Educational Status and Savings Performance in Individual Development Accounts

Abstract

This study examines the relationship between education and savings performance in Individual Development Accounts (IDAs), a matched savings program for the poor. Based on economic and institutional theories of savings, we further investigate whether the relationship between education and savings is mediated by income, intended uses of IDAs, or program factors. The data of this study are from the American Dream Demonstration (N = 2,150), the first national demonstration of IDAs. The results indicate that education was positively related to savings after controlling for program factors and other individual characteristics. Household income and two program factors, monthly savings target and financial education, partially mediated the relationship between education and savings outcomes. These results provide some support for both economic and institutional theories of savings among low-income people. The findings also may help design and implement more effective savings programs for the low-income population and its varying segments.     

The Factors Influencing Saving in a Matched Savings Program: Goals,Knowledge of Payment Instruments,and Other Behavior

This paper explores the saving behavior of the group of low-income households that have participated in the Australian Saver Plus matched savings program. The paper finds that a dynamic panel model represents a good technique for modeling the savings account balances of such participants. We find that, even after controlling for the unobservable individual response to the program incentive, the saving goal and education/financial literacy variables play a positive role in encouraging saving behavior. More importantly however, we find that programs such as Saver Plus are able to modify the saving behavior of individuals to the point where their prior behavior and their inherent attitude towards saving no longer play a significant role.

Emergency Saving and Household Hardship

Households with limited income and wealth often struggle to access the financial liquidity needed to address unexpected expenses or income drops. Emergency savings can act as form of insurance against such economic shocks and reduce the risk of hardships that influence family wellbeing. Prior research has established that threshold amounts of liquid assets can reduce the risk of economic hardship. This study used a measure of self-reported emergency saving behavior to examine whether households who reported saving for emergencies were less likely to experience subsequent economic hardships in a longitudinal sample of households in disadvantaged neighborhoods from the Annie E. Casey Foundation’s Making Connections project. Results across a range of regression models suggest that households who saved for emergencies experienced slightly less overall hardship and were less likely to report several specific hardships, such as food insecurity and having a phone disconnected, three years later. This study supports the idea that small, unrestricted savings may play a protective role for low-income households.     

Program Knowledge and Racial Disparities in Savings Outcomes in a Child Development Account Experiment

This study investigated whether participants’ program knowledge was associated with savings outcomes in Child Development Accounts and whether differences in program knowledge explained racial and ethnic disparities in savings outcomes. We used data collected from White, Black, American Indian, and Hispanic treatment participants in the SEED for Oklahoma Kids (SEED OK) experiment (N?=?1126). Analysis results indicated that knowledge of SEED OK program features was low, especially among members of minority groups. Logit and Tobit regressions showed that program knowledge was positively related to the likelihood of holding a SEED OK account and to individual savings amounts. Gaps in program knowledge were associated with racial disparities in savings outcomes. If Whites and minorities had the same levels of program knowledge, gaps in savings outcomes would have significantly narrowed. The findings call for the development of policy designs and communication tools to enhance knowledge of program features among households with Child Development Accounts, especially racial- and ethnic-minority households.     

The Impacts of Individual Development Accounts,Assets, and Debt on Future Orientation and Psychological Depression

Individual development accounts (IDAs) have been adopted in communities across the country as a way of helping lower-income individuals accrue financial assets. These programs match the savings of program participants if they invest them in the purchase of a home, the creation or expansion of a business, or additional education. Beyond the financial benefits of holding assets, scholars have argued that they should also result in psychological benefits such as enhanced future orientations and decreased depression. This study tests this argument with data from a randomized controlled experiment involving 1,103 applicants to an IDA program. The findings show that assignment to the IDA program was not associated with either future orientation or depression 10 years later. The value of assets held at that time, however, was found to be negatively associated with depression. In addition, self-reported financial stress was found to be negatively associated with future orientation and positively associated with depression.     

Perceived facilitators and barriers to saving among low-income youth

Asset-based social welfare programs focus on helping low- to moderate-income citizens to accumulate wealth in the form of homeownership, savings, small businesses, and higher education. Individual development accounts, savings accounts in which account holders’ deposits are matched, are a vehicle often used in these programs. In a national demonstration of individual development accounts for children (children's savings accounts), low-income youth were interviewed to learn what helped them to save and what made it difficult to save. We describe the young people's perceptions of these factors, and conclude with implications for policy and program design.     

Financial management in long-term low-income households: comparing perspectives of professionals and families in Portugal

Long-term low-income households face economic hardship, together with a lack of opportunities, which restrict their social participation. There is a widely held belief among professionals that these households poorly manage their finances. This exploratory study aims to gain a deeper understanding of these households' difficulties and strategies of family financial management in Portugal, taking into account the perspectives of both members of the households and professionals. Comparing viewpoints is relevant in order to identify how they might be informing interactions and interventions. A qualitative approach based on semi-structured interviews was used; the sample comprised 10 household members and 10 professionals. The main findings suggest that professionals believe these households demonstrate insufficient management strategies, while household members report struggling to manage insufficient resources. These distinctive views seem to facilitate interaction patterns characterized by mutual distrust, which should be taken into consideration when designing interventions, particularly concerning financial management.     

Developing Financial Management Training in Low-Income Communities

Abstract

As welfare policy contractions and declines in real wages have placed severe financial pressures on low-income families, programs to improve financial management practices and to help the poor accumulate assets have grown. This article examines the need for such programs and the implications associated with implementing two prominent training strategies-one that focuses solely on financial management training and another that combines such training with savings incentives.

Based on data from a large financial management training program, we find that knowledge deficits about basic financial issues are substantial, and that the type of financial training program offered has important implications with respect to the subgroups of low-income people likely to be served within a community. We discuss program issues critical to the implementation of such programs in low-income communities, with a focus upon more carefully attending to their participant empowerment and community development potential.     

When the Kids Live at Home: Coresidence,Parental Assets,and Economic Insecurity

This study uses National Longitudinal Survey of Youth 1979 cohort data from 1994 through 2012 (N = 16,108 person‐years, 4,671 individuals) to investigate how coresidence with adult children influences asset levels among parents. It applies hybrid mixed effects regression models that partition between‐ and within‐person variation to estimate parental savings and financial assets over time and across different households. The results suggest that coresidence with adult children led to decreases in parental assets and savings. In the years in which their children lived at home, parents held 24% less in financial assets and 23% less in savings when compared with the years when adult children were not present. By expanding previous research that shows a relationship between increasing economic insecurity, limited wealth, and the rise in coresidence among young adults, this study also offers broader implications for the interconnectivity of financial hardship across generations.     

Government Subsidies and Household Debt Burden After the Great Recession

During the recent Great Recession, US households, especially those with low incomes, faced severe financial distress. Households experiencing economic hardship may turn to receiving government assistance to alleviate the hardship or distress. Receiving government assistance may improve a household’s financial situation as it could be decreasing its reliance on debt or even improving a household’s ability to repay their current debt. We investigated how households’ financial debt obligations were affected by receiving government assistance, as has not been previously analyzed. Given the focus of this research, we included households under 185 % of poverty threshold released by the 2012 US Census Bureau. Results from the 2010 and 2013 Survey of Consumer Finances indicate that government assistance was positively related to the odds of meeting debt-to-income ratio guidelines, implying that government assistance plays an important role in financial security of low-income households. This study provides important insights for researchers and policymakers in the areas of poverty and household finance.     

“There Was No Money Left to Save”: Financial Literacy and the Lives of Low-Income People

Despite the popularity of financial literacy programs intended to benefit low-income families, little research explores how families experience and interpret their own participation in these programs. In-depth interviews with participants in one such program revealed participants’ complex analyses of financial literacy and their own poverty. Their analyses simultaneously affirm and challenge hegemonic ideologies and neoliberal practices and, as such, provide an opportunity for social workers to respond in ways that address not only the immediate financial needs of low-income families but also the structures and ideologies that contribute to those needs.     

Financial Strain and Participation in the Supplemental Nutrition Assistance Program

Participation in the Supplemental Nutrition Assistance Program (SNAP) has increased over the past decade. Although poverty and sudden financial shock faced by households via unanticipated adverse events, such as sudden loss of income, are among major contributors, the findings of our study suggest that having an adequate stock of savings and financial assets might reduce the probability of household SNAP participation. Using data from the Panel Study of Income Dynamics, we tested whether a household’s emergency savings, asset poverty, and debt burden could predict SNAP participation separately from the effects of income and program participation. Results demonstrate that a household’s lack of emergency savings and asset inadequacy increased the probability of its SNAP participation. Implications for financial practitioners and policy makers are discussed.     

Asset Building in Rural Communities: The Experience of Individual Development Accounts*

Abstract This study examines the unique experiences of low‐income rural participants in an asset building program‐the Individual Development Account. Using data from the American Dream Demonstration, this study addresses three main questions: (1) What are the individual characteristics associated with saving outcomes among rural IDA participants? (2) What are the program characteristics associated with savings among rural participants? (3) What are the policy implications for supporting asset building in rural areas? To answer these questions we conduct an Ordinary Least Squares regression analysis. The results suggest that low‐income rural participants have the ability and willingness to save toward the accumulation of assets in IDAs. Looking at individual characteristics, home ownership appears to be an important predictor of savings. In addition, this study suggests that program characteristics (financial education, peer group meetings, match rate, direct deposit, and monthly saving target), not merely individual characteristics, are important in explaining saving performance for this group.     

Child care subsidies and care arrangements of low-income parents

While enrollment into early education programs has increased significantly in the past two decades, many low-income children still do not attend these programs due to lack of funding and access. This study uses data from the 2005 National Household Education Survey to examine the effects of child care subsidies on the enrollment of low-income children in early childhood education programs. Multinomial regression results show that families that receive child care subsidies are more likely to place their child in center-based preschool programs. The analyses also show that subsidy receipt increases the probability of using center care for low-income households. These findings indicate that policies aimed at increasing funding and availability of early education for low-income families can help close the gap in enrollment.     

Promoting Bank Accounts to Low-Income Households: Implications for Social Work Practice

In the wake of the recent economic challenges, it is clear that social workers must be educated about the financial opportunities for low-income households. Encouraging low-income households to have a bank account at an insured depository institution, or become banked, is increasingly emphasized in policy and practice. Becoming banked offers the opportunity to avoid high-cost alternative financial services. Social workers can facilitate relationships between low-income households and the mainstream financial services industry to help families advance their long-term financial interest. Understanding the structure of all types of banks and credit unions is imperative. Implications for social work practice are explored.     

Family-Centered,Community-Based Asset Building: A Strategic Use of Individual Development Accounts

This research examines individual development account (IDA) programs as part of a broader community development strategy for low-income/low-wealth communities, particularly communities of color. Through a review of multiple literatures and detailed case studies, we explore the potential of explicitly creating a community-based, family-centered development account program as a step toward a comprehensive community asset building approach in low-income urban neighborhoods. From the perspective of IDA practitioners, such an approach provides program participants with local support networks and access to additional services. From the perspective of grassroots community organizers, such an approach provides tangible benefits to low-income residents of their neighborhoods. The likelihood of success may depend on the availability of local resources to build areas of strength and reduce vulnerabilities, but there are examples where a family-centered, community-based asset building approach seems to thrive.     

How parents decide to participate and save in their children's asset-building accounts: Implications for practice, policy, and theory

Asset-based social welfare programs focus on helping low to moderate income citizens accumulate wealth in the form of home ownership, savings, small businesses, and higher education. Individual development accounts, savings accounts in which account holders' deposits are matched, are a vehicle often used in these programs. In a national demonstration of children's savings accounts (individual development accounts for children) parents participated in focus groups to discuss how they decided to enroll in this asset-building program, how they decided to open accounts for their children, and how they saved in these accounts. Findings from this study have implications for assetbuilding policy and practice, and institutional theories of saving.     

Housing hardship and energy insecurity among native-born and immigrant low-income families with children in the United States

The costs for rent and utilities account for the largest share of living expenses, yet these two critical dimensions of material hardship have seldom been examined concurrently in population-based studies. This paper employs multivariate statistical analysis using American Community Survey data to demonstrate the relative risk ratio of low-income renter-occupied households with children experiencing ‘rent burden', ‘energy insecurity', or a ‘double burden’ as opposed to no burden. Findings suggest that low-income households are more likely to experience these economic hardships in general but that specific groups are disproportionately burdened in different ways. For instance, whereas immigrants are more likely to experience rental burden, they are less likely to experience energy insecurity and are also spared from the double burden. In contrast, native-born African Americans are more likely than all other groups to experience the double burden. These results may be driven by the housing stock available to certain groups due to racial residential segregation, decisions regarding the quality of housing low-income householders are able to afford, as well as home-country values, such as modest living and energy conservation practices, among immigrant families. This paper also points to important policy gaps in safety net benefits related to housing and energy targeting low-income households.     

Age differences in IDA savings outcomes: findings from the American Dream Demonstration

This study aims to develop a greater understanding of age differences in savings outcomes within Individual Development Accounts (IDAs). Participant data from the American Dream Demonstration (ADD) are examined for age differences in accumulated net deposits, average monthly net deposits, and deposit frequency. ADDprogram data are examined for savings match rates, monthly savings targets, direct deposit, and hours of financial education offered. Results indicate that, on average, older IDA participants have better savings outcomes than younger participants. Findings from this study suggest that impoverished middleaged and older adults can save if provided an opportunity and incentives. However, success will depend on the characteristics of the programs.     

Financial Risk Attitude and Behavior: Do Planners Help Increase Consistency?

This study is the first to evaluate the effect of sources of information on households’ consistency between their risk attitude when making savings and investment decisions and risk behavior displayed when they do save and invest. As the responsibility is being shifted to individuals to save for their own financial future, it is important that individuals and households save and invest in a manner that is consistent with their financial risk tolerance. Financial planners were found to provide significant value to households on the consistency of their financial risk attitude and behavior. The implications of this work are far-reaching in the financial planning arena.