The Reparation Plan, Part 2 - Individual Development Accounts
In the first plan, I targeted increasing endowments at HBCUs. In the second plan, we talk about money to individuals. This is the plan that most public officials are afraid of: giving Blacks folks checks. That fear was exaggerated in one of the funniest sketches of The Dave Chappelle Show. You can click the link here. This plan does not encourage every African American to get a check. As stated in the previous blog, to be equitable, the US Government would have to come up with $97 trillion to distribute amongst 41.1 million African Americans to accomplish that.
The reality is that 46 percent of African Americans make at least $50,000 a year and the wealth gap between the richest African Americans and the poorest African Americans is the widest of any ethnic group. Although for every $100 a White American makes, an African American only makes $5, the disparity cannot be made up by increases in income alone, especially since over 20 percent of the African American workforce is employed in the public sector. More African Americans need access to assets, such as property, savings and investments.
That is why in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 individual development accounts (IDAs), promoted and secured by the US Government, were created. The purpose of an individual development account was to help citizens on federal assistance to save money for a car purchase, home purchase or college/technical school tuition. The goal was to get individuals to save $1000 over a period time, anywhere from two to five years and, in return, they would receive an additional $1000 to $4000 as a reward for their financial discipline. In the current program (which as of the last four years has not been funded), the Department of Health and Human Services distributes grants to nonprofit or local non-governmental organizations (NGOs) to manage the accounts and/or even provide the initial deposits for qualified individuals entering the program. It is estimated that it costs about $64 per person for these organizations to manage an IDA program.
In order to eliminate those administrative costs and pass downs through agencies, the US Government should give the money directly to the individuals, via a savings/investment account from an established financial institution. Ideally, those financial institutions would be Black-owned and operated. From there, the individual can set up a savings account or a two-year certificate of deposit (CD) to draw interest on the account, something you cannot do currently with IDAs. This would increase the net worth of the individual and increase their chances of getting off assistance, achieving home ownership and improving their quality of life.
Now for the numbers. There are over 8.2 million African American adults living in poverty. This plan is asking that each of the 8.2 million individuals receive $10,000 to establish these IDAs. That would mean that some households would receive more than others, if they have multiple adults under one roof, however, if all of those individuals were able to get out of poverty it would create a better environment all the way around. That comes to an $82 billion investment in some the poorest areas of our nation. Even better, just imagine $82 billion in assets flowing through the 42 Black owned banks in the United States. Divided equally, that would be nearly $2 billion in assets per bank! Black banks with more assets mean more mortgages and more small business loans given in African American communities, which will increase the collective wealth of African Americans.
Then there is the incentive piece. If each individual maintains $10,000 in their respective accounts after two years, they'll receive an additional $2000 from the US Government. That would be an additional $17 billion invested, coming out to a grand total of $99 billion given out in two years, at the most.
The goal, again, is to build Black wealth in America. If reparations are to be given, the main focus should be building wealth in the community that played a major role, historically, in building America's wealth. That seems fair and equitable, as well as long overdue. So far the price tag of the two plans is $206 billion, a sizable expenditure, but a bargain considering past context. However this is just the second step. Policy can create equality, but equitable reparation takes major investment.