Individual Development Accounts
Individual Development Accounts (IDAs) are a policy instrument for asset development for the poor. They show exciting promise as a new, effective way to provide a hand up to low-income families.
IDAs are basically savings accounts targeted toward low-income populations. There are a few characteristics that various IDA programs share in common:
Dr. Michael Sherraden, professor at Washington University, introduced the concept of IDAs in his book Assets and the Poor. He envisioned accounts that provide low-income families with the same kinds of benefits that middle- and upper-class families already enjoy with Individual Retirement Accounts (IRAs). Sponsoring financial institutions would match a low-income participant’s savings, to be used for specific asset-building purposes.
In 1997, Corporation For Enterprise Development (CFED) launched the American Dream Demonstration (ADD), which was the first large-scale test of IDAs as a social and economic development tool. The initial results from the ADD have been impressive. In 1998, Congress passed the Assets for Independence Act (AFIA), providing $125 million over five years to fund IDAs. This was the first federal law enacted to specifically support IDAs.
IDA Savers Show Success
The Assets for Independence (AFI) program’s latest annual Report to Congress finds that Individual Development Accounts (IDAs) are successful at encouraging savings, building assets and moving low-income families into the financial mainstream. Key findings from the Report to Congress show (results are from 1999 through FY 2010):
In addition, a five-year evaluation study found significant differences between AFI participants in comparison to similar non-AFI participants:
Reauthorization of Assets for Independence Act
In 1998, RESULTS and our allies successfully advocated for the Assets for Independence Act. Congress authorized $125 million for a multi-year project of IDAs. Supported by the Assets for Independence Act and private funds, approximately 100,000 IDAs have been opened in programs administered by more than 1,100 sites across the country. CFED estimates that each federal dollar invested in IDAs would yield a return of approximately five dollars to the national economy in the form of new businesses, additional earnings, new and rehabilitated homes, reduced welfare expenditures, and human capital associated with greater educational attainment.
Authorization for AFI expired in 2003, and funding has continued through annual appropriations. Since 1998, funding has been reduced by about 40 percent through cuts and inflation. Reauthorization would legitimate continuing the program and be an opportunity to implement improvements. So far, AFI has accounted for a very large share of all IDA activity, over 68,000 of 100,000 matched savings accounts. Congress should reauthorize the Assets for Independence Act as soon as possible. In doing so, they should triple the funding from $25 to $75 million, expand access to IDAs, and streamline the program to simplify access and use. See CFED’s specific recommendations for AFIA reauthorization.
H.R. 2110 - Stephanie Tubbs Jones Assets for Independence Reauthorization Act of 2013: This bill, introduced by Representative John Lewis (D-GA) would increase funding for existing and new AFI demonstration projects, expand eligibility, expand definitions of qualified expenses, and facilitate new partnerships.
H.R. 2964 - Savings for Working Families Act of 2013: This bill, introduced by Representative Joseph Pitts (R-PA), would encourage the expansion of IDA programs by offering tax incentives to financial institutions, nonprofit organizations, and Indian tribes for administering IDAs and for providing matching contributions.