Savings and Asset Accumulation in IDAs (ADD Report 2001)

Long-term improvement in well-being requires asset accumulation. While saving is not easy for anyone, it is more difficult for the poor because they have few resources relative to subsistence requirements, because they lack access to some public-policy mechanisms that subsidize saving, and because scarce resources and restricted access may push saving out of their world view.

Individual Development Accounts (IDAs) are a new policy proposal designed to address these constraints and to improve access to savings institutions for the poor. Withdrawals of deposits by the poor in IDAs are matched if used for home ownership, post-secondary education, or microenterprise. Participants also receive financial education and support from IDA staff. Do IDAs work? Data from the American Dream Demonstration (ADD) suggests that the poor can save and accumulate assets in IDAs:

• Average monthly net deposits per participant were US $25.42;
• The average participant saved 67 percent of the monthly savings target;
• The average participant made a deposit in 7 of 12 months;
• With an average match rate of 2:1, participants accumulated about US $900 per year in IDAs.