IDA Financial Education: Qualitative Impacts

This article reports qualitative impacts of a financial education program for Individual Development Account (IDA) participants. IDAs are matched savings accounts designed to help limited resource individuals save money for goals that enhance long-term financial security such as post-secondary education, home ownership, small business capitalization, and other approved asset uses (Individual Development Accounts, 1998). The study reported here provides evidence that a measure of program success, beyond savings deposits, is providing learners with skills necessary to make sound financial decisions.

An Introduction to IDAs

Conceptualized by Michael Sherraden in the book Assets and the Poor (1991), IDAs are designed to promote saving and asset accumulation by the working poor. Prior the introduction of IDAs, those who received public assistance were penalized for saving because eligibility for benefits was jeopardized. Five equally important components of IDA programs are as follows (Individual Development Accounts, 1998; McKenna & Owen, 1999; McKenna, Owen, & Blansett, 2001):

• A structured, goal-focused savings account started by participants with their earned income, maintained at participating financial institutions, and administered by community-based programs that recruit participants and provide ongoing case management.

• Regular deposits made by participants to a custodial IDA savings account over a specified period of time, generally 1 to 3 years.

• A targeted savings goal designed to enhance participants' long-term financial security.

• A structured and supportive learning environment provided by a series of training classes on financial planning and asset specific (e.g., home ownership) topics.

• Matching funding for savings accounts, at varying rates, by third parties (e.g., businesses).

Information about IDA programs can be found at <http://www.idanetwork.org> and <http://www.cfed.org> (Corporation for Enterprise Development) and <http://gwbweb.wustl.edu/csd/> (George Warren Brown School of Social Work, Washington University).

Previous IDA Program Impacts

One of the most comprehensive IDA impact evaluations is contained in the final report of the American Dream Demonstration (ADD), which was a demonstration of IDAs in 14 programs across the United States (Sherraden, 2000). The ADD ran for 4 years (1997-2001), and research was conducted for 7 years (1997-2003). The Corporation for Enterprise Development (CFED) in Washington, D.C., designed and guided the ADD, and the Center for Social Development at Washington University designed the research (Schreiner, Clancy, & Sherraden, 2002). Findings suggested that the poor can save and accumulate assets.

ADD researchers investigated the impact of the general financial education program required of IDA participants and concluded that some training increases saving, although the effects of additional hours have diminishing returns. Specifically, the effect of general financial education was strong for 1 to 8 hours but got weaker and statistically insignificant for 9 to 16 hours and above (Schreiner, Clancy, & Sherraden, 2002). A previous study ("Center for Social Development," 2001) with ADD data through June 2000 found that each hour up to 12 was linked with increases in average monthly net deposits but that hours after that had little effect.

Shockey and Seiling (2004) studied financial literacy and behavior changes of 253 IDA participants in four states who attended four 2-hour IDA classes and completed an average of 6 to 8 hours of additional work outside of class. They found statistically significant increases in both knowledge and financial behavior change in six areas: goal-setting, tracking spending, spending plan, reducing debt, setting aside money for unplanned spending (e.g., emergencies), and saving.

Purpose and Background

The study reported here investigated qualitative impacts of an IDA financial education program upon New Jersey program participants. Classes were initially held monthly over the course of 7 to 9 months, but, in some cases, they were later combined into fewer, multi-session classes (Striving For Financial Security, 2003). This state is believed to be the only one in the nation that designated financial education providers to deliver a uniform IDA financial education curriculum statewide.

The New Jersey IDA program was available to state residents with one or more dependent children and an annual household gross income of up to 200% of the official poverty level at the time of enrollment (Building Assets, 2002). Participants were required to take 16 hours of general financial education. Lessons built upon each other sequentially and included a combination of structured discussion, informal sharing and participant progress reports, PowerPoint presentations, and a hands-on activity with case study problems centered on the life of a fictional single parent character with financial issues named Maria. Topics of the eight class sessions are listed below.

• Class 1: Banking Basics: Protecting Your Money

• Class 2: Managing Your Money: Making a Saving and Spending Plan

• Class 3: Credit 101: Understanding Credit

• Class 4: Your Relationship With Money: Taking Control and Understanding Taxes

• Class 5: Saving and Investing on a Shoestring

• Class 6: Understanding Insurance: The Basics of Risk Protection

• Class 7: Advanced Credit: Loans, Mortgages, and Credit Repair

• Class 8: Beware: Predatory Lending, Identity Theft, and Financial Frauds

An assistant instructor took written notes during informal sharing sessions and recorded anonymous anecdotal information on participants' behavior changes in their own words. In these discussions, participants described how they applied information learned in IDA classes. These anecdotes provide specific examples of how the class topics were useful and relevant to participants. They also provide insights into the mindset and attitudes of participants, their financial resources and obstacles, and secondary impacts of the IDA program upon participants' family members.

Sample

Characteristics of participants in the first round of financial education classes (N =93) mirror many traits of the sample in the American Dream Demonstration (ADD) evaluation study (Schreiner, Clancy, & Sherraden, 2002). Respondents in both samples were primarily female, between 20 and 49 years of age, single, not college graduates, and had household incomes of $20,000 or less. A major difference, however, is that a majority of the ADD sample was Black, while Whites comprised the majority of the sample for the current study.

Characteristics of respondents are described in Table 1, below.

Table 1.
Demographic Characteristics of IDA Program Participants

Demographic Characteristic	Percentage
Gender
Male	23%
Female	77%
Age
30 and under	27%
31-40	34%
41-50	28%
51-60	10%
Over 60	1%
Ethnicity
White	47%
African-American	33%
Hispanic	12%
Asian	4%
Other/Unknown	4%
Marital Status
Single, no minor children	27%
Single, with minor children	59%
Married, no minor children	1%
Married, with minor children	13%
Highest Educational Level
Some High School or less	9%
High school graduate	25%
Some college/trade/vocational training	48%
Associate degree	9%
Bachelor's degree or higher	9%
Household Annual Gross Income
Less than $10,000	26%
$10,001- $20,000	34%
$21,000- $30,000	26%
$31,000-$40,000	8%
$41,001 or greater	6%

Qualitative Impacts

To enhance the reliability of the study, written transcripts of participant anecdotes were independently reviewed by three project team members to identify common patterns and ideas. Six broad themes emerged as descriptors of the anecdotal data: (a) increased financial awareness of participants, (b) examples of participant empowerment, (c) examples of specific behavior changes, (d) examples of increased personal control, (e) impacts on participants' family, and (f) evidence of financial education classes as a social support mechanism for IDA program participants.

Following are some representative examples of each theme as stated in participants' own words.

Increased Financial Awareness of Participants

• "When I learned about 401(k)s in class, I went to my employer and inquired about these programs. I learned that they have a 100% matching program for the first 3% of money placed in the account. I am in the process of enrolling in this program."

• "I changed my W-4 and got about $80 more each pay in my check. Friends told me I couldn't do that, but after class, I knew I could. It was easier than I thought."

• "Last year I paid a tax preparer $300 to do my taxes. Then I got an instant refund. Didn't know this was a loan."

Examples of Participant Empowerment

• "When I went to buy my car, the salesman gave me a run around about the loan. He would have taken advantage of me, but I used what I learned in the credit class. I even pulled out my laminated credit calculator and he backed off. I went someplace else and got a better deal."

• "I've learned to question why someone needs my Social Security number."

Examples of Specific Behavior Changes

• "To save money, I'm only buying one lottery ticket a week now. I used to spend over $15 a week."

• "The piggy bank that was given to me at one of my IDA classes is almost full! It really encouraged me to begin saving, even if it's a little bit at a time."

• "I took all of the money I received from my income tax refund and paid off my credit cards. Not having that debt hang over my head feels so good."

Examples of Increased Personal Control

• "When those transfer checks came in the mail, I shredded them. I never knew that these were a loan. But now I do and I didn't sign them and I got rid of them before the temptation took over."

• "Last week I totaled up all the money I spend on eating out at lunch and decided not to do it anymore. I figured I can save about $200 a month. I told my co-workers that they'd have to go out without me."

• "I'm practicing saying 'no.' I organized a trip for people at church and several still owe me money for the bus. Next time, I'll help organize it, but I won't do it. I learned the hard way."

Impacts on Participants' Family

• "I opened my first savings account and feel like a new woman. My 10-year-old son went with me and now he knows how to do it. He even wants to open one himself."

• "My kids all have their own piggy banks now. It's great the way they want to put money in them."

• "I'm learning how to say 'no' to my children and my family when they ask for toys, loans, etc."

Financial Education Classes as a Social Support Mechanism

• "I feel very comfortable talking about my financial situation with the educators. I now feel that I am not the only one facing these problems."

• "Through attending these classes, I don't feel so alone. I realize that others are experiencing the same situations and problems that I face. I'm learning from the experience of others what to do and what not to do in order to better my financial position."

• "Maria [the fictional character used in class activities] and I must be twins. I'm always in the same situations that she's in. Guess we're learning together."

Conclusion and Implications

Qualitative data collected for this study provide evidence of knowledge gains and behavior changes by IDA financial education program participants. As Sherraden (2001, p. 2) noted, "It would be incorrect to assume that low-income people, even those far below the poverty line, cannot save and accumulate assets." The study reported here confirms that this statement is true. More important, participants adopted many behaviors that will help them manage money more effectively.

Teaching IDA classes in a facilitative mode with structured discussion helped achieve this outcome because participants' expertise was utilized and classes focused on solutions to real-life problems. When classes were held over the course of 7 to 9 months, participants got to know one another, bond, and feel comfortable sharing their progress and experiences with both the instructor and their peers. Participant comments about IDA classes as a social support suggest that additional optional classes, "class reunions," or e-mail Q & A and newsletters might be welcome.

The sample for the study was small, non-random, and comprised of IDA participants from one northeast state. Therefore, results cannot be widely generalized. Nevertheless, the findings provide rich insights into characteristics of IDA program participants and impacts, beyond dollar savings, of financial education. Readers interested in obtaining a copy of the state IDA curriculum and evaluation materials can contact the author for additional information.

Acknowledgements

The author would like to acknowledge the assistance of Mary Ann Barkus, IDA Program Coordinator, New Jersey Department of Community Affairs, and Carole Glade, President, Consumer Dynamics International, in the development of the IDA financial education program.

References

Building assets through the New Jersey individual development account program. (2002). Trenton, NJ: New Jersey Department of Community affairs.

Center for Social Development (2001). St. Louis, MO: Center for Social Development, Washington University in St. Louis. Retrieved March 29, 2001 from http://gwbweb.wustl.edu/users/csd

Individual development accounts: Strategy for asset accumulation (1998, November). Washington, DC: Office of Thrift Supervision.

McKenna, J., Owen, A., & Blansett, C. (2001). Individual development accounts: The path to a dream. Journal of Extension [On-line], 39(1), Available at: http://www.joe.org/joe/2001february/a4.html

McKenna, J., & Owen, A. J. (1999). Individual development accounts: The path to a dream. In C. Hayhoe & J. E. Morris (Eds.). Proceedings of the Association for Financial Counseling and Planning Education, 180.

Schreiner, M., Clancy, M., & Sherraden, M. (2002, Oct.). Final report: Saving performance in the American dream demonstration. St. Louis, MO: Center for Social Development, Washington University in St. Louis.

Sherraden, M. (2001, Oct. 28). Saving in IDA programs. Invited testimony to the President's Commission on Social Security, Washington, D.C.

Sherraden, M. (2000). From research to policy: Lessons from Individual Development Accounts. Journal of Consumer Affairs, 34(2), 159-181.

Sherraden, M. (1991). Assets and the poor: A new American welfare policy. New York: M.E. Sharpe.

Shockey, S. S., & Seiling, S. B. (2004). Moving into action: Application of the transtheoretical model of behavior change to financial education. Financial Counseling and Planning, 15(1), 41-52.

Striving for financial security: IDA financial education program participant's manual. (2003). New Brunswick, NJ: Rutgers Cooperative Extension.