Asset Accumulation in Low-resource Households: Evidence from Individual Development Accounts
This paper analyzes asset accumulation in individual development accounts (IDAs) by poor people in the American Dream Demonstration (ADD). It presents evidence from ADD on poor peoples ability to save in IDAs, the kind of poor people who save in IDAs, how IDAs work and the cost of IDAs. The final section discusses the main results from a policy perspective.
IDAs are a new policy proposal designed to help the poor build assets. They do not require wealth, tax breaks, or debt. Withdrawals from IDAs are matched if used to buy a home, pay for post-secondary education, or finance self-employment. Participants in IDAs also receive financial education and support from IDA staff. Findings include:
- Poor people can save and build assets in IDAs;
- Income and welfare receipt are not linked with net deposits in IDAs;
- Institutional characteristics matter;
- Greater financial education is associated with greater saving.
The paper concludes that IDAs in ADD are costly. It recommends a different program structure and a different bundle of services if access to IDAs is to become universal and permanent.