NCPA - National Center for Policy Analysis

Individual Development Accounts: The Poor Can Save

May 16, 2000

Can low income people save in a program that matches their savings? The answer is "yes," according to a report on a project testing whether low income people will use so-called Individual Development Accounts (IDA).

The nationwide demonstration project involves 14 IDA programs run by private, not-for-profit organizations around the U.S. The low income participants earn interest on their IDA balances and receive monthly account statements. After a waiting period, they can withdrawal funds for limited purposes. Their savings are matched by the foundations, with a typical match of $2 for each dollar saved.

So far, 1,326 people have participated in the project, with these results:

  • They managed to put aside $33 each month, on average.
  • Over a period of 9 to 15 months, participants saved an average of $286 -- for a nest egg of $845, counting matching funds.
  • Their IDA savings were 71 percent of the total amount for which matching funds were available.
  • Surprisingly, poorer participants saved at a higher rate than the less poor.

In fact, households with income at half the poverty line or below saved 8 percent of their income in IDAs. Households with incomes of 150 percent of the poverty level or more saved about 2 percent of their incomes.

Participants have used withdrawals from their IDA's to fund microenterprises (33 percent), purchase homes (27 percent), repair homes (20 percent) and education (20 percent).

Source: Michael Sherraden, et al., "Saving Patterns in IDA Programs," January 2000, Center for Social Development, Washington University in St. Louis, Campus Box 1196, Washington University, One Brookings Drive, St. Louis, Mo. 63130, (314) 935-7433.


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