Promoting financial security: Matched savings account programs

This post is adapted from an upcoming issue brief on savings from Oklahoma Assets, a statewide coalition committed to promoting financial security. Click here for other OK Policy blog posts on assets and financial security.

Most Americans recognize the value of savings, yet over time, American savings have declined sharply. Even before the losses incurred during the Great Recession, a large segment of the population in Oklahoma and across the nation had little or no savings with which to weather a setback or move ahead by investing in the future.  According to the 2009-10 Assets and Opportunity Scorecard, nearly one out of every four Oklahoma households (22.7 percent) lacked sufficient financial assets to subsist at the poverty level for three months. Minority households are also disproportionately prone to possess little savings – the asset poverty rate for minority households in Oklahoma exceeds 40 percent and is 2.75 times greater than for White households.

Fortunately, a growing body of research and practice is demonstrating that when barriers are removed and replaced with the right structures, opportunities, and incentives, most people, including those with low and modest incomes, are both willing to save and capable of doing so.  A wide range of new policies, programs, and products are being created to promote savings among traditionally excluded populations.

Among the many promising initiatives to promote savings are Individual Development Accounts, known as IDAs. These are special savings accounts that provide a match for the deposits of low- and moderate-income savers, provided that they participate in financial education and use the savings for targeted asset-building purposes – most commonly post-secondary education, retirement, homeownership or starting a small business.  Studies of a major IDA demonstration project with over 2,500 participants found that an average participant contributed $19 per month to their account and, with matching contributions, accumulated about $700 per year.

In Oklahoma, several successful IDA programs have been operated by non-profit organizations and tribal governments.   The IDA programs for adult and youth operated by the Citizen Potawatomi Nation is one notable example. The Citizen Potawatomis have a long-standing commitment to helping their members become more financially secure and independent. Building on programs that provide loans to native small businesses, small dollar loans to consumers, and financial education, the tribe in 2006 launched an IDA program open to Native Americans adult living in Pottawatomie County and neighboring areas.

The adult IDA program provides a 2:1 match on deposits up to $75 per month over the course of a year. Savings can be used for building and repairing credit, business development, and homeownership.  To be eligible for the match, participants must attend monthly financial education trainings.  In its first three years, 69 participants completed the program, saving an average of $936 and receiving an average of $1,689 in matching funds.

In 2008, the tribe added a second IDA program for youth aged 15 to 21 who are Citizen Potawatomi Nation tribal members living in Pottawatomie and surrounding counties.  The youth IDAs are intended solely to assist with educational expenses. In addition to bi-monthly meetings, youth participants attend cultural training and a week-long financial education camp program to learn about saving and financial matters. Along with the regular 2:1 match on savings, youth participants are eligible for additional matching funds for achieving good grades and other benchmarks. In its first two years, 36 youth have completed the program; they have saved a total of $27,000 and received some $73,000 in matching funds and bonus benchmarks.

According to Cindy Logsdon, Assistant Director of the Citizen Potawatomi Community Development Corporation, the greatest impact of the IDA programs has been to help instill a sense of confidence among the participants. “Most of our participants begin the program feeling embarrassed or insecure about their financial situations,” she said. “Participating in the IDA program gives them confidence that they can tackle their finances, develop a plan, and actually save and invest in their financial future.”

Oklahoma does not currently operate a state IDA program that provides state matching funds for IDA accounts. Twenty-one other states do, generally involving  partnerships between a state agency, non-profit service provider and financial institutions. States use a variety of funding sources – including general funds, TANF and welfare-to-work funds, community development block grants and others – to support IDAs.

IDAs are not the silver bullet for helping low-income families achieve financial security: for example, one of the largest and most heralded IDA programs in the nation, operated by EARN in California, has opened only 3,000 accounts,  and even supporters question the ability to take IDAs to scale given the strong investment they require in one-on-one financial counseling. However, as the Citizen Potawatomi experience shows, they can have a tremendously beneficial impact on participants. As we look for ways to promote financial security for all Oklahomans, support for IDAs should receive serious consideration.