American Development Accounts

Because most benefits for poor Americans focus on income, wealth is rarely considered. While inequality due to income has widened, wealth inequality has become a chasm, impeding families from accruing assets necessary for prosperity. American Development Accounts are based on Individual Development Accounts, but with a default opt-in proviso for young workers. Increasing wealth for new entrants to the labor force is essential for the prosperity of their families and their communities.

Saving from poverty: A critical review of Individual Development Accounts

The much-heralded anti-poverty strategy of asset-building has been adopted by many countries across the world. Asset-building programmes are designed to help low-income families achieve long-term financial stability through savings and asset accumulation. This article offers a comprehensive and critical review of the current state of theory and research on asset-building programmes, with an emphasis on Individual Development Accounts (IDAs) in the United States. Studies of IDAs have involved quantitative evaluations of the programme, focusing on three key topics: the programme’s effects on clients’ savings behaviour, its effects on clients’ outlook on life, and its long-term impact. On the basis of a careful review of these findings, it is argued that the claim that IDA programmes and asset-building in general have the potential to reduce poverty is overrated and premature. The article builds on theoretical insights regarding the nature of neoliberalism to make sense of the picture portrayed in the research literature.

The Effectiveness of Financial Literacy Instruction: The Role of Individual Development Accounts Participation and the Intensity of Instruction

We examine improvements in financial knowledge for 8th-grade participants in our financial fitness camp, part of our multifaceted financial literacy program. Eighty-three students enrolled in the camp, and 59 had individual development accounts (IDA). We address several issues raised in the literature by focusing on low-income, predominantly Hispanic students, varying the treatment intensity, comparing outcomes for students in our IDA program with those who are not, addressing the potential endogeneity of IDA participation, and testing for selection bias. Financial knowledge increased by approximately 12 percentage points from camp participation. Standardized Language Arts scores, rather than treatment intensity or IDA participation, most affected gains in financial knowledge. There was no evidence of selection bias. Parents with high “present bias” were less likely to enroll their students in the camp, implying that integrating financial literacy education in the regular school curriculum will better serve students in such families.

Detecting Effects on Net Worth Is Nettlesome Work: Fragility in a Randomized Experiment with Individual Development Accounts

This article analyzes data from a randomized experiment on how matched-savings accounts affect the net worth of low-income people. We find that estimates are sensitive to probable data errors and to the handling of missing values. In contrast to the findings of Mills et al. 2008, some of the estimated impacts on net worth are large, both economically and statistically. We argue that the jury is still out on the impacts of Individual Development Accounts (IDA) on net worth, and we highlight that data quality and modeling assumptions are crucial even (or especially) for randomized experiments.

Long-Term Impacts of Individual Development Accounts on Homeownership among Baseline Renters: Follow-Up Evidence from a Randomized Experiment

We examine the long-term effects of a 1998–2003 randomized experiment in Tulsa, Oklahoma with Individual Development Accounts that offered low-income households 2:1 matching funds for housing down payments. Prior work shows that, among households who rented in 1998, homeownership rates increased more through 2003 in the treatment group than for controls. We show that control group renters caught up rapidly with the treatment group after the experiment ended. As of 2009, the program had an economically small and statistically insignificant effect on homeownership rates, the number of years respondents owned homes, home equity, and foreclosure activity among baseline renters. (JEL D14, H75, R21, R31)