a goal of this asset-building work is reintegration of communities. She pointed out that "we don't work together like we once did," adding that, in her father's day, a person who lost his job would have seen the community rally to help.
According to Porter, "The number one indicator of the time a person will spend jobless is the number of people in the middle class the person knows."
To address that need, Community Action New Mexico reserves 20 percent of the seats in its financial education classes for the community at large. This allows clients to develop relationships with community members who can connect them with resources to get questions answered and problems solved.
Banking Industry Support
Although state funding of the IDA program has gone a long way toward supporting expansion of asset-building opportunities in New Mexico, much more help is needed.
In addition to contributing funds for matching and providing program management and financial literacy classes, banks and financial institutions can help by providing no-fee, interest-bearing savings accounts to IDA program participants.
Bankers are also needed to present information about basic savings and checking account products at financial education workshops and classes.
e-Perspectives, Volume 7, Issue 2, 2007