Individual Development Accounts are tools used to accelerate the savings of low-income individuals. Typically they are used for the initial capitalization for a small business, a down payment on a home and post-secondary/vocational education.
Through the tool of matched deposits, clients contribute a contracted amount into a depository institution (i.e.: bank) for a specified length of time. At the termination of the contracted period or when the agreed-to maximum match amount has been reached, the monies are withdrawn using a two-party check. These monies can then be used exclusively for the purpose of moving from shelter to housing in the community. Further, financial literacy classes are a requisite component of the program. Case managers can also make referrals to credit counseling and other pertinent resources. The expectation is that these IDAs are used to help those individuals currently residing in shelters to exit more expeditiously to permanent housing.
IDAs are also politically appealing. This is not a simple hand-out. Participants have to contribute a portion of their money to the account. The match is then provided contingent upon their contribution. This is in line with the “help those who help themselves” ethic. An IDA is also one of the few tools that transfers wealth to low-income people. As banks and depository institutions are an integral part of this program, this is an opportunity for the financial industry to do good for those with less.
The spirit of Franklin Roosevelt’s second inaugural address informs this project. As he was inaugurated for his second term he said, “By using the new materials of social justice we have undertaken to erect on the old foundations a more enduring structure for the better use of future generations.”
IDAs not only help the poor to accumulate assets and thereby enable them to make purchases that increase their potential for further ascendance in the economy, but also inculcate beneficial skills and habits. These benefits from IDAs have been known since their beginnings in this country.
Michael Sherraden, arguably the father of the American IDA industry, said in testimony before the President’s Commission on Social Security in 2001, “IDA participants are willing to make consumption sacrifices in order to save….Effects of saving and asset accumulation appear to be multiple and positive in areas such as work behavior, home ownership, confidence and control, and plans for education.”
There is, at present, no IDA program operating that helps homeless people leave shelters. If IDAs can be used for the sorts of purchases as listed above, why could they not be used to help those in shelters attain independent housing?
The attempt to wed IDAs to shelters was successfully done in Toronto, Canada. A pilot program was run in Ontario, Canada from 2006 to 2009. If Toronto was able to implement an IDA program for shelter participants, then why should not New York City do likewise? New York would be an excellent place to start such an initiative, considering the great resources here in academia, social science research organizations, media and philanthropy. This concentration of resources bodes well for the popularization and replication of such a program when it is successful. In addition, New York City is the founding member of the Cities for Financial Empowerment Fund, whose mission it is to embrace financial empowerment strategies and replicate successful models that can improve the financial well-being of individuals and families.
In Toronto, Independent Living Accounts were used in shelters. The match rate varied from $1:$2 to $1:$3. Of the sample of 129 participants, 78 percent completed the six-month minimum savings period, and 44 percent met or exceeded the maximum matched amount of $400 per person. Clients deposited a total of $33,139. The total match monies added was $78.937. Thus over a period of 8 months (the maximum time surveyed), a total of $112,076 was accumulated and available for clients. This averages to $1,149.95 per successful participant.
By replicating and modifying the experiences of IDA programs elsewhere, an IDA program can be created in New York City to similarly help move residents from shelters into housing in the community. Not only will it reduce the city’s large shelter population, it will foster financial literacy and sound saving habits among a population that’s been given little other opportunity to learn or develop them.
Now is an opportune time to launch such a program. In Washington, D.C., the Center for Enterprise Development will next month host the Assets Learning Conference, among the roundtable plenaries will be, IDAs in Shelters. This affords an opportunity to announce to the nation (and there are typically participants from all over the word), that New York City is, again taking the lead in assisting the poor in moving away from deprivation and towards the Middle Class.