|Family Development Accounts
and Individual Development Accounts
Millions of low-income working families struggle to build assets.
For the million of working Americans who struggle just to pay rent and monthly bills, home ownership and college education may
seem entirely out of reach. One in five adult Americans and one in three adult African Americans have zero net worth. For every dollar
in assets in a white male-headed household, a female-headed household has 40 cents and a minority household has just six cents. In
2005, Americans spent more than they earned—the lowest savings rate since 1933.
America’s financial incentive system does little to support low-income working people.
In 2003, federal asset policies cost $335 billion. Analysis of the largest spending categories shows that over a third of the benefits go
to the wealthiest one percent of Americans—those who typically earn over $1 million a year. In contrast, less than five percent of the
benefits go to the bottom 60 percent of taxpayers. At the same time the government encourages middle- and upper-income families
to save, it requires the poor to deplete their assets in order to qualify for public assistance programs, such as Medicaid or food
stamps. Just as federal policy reinforces asset inequality, so does state policy. California, for example, devotes $10 billion each year
to subsidize asset-building, 80 percent of which benefits families that make over $100,000 per year. Individual Development Accounts
can make asset-building policy more equitable.
Individual Development Accounts (IDAs) enable low-income individuals and families to save, build assets and enter the financial
mainstream. IDAs encourage working poor families who are trying to buy their first home, pay for college education or job training, or
start their own business to make monthly deposits to savings accounts. Account holders’ deposits are matched by a combination of
public and private dollars, with matches typically ranging from one to three dollars for each dollar saved. Account holders also
receive financial education and counseling. IDA programs typically have broad eligibility limits and allow families with incomes of up
to 80 percent of the community median to participate. Many programs also reserve at least one-third of participation slots for
households with incomes at 50 percent or less of the community median.
IDA programs are relatively new, yet participating families are already achieving financial goals.
A study of pilot IDA programs found that 2,378 low-income families saved more than $838,000 and earned more than $1.6 million in
matching funds. These figures are especially significant given that the average monthly contribution from IDA account holders is $40.
Evidence shows that the poorest families save almost the same dollar amount as other families, making their savings rates
proportionately higher. Within 200 existing IDA programs, at least $168 million has been invested in IDA asset purchases. That figure
includes $14.6 million in personal savings, $22.5 million in matching funds, and $130.6 million in loans leveraged. On average, IDAs
yield a five-fold return to the community. Every public dollar invested in IDAs generates $5—measured in new businesses and jobs,
increased earnings, new and improved homes, higher tax receipts, reduced welfare expenditures, and increased educational
America has a long history of helping to finance home ownership, education and personal savings.
For generations, government programs have encouraged asset building for moderate-income families. The Homestead Act is an
early example, and today, millions of Americans are able to deduct mortgage payments from their taxes. The GI Bill doubled the
number of college-educated Americans. Individual Retirement Accounts and 401(k) pension programs promote retirement security.
However, low-income families can rarely utilize these asset-building programs. IDAs give low-income working families the help they
need to build assets and put them on the road to economic self-reliance.
States have a record of promoting asset accumulation. States have enacted policies to help households build wealth. This includes
programs that promote home ownership (e.g. low-interest loans, down payment assistance, homestead exemptions), the growth and
development of small businesses (e.g. technical assistance, low-interest loans) and higher education (e.g. scholarships, student
loans). IDAs make sense as one part of a portfolio of asset-building tools.
The IDA concept is proven to work in the states. The federal government, 34 states and the District of Columbia have passed IDA
legislation. Twenty-five states (AZ, AR, CA, CO, CT, HI, ID, IN, IA, LA, ME, MD, MI, MN, MO, NJ, NM, NC, OK, OR, PA, TN, TX, VT, VA) and the
District of Columbia currently operate state-supported programs. New Mexico launched its IDA program in 2006. Four states (FL, KY,
RI, VT) have passed legislation but the program remains underdeveloped or on hold, and five states (GA, IL, KS, OH, SC) passed
legislation that has since expired or was not reauthorized. At present, an estimated 10,000 low-income individuals in 400
communities are building assets through IDAs.