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About Individual
Development Accounts
Assets and Disparity
Assets represent a deepening fault line of disparity in the United States. Between 1983 and 1998, the average wealth of the poorest 40% of American households fell by 76%. However during the same period the wealthiest 10% of households were able to secure a hold on 90% of the nation’s financial assets and 75% of its real estate. This trend has been exacerbated by government asset building programs that have largely left the poor un-helped such as IRA tax code and tax deductible mortgage interest. An asset base is indispensable in empowering economically poor households to cope with the income shocks that are increasingly prevalent in today’s labor market and traditionally characteristic of low-income earners. Without a sufficient store of wealth the poor will be unable to invest in business activities that yield a higher level of future income, save for retirement, or leave an inheritance. The danger that the financially poor will not only be excluded from economic growth but experience further decline is both real and terrifying.
Individual Development Accounts
Individual Development Accounts (IDAs) are simple tools that help the economically poor build an asset base. Unlike other asset building programs, IDAs directly target the economically poor in a way that is specifically designed to enable them to succeed. This is accomplished when the savings of an individual is matched at a predetermined ratio by a church or organization. These funds are then used to purchase a productive asset of the individual’s choosing such as business capital, an education, or a home. The accomplishment of an asset purchase is complimented by financial literacy training and counseling that allow the non-monetary dynamics of poverty to be engaged. Their ability to achieve lasting impact, their programmatic simplicity, and their relatively low cost make IDAs an attractive poverty alleviation tool.
Article on IDAs in FDIC Quarterly »
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