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Asset Accumulation in Low-Resource Households: Evidence from Individual Development Accounts

  • Mark Schreiner

    (Washington University in St. Louis)

  • Michael Sherraden

    (WUSTL)

  • Margaret Clancy

    (WUSTL)

  • Lissa Johnson

    (WUSTL)

  • Jami Curley

    (WUSTL)

  • Min Zahn

    (WUSTL)

  • Sondra Beverly

    (University of Kansas)

  • Michal Grinstein-Weiss

    (WUSTL)

To escape from poverty requires assets, be they human, physical, social, or financial. Individual Development Accounts (IDAs) are designed to help the poor to build assets. Withdrawals from IDAs are matched if used for home purchase, post-secondary education, or self- employment. Participants also receive financial education and support from IDA staff. This paper discusses evidence from the American Dream Demonstration (ADD) on a series of questions. Can the poor save in IDAs? Low-resource people did save and build assets in IDAs in ADD: --Average monthly net deposits per participant were $25.42. --The average participant used two-thirds of match-eligibility. --The average participant made a deposit in 7 of 12 months. --With an average match rate of 2:1, participants accumulated about $900 per year in IDAs. How do IDAs work? Key links between savings and institutional characteristics in ADD were: --Savings increased—up to a point—with more hours of financial education. --Higher match rates were linked with fewer unmatched withdrawals, less risk of exit, but not higher savings. --Higher match caps were associated with better savings outcomes. -- Where do IDA deposits come from? Participants used both new savings and reshuffled assets. Who saves in IDAs? ADD did not necessarily cream only the most-able: --Income was not linked to savings, and the very poor saved a higher rate than the less-poor. --The receipt of public assistance, all else constant, was not associated with savings. --Asian Americans saved about $10 more per month than Hispanics or Caucasians and about $20 more per month than African Americans or Native Americans. What do IDAs cost? So far in ADD, program costs were about $2.70 per dollar deposited. Costs seem to have fallen through time.

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File URL: http://econwpa.repec.org/eps/mic/papers/0108/0108001.pdf
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Paper provided by EconWPA in its series Microeconomics with number 0108001.

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Length: 26 pages
Date of creation: 02 Sep 2001
Date of revision: 27 Dec 2001
Handle: RePEc:wpa:wuwpmi:0108001
Note: Type of Document - Adobe Acrobat 3.0; prepared on Windows 98; to print on Adobe Acrobat 3.0; pages: 26 ; figures: Included in pdf file
Contact details of provider: Web page: http://econwpa.repec.org

References listed on IDEAS
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  1. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," JCPR Working Papers 203, Northwestern University/University of Chicago Joint Center for Poverty Research.
  2. Edward N. Wolff, 1998. "Recent Trends in the Size Distribution of Household Wealth," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 131-150, Summer.
  3. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," NBER Working Papers 5686, National Bureau of Economic Research, Inc.
  4. Papke, Leslie E. & Poterba, James M., 1995. "Survey evidence on employer match rates and employee saving behavior in 401(k) plans," Economics Letters, Elsevier, vol. 49(3), pages 313-317, September.
  5. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 1996. "The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers," Working Papers 96011, Stanford University, Department of Economics.
  6. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Books, American Enterprise Institute, number 53540, 5.
  7. William F. Bassett & Michael J. Fleming & Anthony P. Rodrigues, 1998. "How workers use 401(k) plans: the participation, contribution, and withdrawal decisions," Staff Reports 38, Federal Reserve Bank of New York.
  8. Maital, Shlomo & Maital, Sharone L., 1994. "Is the future what it used to be? A behavioral theory of the decline of saving in the west," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 23(1-2), pages 1-32.
  9. Shlomo Maital, 1986. "Prometheus Rebound: On Welfare-Improving Constraints," Eastern Economic Journal, Eastern Economic Association, vol. 12(3), pages 337-344, Jul-Sep.
  10. B. Douglas Bernheim & John Karl Scholz, 1992. "Private Saving and Public Policy," NBER Working Papers 4215, National Bureau of Economic Research, Inc.
  11. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," NBER Working Papers 5667, National Bureau of Economic Research, Inc.
  12. B. Douglas Bernheim, 1996. "Rethinking Saving Incentives," Working Papers 96009, Stanford University, Department of Economics.
  13. Eric M. Engen & William G. Gale, 2000. "The Effects of 401(k) Plans on Household Wealth: Differences Across Earnings Groups," NBER Working Papers 8032, National Bureau of Economic Research, Inc.
  14. Andrea L. Kusko & James M. Poterba & David W. Wilcox, 1994. "Employee Decisions with Respect to 401(k) Plans: Evidence From Individual-Level Data," NBER Working Papers 4635, National Bureau of Economic Research, Inc.
  15. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
  16. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
  17. Sondra Beverly & Amanda Moore & Mark Schreiner, 2001. "A Framework of Asset-Accumulation Stages and Strategies," Development and Comp Systems 0109004, EconWPA.
  18. Beverly, Sondra G. & Sherraden, Michael, 1999. "Institutional determinants of saving: implications for low-income households and public policy," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 28(4), pages 457-473.
  19. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-92, May.
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