IDA
Case Statement
Current
IDA Programs
How to Get Involved
Starting
an IDA Program
Assets for AZ Institute
IDA Links
What are Individual Development Accounts (IDAs)?
" Lack of income means you don’t get by; lack of assets means you don’t get ahead" (Ray Boshara, The New America Foundation, op-ed piece appearing in the New York Times, (September 29, 2002).
Individual Development Accounts, or IDAs, are dedicated savings accounts, targeted specifically to working poor families. IDAs provide an incentive to work, save, and build assets as a means to reach economic self-sufficiency. These accounts—actual savings accounts—are held at financial institutions in the name of the individual participant. Participants make regular deposits from their earned income and those deposits are matched from both private and public sources. The match is typically managed by a community-based nonprofit organization. Financial education and asset-specific training such as homebuyer or small business preparation are provided. Match funds are released only after the predetermined savings goal has been met and the participant is ready to invest the funds as stipulated.
Purposes
of IDAs
IDAs are most commonly used to purchase a first home, capitalize a small business
or fund post-secondary education. Non-traditional uses include auto purchase,
home repairs, and youth IDAs. Participant deposits range from $20-$50 per month,
up to about $2,000 in savings. IDA participants may use their Earned Income
Tax Credit refunds from the federal government to seed their IDA savings accounts.
The match ranges from 1:1 to 4:1, depending on the source of match funds and
the asset to be purchased.
IDA
Philosophy & Background
Dr. Michael Sherraden of Washington University in St. Louis is the intellectual
pioneer of the IDA movement. In the late 1980s he concluded that asset development
was the missing link in anti-poverty programs. Poverty had traditionally been
viewed primarily as an income problem. And, while the income support provided
by anti-poverty programs served as a safety net, such programs largely did
not help the poor achieve self-sufficiency.
What could assets do that income support could not? Assets can be a cushion during a family emergency like a sudden illness or job loss, or they can help pay for college or buy a car to commute to a higher paying job.
And the benefits of assets transcend the ownership of the asset itself. Asset ownership positively shapes attitudes and behavior as Dr. Sherraden describes, “When people accumulate something it has more than economic benefits. People saving for their future tend to take better care of what they have. They put more effort into maintaining their homes and neighborhoods, and they participate more in the community. They think more about their children’s future. They are more politically active. People with a stake in society will act like citizens.”
Even before asset acquisition, the path towards asset ownership, through participation in an IDA program, is designed to impact thinking and action of participants. Anti-poverty policy now favors such approaches that require something from people in exchange for receiving benefits. The IDA program structure of working, saving, and learning elegantly captures this idea.
Asset and wealth building policies, such as 401(k)s, IRAs, educational savings accounts and the home mortgage interest deduction, have long existed primarily for middle- and upper-income Americans. The poor have been shut out because they lack access to the appropriate information and institutions and because these programs often provide their benefits through the tax code. Additionally, welfare programs have penalized asset accumulation by the poor. This policy double standard has contributed to the large and growing wealth inequality in the United States.
“Wealth is a special form of money not used to purchase milk and shoes and other life necessities. More often it is used to create opportunities, secure a desired stature and standard of living, or pass class status along to one’s children. In this sense the command over resources that wealth entails is more encompassing than is income or education, and closer in meaning and theoretical significance to our traditional notions of economic well-being and access to life chances” (Dr. Melvin Oliver and Dr. Thomas M. Shapiro, scholars and authors).
Slowly, policymakers and politicians have come to acknowledge and start to reverse the policy double standard. Welfare reform legislation allows states to use Temporary Assistance for Needy Families (TANF) funds to establish IDA programs. In 1998, the Assets for Independence Act (AFIA) allocated $125 million in match and operational funds over five years to state and local IDA programs. With strong bipartisan support, the Savings for Working Families Act is pending in Congress (in the Charity, Aid, Recovery and Empowerment Act). It would allocate $450 million in tax credits to financial institutions and corporations that provide match funds with the potential to fund up to 300,000 IDA accounts nationally.
Do
IDAs Work?
In the 15 years since Dr. Sherraden’s initial scholarship, IDAs have
proliferated across America. Several hundred programs exist and 20,000 Americans
are saving in IDAs. The American Dream Demonstration, the first systematic
study of IDA programs, reveals that the poor can indeed work, save, learn,
and invest in assets.
IDAs and the asset development paradigm have also impacted the attitudes and agendas of leading nonprofits, financial institutions, foundations, think tanks, and universities, along with politicians and policymakers, and have emerged both philosophically and empirically as an innovative and promising anti-poverty tool.
“ Asset development combines the liberal objective of poverty reduction
with the conservative dream of individual wealth building to achieve the shared
goal of economic opportunity.”
Dr. J. Larry Brown and Dr. Larry W. Beeferman, Center on Hunger and Poverty,
Brandeis University (“From New Deal to New Opportunity”, Feb 12,
2001, The American Prospect).
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