Released Oct. 29, 2007

COLUMBUS, Ohio -- A savings program designed for the working poor can have a significant impact on the lives of participants, according to a new Ohio State University Extension study.

Cäzilia Loibl, a family financial management specialist with OSU Extension, surveyed past participants of Individual Development Account (IDA) programs offered by 18 agencies affiliated with the Ohio CDC Association. The association, a statewide organization of the state's Community Development Corporations, funded the study.

By participating in an IDA program, low-income individuals and families can save money toward buying a home, starting a small business or paying educational expenses. Participants who complete the program and meet all of its requirements are rewarded with a dollar-for-dollar match of the money they save toward their goal.

IDAs are funded primarily through the U.S. Department of Health and Human Services' Assets for Independence Program. Ohio is among the top five states in the nation for receiving federal funding for IDAs, Loibl said. Earlier this month, Ohio CDC received a new grant from HHS for IDAs for $500,000. In the past two years, Ohio CDC has helped bring $1.5 million in federal funds into Ohio.

"It's such a good program -- people should participate if they're eligible," Loibl said. "It can really help people start building wealth." But as soon as participants achieve their savings goal, they no longer have official contact with the sponsoring agency, so the long-term impacts of the program have never been examined. That's what Loibl, who also is an assistant professor of consumer sciences in the College of Education and Human Ecology, wanted to study -- particularly if participating in the IDA program helped individuals start on a path of long-term savings.

For the study, Loibl mailed surveys to 465 people who had participated in an IDA program since 1999. Of the surveys mailed, nearly 90 were returned as undeliverable. A total of 164 surveys, or 43 percent of the successfully delivered surveys, were completed and returned.

Most of the survey respondents (126, or 77 percent) completed, or graduated from, their IDA program, Loibl said. IDA participants who don't complete the program don't receive any of the matching funds, so there's a strong incentive to stay with the program. But, Loibl added, she suspects that participants who didn't respond to the survey or who couldn't be reached in the first place were more likely to have dropped out of the program before achieving their goal.

"The program can be cumbersome," she said. "There's a formal contract when you enroll, and you have to agree to how much you're going put into your savings each month. There are many hours of financial education classes you need to take -- it's time-intensive. You really do earn the matching funds."

Comparing IDA program graduates and those who dropped out before receiving their match, Loibl found that graduates accumulate significantly higher savings even long after they left the program. Savings increased if former IDA program participants had the opportunity to open a retirement account at work, Loibl said.

When asked how they felt about the future and their ability to attain goals, program graduates reported significantly stronger positive tendencies than non-graduates, Loibl said. These findings are the first to document the positive impact of IDA program over the long term. The study shows clearly that the IDA program teaches people habits and skills on how to save and build wealth.

In addition, Loibl found that minorities and those who are not employed full time were less likely to accumulate savings after they left the IDA program.

Most of the survey respondents (110, or 67 percent), wanted to purchase a home with their IDA account. Of those, 83 graduated from the IDA program and all but one of them still owns the home they purchased, Loibl said.

A total of 24 of the respondents wanted to use their IDA account to pay for higher education expenses. All but one of them completed the IDA program. Of the other 23, nine received degrees; 12 are still enrolled; and two left their educational program without a degree.

Finally, 22 of the respondents participated in the IDA program to save money for a small business. Of them, 18 graduated from the IDA program, and most (14, or 78 percent) still owned their business at the time of the survey.

Loibl is continuing her study of IDA participants. Currently, she is working with David Kraybill, professor of agricultural, environmental, and development economics and researcher with the Ohio Agricultural Research and Development Center, and Beth Red Bird, director of special projects at the Ohio CDC Association, surveying 500 current IDA program participants to determine what they perceive as barriers to participating in IDA programs. The study is funded by Ohio State's Center for Urban and Regional Analysis. "We want to find out what makes it so hard to stay in the IDA program, and why don't more people who are eligible participate?" Loibl said.

In addition, Loibl and Red Bird received a Coca-Cola Critical Difference for Women grant through Ohio State's Department of Women's Studies to find and interview women who bought a home by participating in an IDA program, but lost it through foreclosure. "I want to find out what the savings program might have done to help the women prevent foreclosure," Loibl said. "I think many of the participants could benefit from follow-up finance classes after they graduate from the program."

In the meantime, based on her current findings, Loibl does have some recommendations for IDA programs:

• Provide extra support to minorities and people who don't work full time, who are less likely to accumulate savings after they leave the IDA program.

• Teach participants the importance of opening a retirement or other long-term investment account. It may be helpful if IDA programs provide information about employer-sponsored retirement plans and low-cost investment accounts.

• Emphasize the importance of considering future consequences. Respondents who believed in delaying immediate gratification in order to have a more comfortable future tended to have higher household savings.

• Teach skills to cope with financial strain. Of respondents who successfully completed the IDA program, those who had strong feelings of financial strain were less successful at saving money. Programs that offer training to cope with financial concerns and stress may help participants cross that barrier.

• Encourage formal education. IDA participants who had higher educational levels were more likely to complete the IDA program. Offering information about financial aid and other assistance programs to attend college may be beneficial for IDA participants.

The survey results are available online at http://ohiocdc.org/surveyreport.htm. For more information on the survey, contact Loibl at (614) 292-4226 loibl.3@osu.edu. For more information on IDA programs offered in Ohio or possibly to sign up for the program, contact Beth Red Bird at the Ohio CDC Association, which serves as an umbrella organization for IDA programs in Ohio, at bredbird@ohiocdc.org or (614) 461-6392 ext. 205.

-30-

http://www.ag.ohio-state.edu/~news/story.php?id=4357

Contacts: Cäezilia Loibl, (614) 292-4226, loibl.3@osu.edu

Martha Filipic, (614) 292-9833, filipic.3@cfaes.osu.edu