Individual Development Accounts

Individual Development Accounts (IDAs) are matched savings accounts that enable people with low incomes to save money and build assets. Every dollar that is saved in an IDA will be matched with donations from government agencies, non-profit organizations and private companies. Many organizations who partake in IDA programs often match the incentive with financial literacy education, training to purchase their asset, and case management.

Individual Development Accounts (IDAs) are emerging as one of the most promising tools to enable low-income and low-wealth American families to save, build assets, and enter the financial mainstream. IDAs reward the monthly savings of working-poor families who are trying to buy their first home, pay for post-secondary education, or start a small business. Additionally, some IDA programs allow participants to save for home repairs, computers, automobiles, or retirement. These matched savings accounts are similar to 401(k) plans and other matched savings accounts but can serve a broad range of purposes.

There are over 250 IDA programs in the United States. Any individual, organization or business can contribute match dollars to IDAs. Many IDAs are offered through partnerships between local non-profit organizations, called the IDA program sponsor, and financial institutions. The program sponsor recruits participants and provides IDA counseling and training. Additionally, participants are required to attend a certain number of financial education classes to learn about the basics of money management. Most IDA programs offer a 2:1 match rate, which means for every $1 deposited, $2 in matching funds will be added. However, the program match varies depending on the length of the IDA program and the amount of match funds raised by the sponsoring organization.

After securing a sponsor, the participant will open up an account with the partnering bank or credit union. A monthly report will be given to all participants from their respective financial institutions with updates on the amount of accumulated savings in their IDA. IDA programs can range anywhere from one to five years in length.

IDA programs differ in eligibility guidelines but some of the general requirements for participants are based on a specified annual income level, earnings, net worth and credit history..

Some of the key findings are that IDAs do lead the poor to save or acquire assets, but do not necessarily increase their net worth (assets minus debt). While costs are declining, IDAs are expensive to administer and are often used by the poor as checking and savings accounts as well as a means to accumulate wealth, reflecting in part the dearth of savings products aimed at the poor.

North Carolina has one of the leading statewide networks of IDA programs with 32 local IDA sites in 55 North Carolina counties. These 32 programs provide matching funds and support to more than 500 low-income account holders. There is a four step process when acquiring an IDA, this includes; Introduction and Orientation, Opening Accounts, Economic Literacy and Training, and finally Withdrawal, Purchasing Assets and beyond.

See also

• Asset-based egalitarianism
• Child Trust Fund

References

1. Individual Development Accounts (English) CFED.
2. Individual Development Accounts (English, document) CFED.
3. Individual Development Accounts: Policies to Build Savings and Assets for the Poor The Brookings Institution. (English) Ray Boshara.
4. Individual Development Account (IDA) Program The Brookings Institution. (English) North Carolina Department of Labor.