IDAs and CAAs: A Natural Partnership
A Technical Assistance Document for Community Action Agencies Operating Individual Development Account Programs
1. |
IDAs - An Overview |
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| What Are IDAs? | |||
| Benefits Of Asset Building | |||
| A History Of IDAs | |||
| Goals Of IDA Programs | |||
What Are IDAs?
Individual Development Accounts are matched savings accounts in which
low-income individuals and families accumulate funds that can be used
for
one of several allowable assets. IDA Programs combine savings with
Financial Education, Asset-Specific Training, Case Management and
peer
support to provide long-term education and support to help Participants
reach their goals.
Most IDA Programs allow Participants to save for a first home, higher education or small business capitalization. Other allowable assets can include: home repair, a car, a computer or land.
IDAs are a relatively new anti-poverty, asset-building strategy to supplement, not replace, existing anti-poverty methods. Higher-income segments of American society have access to policies, tax strategies and other means to help them build and maintain assets. IDAs bring some of these same benefits to low- and moderate-income families, too.
IDAs are a simple idea that works!
Benefits Of Asset Building
Asset building is an important addition to the arsenal of weapons used to fight poverty. People escape poverty and achieve wealth through asset acquisition, not simply through income. According to the State Asset Development Report Card, published by the Corporation for Enterprise Development in 2002, the distribution of assets in the United States is much more unequal than the distribution of income. Asset building can supplement income maintenance as a viable anti-poverty strategy.
Income maintenance, the main anti-poverty strategy since the 1940s, is still needed for many families. However, just maintaining a family's income—through TANF or other programs—only raises them to the poverty line. There is nothing to cushion the fall if sickness, loss of employment or divorce happens. It is now being recognized that to help low-income families break the generational cycle of poverty and protect them from financial disaster, we have to help them build their asset base.
Asset building as public policy is not new. IDAs are in the tradition of other government asset-building strategies, such as the G.I. Bill after World War II and the Homestead Act in the 19th century. IDAs not only result in millions of dollars in increased assets owned by low-income families, but are an important community-building and economic development tool as well. According to the Corporation for Enterprise Development (CFED), every 100,000 IDAs will produce:
- 7,050 new businesses
- 6,000 new and 6,000 rehabilitated homes
- $287,000,000 in savings in community financial institutions
- $188,000,000 in increased assets owned by low-income families
- 11,667 families off welfare
- 32,000 additional high school and college graduates
In addition, a whole range of sociological and psychological changes come with increased assets. When individuals and families own assets they experience: increased feelings of control, increased self-esteem, increased life satisfaction. Asset ownership brings with it an increase in the status of women, more stable marriages, an increase in skills and an increase in the well-being of children.
The return on investment is high—asset ownership means that people will be contributing to the tax base. In communities where IDAs are at work there are higher levels of education, better property maintenance, a decrease in residential mobility and an increase in local civic involvement. It makes sense—when people are invested in their communities and have increased educational opportunities, everyone gains!
Most importantly, owning assets gives people a way to make their
dreams a reality for themselves and their children. Low-income people
can and want to save; they often think they can't on their limited
incomes. They need to know that—with IDAs—asset building
is within their reach.
A History Of IDAs
Individual Development Accounts are a relatively new weapon in the war on poverty. Dr. Michael Sherraden, of the Center for Social Development at Washington University in St. Louis, first introduced the concept of IDAs in his 1993 book Assets and the Poor. In it he urged the importance of putting a "level floor of assets under each family" in America.
Before 1997, only a handful of agencies were operating IDA Programs. In 1997, the American Dream Demonstration Project (ADD) became the first large-scale test of IDAs in the United States. ADD was a five-year project supported by several national and local foundations; private organizations, companies and individuals; and state, local and national governments. Results from the American Dream demonstration can be found on the Center for Social Development's Website.
In 1999, the Office of Community Services of the U. S. Department of Health and Human Services instituted the Assets for Independence (AFI) IDA Demonstration Project, which greatly increased the number of IDAs in existence.
Today it is estimated that there are over 500 IDA Programs and 20,000 IDA Account Holders in the United States.
Goals Of IDA Programs
IDA Programs provide multiple benefits to program Participants. In addition to actually purchasing an asset, Participants learn important skills and information that will help them throughout their lives. IDA Program goals can include the following:
- To provide the means for low-income individuals and families to achieve economic self-sufficiency by utilizing the asset-building approach of IDAs;
- To provide education and training to Participants to give them the knowledge necessary to assist them in building their assets, in knowing how to use these assets in the most effective way, and in making their dreams a reality;
- To encourage individual initiative and long range planning;
- To encourage lifetime savings habits in Participant families;
- To familiarize low-income families with financial institutions and increase their comfort level in doing business with such institutions.
