Today I am releasing research commissioned by the Chifley Research Centre on Matched Savings Accounts – a policy to help the working poor in Australia. This research outlines practical and innovative options for helping poor families save for the future and break the poverty cycle.
Matched Savings Accounts are an important way of developing a new culture of savings in Australia. Australian families urgently need new incentives to save and build up our national savings. This will have significant economic benefits, helping to offset the impact of household debt and Australia's reliance on the savings of other nations.
Matched Savings Accounts are designed to enable poor families to save and accumulate assets. They involve the creation of parallel savings accounts. In the first account, low-income families aim to reach a savings target over several years. Matching contributions from governments, community groups and even companies are paid into a second account. Participants cannot access the second account unless they reach their initial savings target.
The accounts can then be used for good purposes. These would include children's education, such as buying a computer and internet access, or housing – helping poor families to save for a home deposit and build up a savings and credit record.
Labor wants to develop a national program of Matched Savings Accounts. We want to work with the welfare and corporate sectors to find new solutions to poverty. It's time to tackle the root causes of disadvantage, fostering self-esteem and self-reliance through savings. The Chifley report will help us meet this goal – it is a very useful guide to the best way of adapting MSAs to Australia.
Among the main findings of the research were:
- The poor can save – with the right incentives and support. The results of a number of US pilots show that poor families were able to save an average of $30 per month over a period of two years (see report, p. 2)
- Wealth inequality is a real problem in Australia with "over 60 per cent of assets held by 20 per cent of the population while around 20 per cent of the population have virtually no tangible assets" (see report, p. 4).
- When families are encouraged to save and to own assets "all studies report significant positive effects on economic security" (see report, p. 8).
- There are important non-economic benefits with a range of studies showing that asset ownership is linked to social and civic participation and even family stability (see report, p. 8).
The only way to leave poverty on a permanent basis is to save and accumulate assets. Internationally, this is known as asset-based welfare. A number of pilot schemes in the United States have shown that ownership is the best way of breaking the poverty cycle.
Traditionally, the public sector has concentrated on the provision of income support, skills development and community services. Matched Savings Accounts take these responsibilities a step further, into a fourth pillar of the welfare state. This is a key point to recognise: asset policies are not a substitute for income support; they are an add-on. Most importantly, they offer new hope for the elimination of poverty.
The paper does not represent Labor's final approach. Rather, the research provides a framework for the development of our Matched Savings Accounts policy, which will be released in due course.
I thank the Chifley Research Centre and the Allen Consulting Group for this quality piece of policy research. It is a significant contribution to the public policy debate.