I.       Individual Development Accounts (IDA’s)

Ø      What are Individual Development Accounts?

Individual Development Accounts (IDAs) are dedicated savings accounts, similar in structure to Individual Retirement Accounts (IRAs), that can only be used for purchasing a first home, post secondary education or job training expenses, or capitalizing a small business.

Ø      How do they work?

IDA programs are implemented by community-based organizations (CDC’s and other non-profits) and are funded by a broad base of public and private sources. Participant accounts are held at local financial institutions. Contributions from lower income participants are matched through the program allowing for faster growing savings accounts. Additionally, all participants receive economic literacy training that helps them to clean up their credit, establish a budget and savings schedule, and manage their money over the long term.

Ø      Where are they being implemented?

There are a variety of state and local IDA programs currently being implemented in the U.S., with new programs developing at a startling rate. Numerous states have passed IDA legislation, and several other states have introduced, or plan to introduce, IDA legislation. There are over 400 community-based IDAs programs estimated to be currently operational or in the planning stages. Multi-million dollar national IDA legislation passed the House and Senate, in October 1998, to create the Assets For Independence IDA Program (AFI), making asset building possible for thousands of citizens.

Ø      What are the Program Goals?

a)      Increased Savings. Savings have eroded for many American families faced with declining wages and increased costs, especially in low-income communities. IDAs help low-income individuals/families increase their savings for investment-related activities.

b)      Long-Term Thinking and Planning. When accumulating assets, people begin to look beyond monthly consumption cycles, and start thinking about how to set long-term goals. One of the assumptions behind IDAs is that people's long-term expectations will blossom in terms of education, business opportunities/careers, and homeownership. Motivation and increased awareness of opportunities is a crucial factor in enabling people to develop. This can lead to increased self-esteem and positive attitudes.

c)     Increased Economic Literacy. Setting long-term goals leads people to increase their economic literacy, meaning they develop greater knowledge of economic issues and how to save and invest. Likewise, as people increase their economic literacy, they see more choices and options for their future. IDA programs incorporate training and technical assistance that lead to increased understanding of the basics of finance and investment.