Saving Patterns and Probability of Success in Individual ...

Saving Patterns and Probability of … 21
1 IDAs or Individual Development Accounts are special savings accounts offered to low-income households. These
accounts allow low income people to save money, in most cases up to 5 years, and earn a match in order to invest in
a first-time home, business, education, or other assets. The match rates vary depending on the design of the program.
In addition, in many cases there are minimum and maximum contribution limits imposed on these accounts. IDA
programs are generally partly supported by federal and state dollars and partly by contributions from foundations
and non-profit organization.
2 While differences of opinion exist among IDA practitioners with regards to what actually changes behavior, two
different aspects of this change need to be pointed out. One can look at “saving” as a process, or at “savings” as the
stock of accumulated financial wealth. Both are important in impacting behavior but through different mechanisms.
While committing to a regular saving plan clearly helps individuals to become fiscally responsible and to manage
money in a more effective way, higher savings usually equip the saver with a higher degree of risk-taking capacity
in a capitalist economy. In other words, if the proportion of the amount saved is considerable relative to one’s
monthly flow of income, this would most likely impact the individual’s decision making pattern.
3 A similar point was first broached by Schreiner et. al. (2001), pp 12, in the following comment: “Although
causality is difficult to determine, some evidence suggests that frequent depositors accumulate more than infrequent
depositors.” This result was also corroborated by Curley and Grinstein-Weiss (2003).
4 In practice, this has become a soft restriction.
5 Before 2005, UWGLA offered a maximum of 2:1 match on all IDA savings. However, in the newest round of
funding due to rapid increases in area home prices, it has raised the match rate in the homeownership IDAs to 3:1
for all program enrollees after June of 2005. This last group of participants has not been included in the data pool
used for the present study, as by 06/30/2005 they had still not established a saving pattern long enough to include in
the study.
6 The number of enrollments in UWGLA’s IDA program has increased rapidly since 2005. As of 12/31/2006, over
1300 accounts had been enrolled in the program.
7 The gender distribution of UWGLA’s IDA participants is in line with the national average reported by CFED. (See
“Assets” Nov.05, pp7).
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