Individual Development Accounts Research Articles

Youth Individual Development Accounts: Retirement Planning Initiatives

Youth Individual Development Accounts: Retirement Planning Initiatives

Savings in America: Building Opportunities for All

Savings policy in the United States is at a critical juncture. The U.S. personal saving rate has declined from 10.8 percent in 1984 to zero in 2005. The national saving rate, which includes government and business savings, is the lowest among the G-20 countries and has decreased significantly in recent decades. These low levels of saving generally suggest lower growth rates of income and standards of living in the future. This paper considers barriers in current policies that confront households trying to save more. These include the complexity of laws affecting retirement and saving plans, and the exclusion of many households from using incentives that are worth the most to those facing the highest tax rates. It also discusses the effect of asset tests in welfare and education policies and other institutional barriers that discourage saving, especially for low- and moderate-income families. Without advocating any particular savings policy or reform, this paper discusses several proposed policies to build assets for all Americans. These include new initiatives such as universal children's accounts and enhanced Individual Development Accounts (IDAs). The paper also explores improvements to existing programs such as matched subsidies for retirement savings, and an enhanced, refundable tax credit for low-income savers. Although many of these ideas have not been fully developed and are open to debate on their merits, we believe they form an important part of the discussion about how to boost savings in the United States.

Asset Building in Rural Communities: The Experience of Individual Development Accounts*

Abstract This study examines the unique experiences of low‐income rural participants in an asset building program‐the Individual Development Account. Using data from the American Dream Demonstration, this study addresses three main questions: (1) What are the individual characteristics associated with saving outcomes among rural IDA participants? (2) What are the program characteristics associated with savings among rural participants? (3) What are the policy implications for supporting asset building in rural areas? To answer these questions we conduct an Ordinary Least Squares regression analysis. The results suggest that low‐income rural participants have the ability and willingness to save toward the accumulation of assets in IDAs. Looking at individual characteristics, home ownership appears to be an important predictor of savings. In addition, this study suggests that program characteristics (financial education, peer group meetings, match rate, direct deposit, and monthly saving target), not merely individual characteristics, are important in explaining saving performance for this group.

Educational Status and Savings Performance in Individual Development Accounts

Abstract This study examines the relationship between education and savings performance in Individual Development Accounts (IDAs), a matched savings program for the poor. Based on economic and institutional theories of savings, we further investigate whether the relationship between education and savings is mediated by income, intended uses of IDAs, or program factors. The data of this study are from the American Dream Demonstration (N = 2,150), the first national demonstration of IDAs. The results indicate that education was positively related to savings after controlling for program factors and other individual characteristics. Household income and two program factors, monthly savings target and financial education, partially mediated the relationship between education and savings outcomes. These results provide some support for both economic and institutional theories of savings among low-income people. The findings also may help design and implement more effective savings programs for the low-income p...

Breaking the Cycle of Poverty: Asset Accumulation by People with Disabilities.

In this article the authors argue that equality for people with disabilities is contingent on economic equality and financial independence. They discuss the use of asset accumulation strategies, such as Individual Development Accounts ("IDAs"), by people with disabilities who utilize Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Temporary Assistance to Needy Families (TANF) and Medicaid. The major federal IDA programs, Assets for Independence (AFIA) IDAs and TANF IDAs, are compared in their use by people with disabilities. Further, the authors examine the income and resource limitations of SSI, SSDI, TANF and Medicaid and show how these often operate as barriers to asset accumulation by people with disabilities. Work incentives that operate within these programs are discussed in relation to asset development. Finally, the article concludes with proposals to encourage asset accumulation by people with disabilities.

What Do Individual Development Accounts Do? Evidence from a Controlled Experiment

This paper evaluates the first controlled field experiment on Individual Development Accounts (IDAs). Including their own contributions and matching funds, treatment group members could accumulate up to $6,750 for home purchase or $4,500 for other qualified uses. Almost all treatment group members opened accounts, but many withdrew the balances for unqualified purposes. For black renters at baseline, the IDA raised home ownership rates by almost 10 percentage points over 4 years, but reduced financial assets and business ownership. White renters experienced no home ownership effects, but business equity rose. Home owners used the IDA in different ways than renters.

USING INDIVIDUAL DEVELOPMENT ACCOUNTS FOR MICROENTERPRISE DEVELOPMENT

This study examines whether there is a role for microenterprise development as an anti-poverty strategy in the United States. This question is important because skeptical views exist regarding whether, generally, poor Americans would have the enthusiasm to undertake the risk of dealing with small-businesses, especially given that the United States has a public welfare system to take care of the poor and "abundant jobs" for those with the skills. Using data from 14 community-based programs promoting small-business investment through Individual Development Accounts (IDAs), this study finds that, overall, there is a considerable level of interest in saving for and investing in small-businesses among poor Americans, including those who are less advantaged in terms of income poverty and employment. Policy makers should thus consider promoting IDAs/subsidized savings for small-businesses development as a potentially viable strategy to address income poverty and inequality in the United States.

Joining an Asset Building Program

United States anti-poverty efforts traditionally consist of income-based, means-tested policies while wealth promotion generally involves tax code initiatives. Long-established beliefs that underserved populations cannot save money have resulted in exclusionary asset building policies for the poor. Minimal changes in pre-transfer poverty rates have led social workers to examine alternative anti-poverty solutions. This study examined the effects of an Individual Development Account (IDA) savings program on social and economic well-being. Findings suggest that individuals do save when institutional structures are in place and that perceptions of economic strain decrease as savings increase. Implications for future policy, practice, and research are discussed.

Saving Performance in Individual Development Accounts: Does Marital Status Matter?

Research indicates that marriage has a large effect on reducing the risk of poverty and is associated with a higher probability of attaining affluence over the life course when compared with nonmarriage. Using data from the American Dream Demonstration (N =2,364), this study compares savings performances of married and unmarried low‐income participants in a matched savings program—Individual Development Accounts. The results indicate that both married and unmarried low‐income participants can save in Individual Development Accounts. After controlling for program and other participant characteristics, there were no significant differences in savings between married and unmarried participants. We further examined possible factors that are associated with Individual Development Account savings performance for these two groups.

Cost-Effectiveness in Individual Development Accounts

Because resources are limited, the benefits and costs of social-work interventions—like all interventions—must be compared with the benefits and costs of alternatives. Evidence-based practice should ask, What works? How well does it work? And what does it cost? This article analyzes the provision of Individual Development Accounts (IDAs) with a new cost-effectiveness framework meant to help make assumptions and judgments explicit. In the specific IDA program examined, 1 month of services for 1 participant costs about $64. The mere existence of a cost figure— regardless of whether it is seen as high or low—has sparked many questions in the IDA community: How can costs be reduced without sacrificing quality? Which features of IDAs are essential? Are IDAs worth it? This sort of healthy questioning is precisely the purpose of cost-effectiveness analysis in social-work practice.

The Net Worth of Female‐Headed Households: A Comparison to Other Types of Households

Abstract: This article presents the results of a study that investigated the level of assets and debts that female‐headed households have in comparison to those of married‐couple households and other types of households. The empirical results revealed that the amounts of net worth of married‐couple households and male‐headed households were significantly larger than that of female‐headed households. We discuss policy implications stemming from the findings of the study and recommend that the United States seriously consider creative policy approaches aimed at empowering low‐income households such as employment‐related supportive policies, microenterprise programs, and Individual Development Accounts programs.

Individual Development Accounts: Participants’ Characteristics and Success

:Asset-building strategies have been touted as a new approach to helping low-income families achieve economic independence. By providing incentives to save and invest in an asset—such as a home, a business, or additional education—Individual Development Accounts (IDAs) hope to help lower-income families advance economically. Using the data collected on 21 IDA programs in North Carolina, this article addresses the characteristics of the persons served by these programs as well as the factors related to participant success and failure. The results indicate that IDA participants are different in many respects from the general population of low-income persons. They are more likely to be single African-American mothers with relatively high levels of education and full-time employment. Effective case management and economic literacy training contributed to program success, whereas job loss and financial emergencies contributed to the dropout rate. The implications of these findings for expanding IDAs to a wider population are considered.

Relationships Between Assets and Perceived Economic Strain

Income and wealth disparity continue to widen among U.S. households. Efforts to combat poverty generally consist of income-based policies while wealth creation involves asset-based policies. Asset theory suggests that an asset-based approach to poverty reduction will help increase the personal, social, and economic well-being of low-income households. As a result, Individual Development Accounts (IDAs), or dedicated savings accounts, were designed to help propel low- and moderate-income individuals out of poverty by building assets in the form of home ownership, small business development, and post-secondary education. One way in which IDAs are hypothesized to increase well-being is by improving household economic stability. This longitudinal study examined the relationships between asset building and perceived economic strain. Findings support the notion that IDAs are positively associated with perceptions of economic stability among households. In other words, it may be that assets help increase economic resources and well-being among low-income households.

Saving for Post-Secondary Education in Individual Development Accounts

Low-income people have less access to opportunities for post-secondary education, and the welfare reform in 1996 further limited access for welfare recipients. Since welfare reform, there has been an increasing interest in strategies meant to enhance the well-being of low-income people through education and the development of human capital. In this study, we examine how low-income people saved for post-secondary education in Individual Development Accounts (IDAs) in a nationwide demonstration. IDAs provide matches for savings used primarily for home purchase, microenterprise, and post-secondary education. We examine how savings outcomes differed between participants who intended to use their savings for post-secondary education and other participants. We also look at how these differences in savings outcomes were associated with difference in participantc haracteristicsa nd in IDA design across different programsi n the demonstration.

Saving and asset accumulation among low-income families with children in IDAs

Research indicates that low-income families with children have many motives to save, however, the costs of raising children, low wage employment, means tested programs, and the need for child care make it difficult for them to save. Using data from the American Dream Demonstration ( n = 1801), this study examines saving performances of low-income families with children in a matched savings program—Individual Development Accounts (IDAs). The results indicate that households with children in IDAs can save when they are provided structured opportunities. In addition, this study finds that institutional factors, not merely individual characteristics, are highly associated with IDA saving performance, and are important in explaining saving performances in IDAs. Implications for policy makers and program administrators to better assist low-income families to save and accumulate assets in IDAs are given.

Investing in Individuals for Independence

Individual Development Accounts (IDAs) are tax-protected, matched savings accounts designed to help those with low incomes and few assets buy a home, capitalize a business, or fund higher education. Originally authorized through the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), IDAs are designed, implemented, and evaluated through public-private partnerships. In January 2003 over 500 IDA programs had been created, with more than 10,000 low-income individuals making contributions. This paper outlines the rationale for IDA as an asset building strategy for the poor, describes the design and operation of IDAs, and provides results of early program evaluations. It concludes by arguing that IDAs are a smart practice that can and should be expanded.

Savings Experiences Past and Present: Narratives From Low-Income African American Women

Research has found that low-income individuals can and do save when institutional supports are in place; however, little structured data are available on how and why they manage to save. This article presents a study of the long-term savings experiences of 9 low-income African American women who were participating in an Individual Development Account (IDA) savings program in a city in North Carolina. The results indicated that despite many markers of disadvantage, low-income African American women use various strategies to save money for developing their assets. These findings can inform policy, practice, and research by increasing knowledge of facilitators of and barriers to the development of assets among the poor.

Short Term and Long-Term Savings in Low Income Households: Evidence from Individual Development Accounts

Previous research has found that individuals frame savings for short-term and long-term uses. These findings are reinforced through in-depth interviews with 59 participants and 25 controls in an experiment testing the effects of Individual Development Accounts (IDAs). All respondents are from low-income households. IDA participants appear more likely than control respondents to earmark savings for long-term purposes and asset investments. This could be interpreted as a result of the institutional saving structure provided through the IDA program. IDA participants are presented with savings goals, which they believe are made attainable through conveyed expectations, matching funds, financial information, and staff facilitation. Interviews suggest that savings may lead to psychological, behavioral, and economic effects. Future research can explore the distinct and marginal effect that each institutional dimension has on savings over the long term and the effects of savings on family well being.

Match Rates, Individual Development Accounts, and Saving by the Poor

Individual Development Accounts (IDAs) provide poor people with matches for savings used for home purchase, post-secondary education, or microenterprise. Match rates for IDAs in the American Dream Demonstration (ADD) were typically 1:1 or 2:1 but ranged as high as 7:1. How did the match rate affect IDA savings? The analysis here controls for a number of confounding factors often ignored in similar studies of 401(k) plans. In ADD, higher match rates were generally associated on the extensive margin with a greater likelihood of saving something in IDAs and—on the intensive margin for those who saved something—a lower level of IDA savings.

Racial Differences in Performance in a Matched Savings Program

This study examines the performances of low-income African Americans in Individual Development Accounts (IDAs), a matched saving program. Using data from the American Dream Demonstration (N = 2,364), this study compares the savings performances of black and white participants in IDAs. The results indicate that low-income African Americans save in IDAs; however, they are saving smaller amounts than Caucasians. Results of separate Tobit regression analyses for blacks and whites indicate that more individual characteristics are associated with savings among Caucasians. In contrast, more institutional characteristics are associated with savings among African Americans. Implications for policymakers and program administrators are given.