Individual Development Accounts (IDAs)

There is some evidence that Individual Development Accounts (IDAs) facilitate modest asset accumulation in the short-term among households with low incomes, especially those with particularly low wealth (Birkenmaier 2022). However, additional evidence is needed to confirm effects.

Studies of IDAs indicate that participants with low incomes can save, generally small amounts (Birkenmaier 2022). While some participants withdraw their savings for unqualified purposes, losing the match (Mills 2008), others use their savings and matched funds for qualified purchases. IDA programs increase homeownership rates among participants that start the program as renters (Urban-McKernan 2020, Grinstein-Weiss 2008). However, in a Tulsa-based study, both IDA participants and non-participants had similar rates of homeownership 10 years later (Grinstein-Weiss 2013a). IDA homebuyers may be more likely to have access to and use government-insured loans, instead of higher interest rate or subprime loans, and foreclosure rates may be lower for IDA participants than for other homebuyers with low incomes (McKernan 2011). However, IDA participation may not increase assets and savings over the long-term (Grinstein-Weiss 2015a, Rothwell 2013), though larger-scale implementation is needed along with increased funding to confirm program effects (Birkenmaier 2022).

IDA participation may positively effect credit scores (Birkenmaier 2022) and increase postsecondary enrollment among those saving for higher education (Grinstein-Weiss 2013). It may reduce financial hardship, especially due to costly medical emergencies or high utility bills. IDA participation has also been associated with reduced use of predatory check cashing services (Urban-McKernan 2020). When participants open an IDA at a young age, they may save more over time (Jones 2021). An assessment of participants in Tulsa, Oklahoma, suggests no effects, positive or negative, on mental health 10 years after initial participation (Rohe 2017).

Financial education, peer group meetings, match rates, direct deposit, and monthly savings targets appear to increase the success of IDA programs (Grinstein-Weiss 2010). Programs may be more successful when they target specific groups, like youth with disabilities from families with low incomes (Jones 2021). High intensity IDA programs may not be a cost-effective means of encouraging saving; an evaluation of one of the American Dream Demonstration sites, a four-year, county-level IDA program in Tulsa, Oklahoma, estimates an average of $3 in program costs for every $1 saved by the 471 participants (WU CSD-Schreiner 2004).

Individual Development Accounts (IDAs) have the potential to decrease disparities in asset accumulation between people with low incomes and those with higher incomes, since they are designed to assist individuals and families with low or moderate incomes. Account holders can withdraw funds to procure assets such as homes, post-secondary education, or small businesses to interrupt the cycle of intergenerational poverty that contributes to disparities in wealth and education across income groups and racial identities (Birkenmaier 2022). IDAs may also play a role in getting people with low incomes connected to mainstream financial services (Urban-McKernan 2020).

The impact of IDAs on wealth disparities between people of color and white people is inconclusive. One small study in Milwaukee targeting youth with disabilities from families with low incomes found Black youth were more likely to open an IDA and save at a higher rate; however, white youth were still more likely to accumulate more savings than Black youth. The same study did find that tailoring the program to youth with disabilities can increase their rate of opening an IDA (Jones 2021).

Individual Development Accounts (IDAs) were first proposed in 1991 as a lifelong, asset-building tool tailored to working families with low and moderate incomes to improve their economic well-being. Since their inception, IDAs have been employed as an asset-building strategy with private funding for matching funds from for- and non-profits. From 1998 to 2017, the Assets for Independence Act provided federal funding for matching, until the Trump administration stopped funding for the program (Birkenmaier 2022).

Families and individuals from many racial and ethnic groups throughout history have been systematically excluded from education and homeownership opportunities, kept in low paying jobs, and prevented from accumulating generational wealth. The racial wealth gap is a result of centuries of exploitation of human capital and theft of the assets of people of color, including Blacks, Hispanics, and Native people. One false narrative suggests that the racial wealth gap exists because of differences in financial behaviors and knowledge between racial and ethnic groups in the U.S. (FRB-Hamilton 2017). This narrative ignores the long history of policies and practices that permitted the legal, illegal, and extralegal seizure of assets of people of color that continues today. This history is reinforced by institutionalized racism embedded in policies that limit wealth building opportunities and prevent the economic stability of minority populations and populations with low incomes. For example, homeownership in the U.S. is central to building and transferring household wealth; however, redlining and discriminatory housing policies have denied this opportunity for millions of households of color (Finsel 2022). As a result, millions of families have little to no savings or assets, have a severely limited capacity to buy assets or invest in education, and lack access to basic financial services and affordable capital. IDAs are designed to help these families begin to accumulate savings and assets, but larger scale implementation, generous funding, and additional interventions and investment are also needed to break the cycle of poverty, change systemic barriers, and support wealth building for all Americans (Chen 2020a, Birkenmaier 2022).

• Who would benefit the most from Individual Development Accounts (IDAs) in your community? How can the program be designed to generously support and encourage participation among individuals historically excluded from education and wealth building opportunities?
• What amount of matching dollars should be invested so the program would be effective at closing the racial wealth divide? Who can you engage to provide those matching funds?
• Do the goals of the IDA program match the goals of prospective participant families? How can IDAs meet the needs of families’ expectations for their financial well-being? Can they be designed to support families in cases of emergency without losing access to future matching opportunities?
• What other services or comprehensive interventions could be integrated with IDAs to improve financial stability, support wealth building, and connect participants to mainstream financial services?

Ten states funded Individual Development Account (IDA) programs in 2021, with only five of them consistently funding them for the last three years (Prosperity Now-State IDA).

Non-governmental organizations can support IDAs; for example, the Jim Casey Youth Opportunities Initiative’s Opportunity Passport IDA program provides funding for programs for youth transitioning out of foster care in many states (Urban-Edelstein 2014).

The federal Assets for Independence program, authorized in 1998, has historically been the largest source of IDA funding in the U.S., supporting programs in 49 states and Washington, D.C. through competitive grants (Rohe 2017). However, funding has been suspended since fiscal year 2016 (US DHHS-AFI Resource Center).

CBPP-McNichol 2004 - McNichol L, Springer J. State policies to assist working-poor families. Washington, D.C.: Center on Budget and Policy Priorities (CBPP); 2004.

Prosperity Now-IDA - Prosperity Now. Individual Development Accounts (IDA).

Prosperity Now-IDA program map - Prosperity Now. Find an IDA program.

US DHHS-AFI Resource Center - U.S. Department of Health and Human Services (U.S. DHHS), Administration for Children & Families (ACF). Assets for Independence (AFI) Resource Center.

* Journal subscription may be required for access.

Birkenmaier 2022* - Birkenmaier J, Kim Y, Maynard B. Financial outcomes of interventions designed to improve financial capability through individual development accounts: A systematic review. Journal of Evidence-Based Social Work (United States). 2022;19(4):408-439.

Chen 2020a - Chen Z, Elliott W. Saving for college: Perspectives from participants in a universal children’s savings program. Journal of Children and Poverty. 2020;26(2):151-166.

Finsel 2022* - Finsel C, Watson Grote M, Libby M, Mahon C, Sherraden MS. Financial Capability and Asset Building With a Racial- and Gender-Equity Lens: Advances From the Field. Families in Society. 2022;103(1):86-100.

FRB-Hamilton 2017 - Hamilton D, Darity WA. The political economy of education, financial literacy, and the racial wealth gap. Federal Reserve Bank of St Louis Review. 2017;99(1):59-76.

Grinstein-Weiss 2008* - Grinstein-Weiss M, Lee JS, Greeson JKP, et al. Fostering low-income homeownership through individual development accounts: A longitudinal, randomized experiment. Housing Policy Debate. 2008;19(4):711-739.

Grinstein-Weiss 2010* - Grinstein-Weiss M, Chowa GAN, Casalotti AM. Individual Development Accounts for housing policy: Analysis of individual and program characteristics. Housing Studies. 2010;25(1):63-82.

Grinstein-Weiss 2013* - Grinstein-Weiss M, Sherraden M, Gale WG, et al. Long-term effects of Individual Development Accounts on postsecondary education: Follow-up evidence from a randomized experiment. Economics of Education Review. 2013;33:58-68.

Grinstein-Weiss 2013a* - Grinstein-Weiss M, Sherraden M, Gale WG, et al. Long-term impacts of individual development accounts on homeownership among baseline renters: Follow-up evidence from a randomized experiment. American Economic Journal: Economic Policy. 2013;5(1):122-145.

Grinstein-Weiss 2015a* - Grinstein-Weiss M, Sherraden M, Gale WG, et al. Effects of an individual development account program on retirement saving: Follow-up evidence from a randomized experiment. Journal of Gerontological Social Work. 2015;58(6):572-589.

Jones 2021* - Jones WD, Phillips BN, Hartman E, et al. The relationship among demographic factors, transition services, and Individual Development Account (IDA) saving participation among transition-age youth with disabilities. Rehabilitation Counseling Bulletin. 2021;65(1):37-48.

McKernan 2011* - McKernan SM, Rademacher I, Ratcliffe C, et al. Weathering the storm: How have IDA homebuyers fared in the foreclosure crisis? Housing Policy Debate. 2011;21(4):605-625.

Mills 2008* - Mills G, Gale WG, Patterson R, et al. Effects of Individual Development Accounts on asset purchases and saving behavior: Evidence from a controlled experiment. Journal of Public Economics. 2008;92(5-6):1509-1530.

Prosperity Now-State IDA - Prosperity Now. Individual Development Accounts (IDA): What states can do.

Rohe 2017* - Rohe WM, Key C, Grinstein-Weiss M, Schreiner M, Sherraden M. The impacts of individual development accounts, assets, and debt on future orientation and psychological depression. Journal of Policy Practice. 2017;16(1):24-45.

Rothwell 2013* - Rothwell DW, Sultana N. Cash-flow and savings practices of low-income households: Evidence from a follow-up study of IDA participants. Journal of Social Service Research. 2013;39(2):281-292.

Urban-Edelstein 2014 - Edelstein S, Lowenstein C. Supporting youth transitioning out of foster care, issue brief 2: Financial literacy and asset building programs. Washington, D.C.: The Urban Institute; 2014.

Urban-McKernan 2020 - Mckernan S, Mills G, Ratcliffe C, Congdon WJ, Pergamit M. Building savings, ownership, and financial well-being: First- and third-year Assets for Independence Program randomized evaluation findings in context. Washington, D.C.: Office of Planning, Research, and Evaluation, Administration for Children and Families, U.S. Department of Health and Human Services; 2020.

US DHHS-AFI Resource Center - U.S. Department of Health and Human Services (U.S. DHHS), Administration for Children & Families (ACF). Assets for Independence (AFI) Resource Center.

WU CSD-Schreiner 2004 - Schreiner M. Program costs for Individual Development Accounts: Final figures from CAPTC in Tulsa. Saint Louis: Center for Social Development, George Warren Brown School of Social Work, Washington University in St. Louis; 2004.

WWBIC-IDA - Wisconsin Women’s Business Initiative Corporation (WWBIC). Asset building tools: IDA.