Individual Development Accounts Introduction Community Action Partnership of North Dakota www.capnd.org

Community Action Agencies CAPND encompasses 7 agencies (plus one satellite agency) that serve all 53 counties in ND.

IDA History and Theory Individual Development Accounts (IDA’s) have existed across the United States since 1998 Founded by Michael Sherraden, wrote “Assets and the Poor” People are trapped in a cycle of consumption of assistance programs Need long-term solutions to poverty rather than maintenance efforts Spearheaded the American Dream Demonstration Showed people with low incomes can and do save In 1992, Dr. Michael Sherraden wrote a book titled “Assets and the Poor” highlighting the struggle that people living in poverty experience, being trapped in a cycle of consumption and dependence within the current welfare system, a cycle common even for non-welfare individuals. The current system is focused on income rather than assets even though assets have been shown to connect people to the economy, positively change the way people think, raise their economic expectations, and to allow them to shape their future. Sherraden acknowledges that asset acquisition for low-income people and families is difficult without assistance. In response, he proposed the notion of IDAs as a way for low-income people to accumulate a lasting asset as a means to remedy the problem. In an effort to further explore the effectiveness and impact of IDAs, Dr. Sherraden spearheaded the American Dream Demonstration in 1997. This was a national five-year program in which 2,300 individuals opened an IDA at 13 different organizations. The demonstration ultimately concluded that low-income people can and will save.

History of IDAs Assets for Independence Act of 1998 Had bi-partisan support Established Federal support of IDAs Defined program guidelines 40 states have passed IDA legislation (including ND!) 548 AFI IDA initiatives nationwide at end of FY2009 More than ½ of AFI projects are administered by CAAs, human service organizations, and community development corporations Match rates and match funds vary from $160-$4,500; average is $1,631 The Assets for Independence Act of 1998 was therefore passed, providing federal support to the Individual Development Account program. North Dakota was included in the 40 states that passed IDA legislation to receive state funding. The findings from the American Dream Demonstration supported North Dakota’s move to initiate our very own IDA program, starting with just 3 of our agencies. The Collaborative then expanded in 2004 to include the remaining CAAs.

Overview of North Dakota IDA Program

IDA Overview Savings accounts matched 2:1 can be used towards the purchase of one of three lasting assets: College First Home Small Business These three assets; college, first home, and small business, are federally mandated. We are interested in expanding this to include asset purchases such as student loans and vehicle purchases, but that is still in the works.

4:1 Match for first-time home buyers $5,000 for first home purchase! $4,000 Match Funds $1,000 Participant Funds The 2:1 match provided for IDAs comes from equal parts participant funds to federal and state funds.

8:1 Match for college students and small business owners $4,500 for tuition, books, or small business costs! $4,000 Match Funds $500 Participant Funds The 2:1 match provided for IDAs comes from equal parts participant funds to federal and state funds.

Who Qualifies for an IDA? North Dakota Resident Employed Meet Income Guidelines (200%) Net worth less than $10,000 Complete Financial Literacy trainings Must be 18 years old, or 17 with parental consent In order to qualify for an IDA… participants must be able to provide a North Dakota state-issued ID, they must be able to provide two months worth of paystubs, be at or below 200% of the federal income guidelines, have a net worth of less than $10,000 (excluding primary residence and one vehicle), be 18 years of age or older, and be willing to participate in general financial literacy and asset-specific trainings. Total of 10 hours of financial literacy required.

For each additional household member add Income Guidelines Poverty Income Guidelines 2016 Number in Household 200% of Poverty 200% Hourly Wage 1 $24,311 $11.69 2 $32,480 $15.62 3 $40,840 $19.63 4 $49,200 $23.65 5 $57,560 $27.67 6 $65,920 $31.69 7 $74,280 $35.71 8 $82,640 $39.73 For each additional household member add $8,320 $4.00 The income guidelines listed here are for 2017. It is also important to keep in mind that the majority of our participants are actually well below these guidelines. As you may be aware, in order to receive TANF an individual is already within these income requirements. *Note: If a participant is claimed on a person’s taxes, the household income of the family claiming the person must be used

Application Process START SAVING! Meet with IDA case manager Submit all required materials Complete Application Credit report does not disqualify someone from the program. It simply provides a base point for us to start with and if necessary, we can work on raising that credit throughout their savings period. *Required materials include: Completed Application Income Verification Copy of State-Issued ID Credit Report

Once a person is enrolled…. Open a custodial account at Bremer Bank Immediately begin making monthly deposits from earned income Complete 10 hours of financial literacy training Work with an IDA Case Manager throughout the duration of their time in the program Are eligible for match dollars after a minimum of six months of savings and completed trainings Two IDA accounts are allowed per household: Meaning two family members can participate at one time, or one household member can participate twice. They can save for the same asset.

IDA Savings Requirements Monthly deposits from earned income Two-year program Six months of regular savings AND completion of trainings before any withdrawals can be made

Financial Literacy Training Four Cornerstones Four Directions Budgeting to Create Savings Debt Reduction and Asset Building Consumer Protection and Financial Institutions Building a Good Credit Rating Thrifty Living to Build Your Savings Investing to Grow Your Savings Protecting to Secure your Savings Building a Future with your Savings Some of the topics that are discussed in the financial literacy trainings are listed below. Our main focus is on the four cornerstones of financial literacy; budgeting, debt reduction and asset building, building good credit, and consumer protection. Depending on where the participant is at and what sort of things they have stated they want to work on, we can expand to other trainings.

Asset-Specific Training 8 hours offered, with the potential for more if interested Offered by community partners General Topics Covered: Affordability of homeownership Free Application for Federal Student Aid (FAFSA) Career and education exploration Developing a business plan Determining marketing strategies Asset-specific training depends on which asset the participant plans to save for. If they are saving to buy their first home, we focus on homeownership finances and affordability. If they are saving for their small business, we focus more on business strategies and working to develop a solid business plan for when they are ready to take out their match funds.

Asset Purchase Process Allowable after completion of trainings and at least 6 months of regular savings Participant notifies IDA Case Manager to initiate process Participant savings in IDA are matched 4:1 for first-time home buyers or 8:1 for college students and small business owners Check is issued directly to the vendor Under no circumstances does the participant have access to the match funds Multiple withdrawals allowed, maximum of 3 Assets must be purchased in North Dakota

IDA Participants in ND The average age is 20-27 The average income was $14,112.88 Most common asset saved for is education 90% indicated they had more control over household finances after completing the program 94% learned new financial management skills 81% said they were more likely to use bank services and products Taking a look at our IDA participants to date, we see that the majority of them are around 20-27 years of age, living at 125% of poverty, with over half saving for post-secondary education.

Results: What we learned from the survey and the interviews In 2013, we contracted with Dr. Andrew Quinn of the University of North Dakota’s Social Work Department to conduct a return on investment study on the North Dakota IDA program. This study was aimed at understanding stakeholder’s views of the IDA, as well as what the program has done for our participants and the community. IDA RETURN ON INVESTMENT STUDY

Clients

IDA Program 2002-2016 North Dakota Graduates Savers Total Home 62 15 77 Education 109 18 127 Small Business 36 4 40 207 37 244 Since the IDA program started in 2002, we have seen a total of 207 individuals graduate.

Asset Goal

Education Asset N=38

Current Enrollment Status 18 of the 38 IDA holders are currently in college 19 of 20 IDA holders graduated While the majority of IDA holders (33, 87%) said they would have gone to school without IDA support, 5 IDA holders (13%) said they WOULD NOT HAVE All colleges in North Dakota were represented including Tribal Colleges

How the IDA Helped: Paying for College

How has the IDA Helped: Changes in Employment Status Since Attending College

How the IDA Helped: The Benefits of Attending College Sense of Accomplishment Education/More Knowledge Personal Growth Career Ability to Plan for the Future Feeling of Self Worth Increased Wages Skills The Dream Job I Always Wanted Improved Chances of Finding Employment

The Homeowner n=23

Home Ownership Property Taxes spread from $42 to $2,800 with the mode being about $1,500

How has Life Changed Since Purchasing Home 13 out of the 23 stated that their life has improved since purchasing a house

Small Business Ownership/Improvement n=6

Why the IDA? All but 1 IDA holder still owned the business that was started/improved on with IDA funds The one person has not started the business at the time of survey

Type of Business Day Spa Remodeling Business Event Planning/Decorating Photography Chiropractor

What was done with the Extra Revenue Generated

How the IDA helped: Small Business

Small Business-The IDA Holder I would not have been able to purchase the tools that I did, had not this program been available. I have used these tools to do many activities, which range from my small business, personal use, and helping others. It gave me the opportunity to bring in new services to the area which in return helped grow my business.

Overall Changes attributed to IDA N=82

Since Participating in the IDA Program: Financial Situation

Since Participating in the IDA Program: What has happened? Behavior Managing Money Better 44 (54%) Spending Habits Improved 36 (44%) Saving Habits Improved Confidence in Managing Finances and Planning for Financial Future Improved 38 (46%) Increased Knowledge about Budgeting and Financial Planning 37 (45%) Better Understanding of how Credit and Credit Cards 31 (38%) Better Understanding of MY Ability to Save on a Limited Outcome 30 (37%) Confidence Interacting with Financial Services and Organizations Paid Off Debt 28 (34%)

Public Assistance 23 IDA Holders were on Public Assistance prior to IDA 11 out of 23 were on Public Assistance at the time of the survey (Spring 2014)

Improvements Behavior No Prior to Yes Since IDA Pay Bills on Time 30 +8 Pay Rent/Mortgage on Time 28 +2 Pay for Medicine and Health Care Needs 44 +12 Make Regular Deposits into Savings Accounts 49 +21 Reduce my Overall Household Debt 61 +29 Keep an Emergency Fund 58 +26 Know my Credit Score 53 +27 Make Deposit into Child College Savings 79 +11 Make Deposit into an IRA or Tax Sheltered Annuity +23 Use a Budget to Monitor Your Spending 51

Improvements Continued Behavior Yes Prior No Since the IDA Make Deposit into College Savings for Self 74 +11 Use a Pawn Broker 3 -3/0 Claim the Earned Income Tax Credit 53 +9 Used Rapid Tax Refund/ Tax Refund Anticipation Loan 4 -3

Power of the IDA Program: The clients in their own words The IDA program has impacted me and my family in a positive way. I have been able to learn how to save money by watching my spending habits, and by noticing that it is possible to put even a small amount of money aside. It was a positive experience so help me get through graduate school so that I can better my living situation and obtain a career that I always wanted to help support my family.

Power of the IDA Program: The clients in their own words It helped us save when we didn't think we could. It gave us the feeling that we could do better and be home owners. I got used to putting money away each month, and it's a habit I've kept up to this day. I now have a savings account that I use for extraordinary circumstances (like a car repair) where I would have used a credit card previously. It helped me buy my first home for my daughter and I to live in. I never would have been able to do that without the IDA program.

Frequently Asked Questions I’m currently in High School, can I participate? Yes, but you have to be at least a Junior and have parental consent. You must also be able to make deposits from earned income. Even though I qualify now, what happens if my income increases? - Once you have been proven eligible and accepted into the program, eligibility is “locked in.” Participants need only be income-eligible at time of enrollment and acceptance.

Frequently Asked Questions Do I have to currently be employed to qualify for an IDA? Yes, federal regulations clearly state that deposits into an IDA must come from earned income. Where are savings into the IDA deposited? - Accounts are held at Bremer Bank all over North Dakota. Accounts do not incur any service fees and do accrue interest.

Frequently Asked Questions I attend a two-year college, can I participate? Absolutely! The IDA program can be utilized at any accredited post-secondary institution in North Dakota towards an Associate, Bachelor, Master, or Post-Doctorate degree. The IDA program sounds too good to be true. What is the catch? Is it a loan? It’s not too good to be true! The program is an excellent opportunity to accumulate a lasting asset. There really is no catch and nothing has to be paid back. The purpose of the program is to teach people how to save and invest their money rather than borrow and spend.

Program Recap Potential participants must income-qualify and be able to make deposits from earned income IDA is opened upon acceptance at Bremer Bank and monthly deposits begin immediately Participants work with IDA Case Manager to complete required trainings Upon completion of trainings and demonstration of 6 months consecutive savings, participants are eligible to receive a match to their savings towards the purchase of their approved asset (4:1 for home purchase, 8:1 for college and small business) July 12, 2013

Save and Invest Instead of Borrow and Spend! Motto of IDA Program Save and Invest Instead of Borrow and Spend!

Who do I call with questions? Martha Moe Program Coordinator 701-232-2452 WEBSITE: www.capnd.org EMAIL: ida@capnd.org