The Long-Term Effects of Individual Development Accounts on Wealth and Retirement Savings: Evidence from a Longitudinal Randomized Experiment

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by Michal Grinstein-Weiss, University of North Carolina at Chapel Hill

Determining how to help people create a secure economic future is among the most challenging of public policy issues. Traditionally, U.S. anti-poverty policies have used income-based strategies; however, policy makers are increasingly interested in innovative strategies that offer sustainable avenues for increasing social and economic development, such as strategies for reducing poverty by building savings and assets. One asset-based strategy, the Individual Development Account (IDA), provides low-income families with financial education and access to saving accounts that offer matched payments if balances are used for asset-building purposes such as home purchase, business start-up, or retirement savings. IDAs are intended to complement traditional poverty programs by promoting long-term financial stability and opportunity. Most important for low-income families, IDAs create an entryway into the financial mainstream. Although many IDA programs are in operation, only limited analyses of the short-term impacts are available, and no analysis of the longer-term effects of IDAs exists. The proposed study will assess the 10-year impact of IDAs among 1,103 individuals who participated in a randomized IDA experiment from 1998 to 2003 in Tulsa, Oklahoma. Specifically, this study will analyze a fourth wave of data collected in 2008-2009, using rigorous statistical methods to determine the long-term effects of IDA program participation on wealth and retirement savings.

The findings of this study will provide policy makers, practitioners, and researchers with the first evidence of the long-term impacts and effectiveness of IDA programs. Because the study is based on a randomized experiment, the results should provide a noncontroversial base for furthering the discussion of IDAs and related asset- development programs, as well as informing current and future policy decisions.

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