Statement Given in Bridging the Gap: How Prepared Are Americans for Retirement? Hearing Before the U.S. Senate Special Committee on Aging

Statement Given in Bridging the Gap: How Prepared Are Americans for Retirement? Hearing Before the U.S. Senate Special Committee on Agin

Financial Education and Savings Outcomes in Individual Development Accounts

Individual Development Accounts (IDAs) are subsidized savings accounts. Unlike other subsidized savings accounts such as Individual Retirement Accounts (IRAs) or 401(k) plans, IDAs are targeted to the poor, provide subsidies through matches rather than through tax breaks, and require participants to attend financial education. Participants accrue matches as they save for purposes that build assets that increase long-term well-being and financial self-sufficiency. Matched uses of withdrawals typically include home purchase, post-secondary education, and microenterprise. The purpose of this study is to examine the relationship between the hours of financial education attended by IDA participants and savings outcomes. The data are from the Downpayments on the American Dream Policy Demonstration (ADD). The goal of financial education is to make people more aware of financial choices and possible consequences. IDA programs require financial education, but there is no systematic/scientific evidence that this requirement is essential. As of June 30, 2000, 81 percent of the 2,378 participants in ADD had attended general financial-education classes. Most participants (65 percent) had one to twelve hours of attendance recorded, 16 percent had 13 hours or more, and 14 percent were recorded as having no hours. Mean attendance was 10.4 hours, with a low of zero and a high of 35. To measure the association between attendance at financial education and savings outcomes, we used a Heckman two-step regression in which the first step predicted exit from the IDA program (and thus a high likelihood of a low opportunity for attendance at financial education). The second step predicted average monthly net deposit (AMND) for those participants who did not exit, controlling for length of participation and a wide range of other factors that might affect AMND. These results broadly suggest that between 0 and 12 hours of financial education have large, positive effects on savings (in the range of one dollar of AMND for each hour of general financial education up to 12 hours). After that point, the effects leveled off. Results for asset-specific education were similar. In short, financial education seems to have had large effects on savings outcomes.education, financial literacy, savings incentives,Individual Development Accounts

A Comparative Analysis of Rural and Urban Saving Performance in Individual Development Accounts

The purpose of this study was to examine the predictors of savings outcomes for rural and urban participants in IDA programs. Multivariate analyses by residency were used to explore the experiences of rural and urban participants. a short survey among rural IDA administrators in ADD was used to identify the challenges associated with managing IDAs in these regions. Finally, conclusions and policy implications are presented

Educational Status and Savings Performance in Individual Development Accounts

This study examines the relationship between education and savings performance in Individual Development Accounts (IDAs), a matched savings program for the poor. We also investigate whether the relationship between education and savings is mediated by income, intended uses of IDAs, and program (or institutional) factors. The data of this study is from the American Dream Demonstration (N = 2,50), the first national demonstration of IDAs. The results indicate that, compared to the participants without a high school degree, those with some college education, especially those with a 4-year college degree, had higher savings, after controlling for program factors and other individual factors in the model. Household income, intended uses of IDAs, and program characteristics were related to savings outcomes; income and two program factors, monthly savings target and financial education, also partially mediated the relationship between education and savings outcomes. These findings may help design and implement more effective savings programs for the low-income population and its varying segments

Individual Development Accounts: Frequently Asked Questions

Individual Development Accounts: Frequently Asked Question

Individual Development Accounts in Rural Communities: Implications for Research

Individual Development Accounts in Rural Communities: Implications for Researc

Asset-Building in Rural Communities: The Experience of Individual Asset Accounts

Similar to the beginning of many new eras, the dawning of the 21st century has brought new opportunities as well as new challenges to the stability of our economy. New technology offers more efficient methods of production while the continuing influence of globalization increases market availability for our goods. Yet, when a region has a hard time transitioning to a new economy, the challenges produced by these changes are often overwhelming and can create hardship. Rural America is currently facing many of the difficulties associated with these changing economies, thus affecting their current economic sustainability and development. The industry base change from manufacturing to service in the late half of the 20th century produced high unemployment rates from the loss of factory jobs and although the new service base created jobs, most were low-wage with minimal or no benefits (Falk and Lobao, 1995). Furthermore, because of the differences in economic resources, population and geography, rural areas are highly diverse (Oakerson, 1995). These conditions only added to the rising poverty rates for rural areas. While the rural poverty rate, as well as the national poverty, began to decline after reaching a high of 17.3 percent in 1993, it has since began to rise again and in 2002 stood at 14.2 percent. Furthermore, rural poverty rates have historically been higher than urban poverty rates, leaving rural communities at even more of a disadvantage (Economic Research Service, 2004). One policy approach being discussed in current dialogues is wealth creation (asset building). Some researchers have suggested that asset building in rural areas might be a viable solution to help reduce poverty and increase economic assets in these regions (Dorward, Anderson, Clark, Keane, & Moguel, 2001; Curley & Grinstein-Weiss, 2003). The purpose of this study is to examine the performance of rural participants in an assets building program – the Individual Development Account (IDA). IDAs are matched savings accounts for low-income households, where the savings are used for specific purposes including home purchase, post-secondary education, and microenterprise

Using Individual Development Accounts to Save for a Home: Are There Differences by Race?

Research indicates that homeownership is a key variable in wealth accumulation. Using data from the American Dream Demonstration, this study examines the performance of low-incomeblacks and whites saving for homeownership through Individual Development Accounts (IDAs), a matched saving program. Results show black IDA participants saved smaller amounts and less frequently. Furthermore, findings suggest institutional variables have different associations with savings for blacks and whites. Implications for policymakers and program administrators are discussed regarding differential targeting of race groups in the design and implementation of programs aimed toward increasing savings and assets accumulation for low-income and minority households

Racial Differences in Performance in a Matched Savings Program

This study examines the saving performance of low income African Americans and Caucasian participants in an Individual Development Accounts (IDA) program. IDAs are matched saving for home ownership, education, and small business capitalization. Using data from the American Dream Demonstration (N = 2,364), this study compares the savings performance of Black and White participants in IDAs. The results indicate that low-income African Americans on average save successfully in IDAs, though in smaller amounts than Caucasians. Results of separateregressions for Blacks and Whites indicate that mostly individual characteristics are associatedwith saving performance among Caucasians. In contrast, mostly institutional characteristics areassociated with saving performance among African Americans. Implications for policy and programs are suggested

Is Student Debt Compromising Homeownership as a Wealth-Building Tool?

In this study, the authors use 2007–2009 Survey of Consumer Finance longitudinal data to examine if having student loans affected home equity during the Great Recession. We find that median 2009 home equity ($90,000) for households with no outstanding student loan debt is twice as high as that of households with outstanding student loan debt ($45,000). Further, multivariate statistics reveal that a household with a college graduate, median 2007 home equity, and student loan debt had $54,334 (40%) less home equity in 2009 than a household with a college graduate, median home equity, and no college debt. The main policy implication is that outstanding student debt may be associated with reduced home equity. This finding raises questions about the short-term financial effects of overreliance on student borrowing as a financial aid strategy, particularly given the importance of home equity accumulation as a vehicle for economic security, itself a primary goal of higher educational attainment. However, this topic is complex, and more research is needed before suggesting policy prescriptions