Why IDAs? Because They Work!

NDCAP offers the Individual Development Account (IDA) program statewide to low- and moderate-income individuals and families. Qualified participants are able to save up to $2,000 in their IDA which is matched at a rate of 2:1 allowing them to earn an additional $4,000 at the end of the savings period.  One of three assets can be purchased with the IDA: a first home, post-secondary education, or small business capitalization.  The IDA requires monthly deposits and participants are also required to complete financial literacy and asset-specific trainings. All assets must be purchased in North Dakota and all deposits into the IDA must come from earned income meaning that the participant is employed.

The North Dakota Community Action IDA Collaborative has been in existence for eleven years. Establishing IDAs as an additional CAA program to serve low-income clients came to fruition after much thought and deliberation. Although many states had already established an IDA program, North Dakota had yet to see a program developed but it was felt that the CAAs may be the most appropriate venue to offer such a program.  Moving forward with the creation of an IDA program was an easy consensus to reach; the program had been proven effective through the American Dream Demonstration spearheaded by Dr. Michael Sheradden and research suggested it could easily be implemented.  It was agreed that the IDA program would be in-line with Community Action’s mission to help people and change lives. One of the most appealing aspects of the IDA was the opportunity it provides to teach people how to save and invest their money. Additionally, the required financial literacy and asset-specific trainings teach participants fundamentals including how to obtain and understand their credit score, credit repair, budgeting, and other necessary financial skills.

After an Americorp Vista volunteer conducted extensive research on IDA programs the NDCAP Board of Directors, which is comprised of all seven Executive Directors of the CAAs, decided to establish a pilot IDA program in 2002.  Research found that not only had other states been successful, but that the combination of CAAs and IDA programs reaps significant benefits. The 2004 report, Community Action Agencies and IDAs: A Natural Partnership, by Marie J. Hawe, suggests the partnership is natural because CAAs have vast experience serving and long-standing relationships with the target population.  They have already earned the trust of their clients which is important as people tend to be wary when dealing with anything that pertains to finances.  With CAAs, a level of trust already exists due to the fact that many IDA program participants are already familiar and comfortable with their local CAA.  Community Action Agencies also operate a multitude of services that can be linked with IDA programs.  For instance, the Self-Sufficiency Program administers financial literacy training which can easily overlap with the required financial literacy training for the IDA participants.  Finally, CAAs have numerous relationships in the community which gives them the ability to provide needed services, such as asset specific training for first homes, small business, and post-secondary education, to IDA participants through referrals.

The initial IDA pilot program that began in 2002 was an initiative between three of the CAAs: Community Action Partnership (CAPD) in Dickinson, Southeastern North Dakota Community Action (SENDCAA) in Fargo, and Red River Valley Community Action Agency (RRVCA) in Grand Forks and was funded by AFI. The program was on a small scale and allowed for 16 participants.  Qualified participants were able to save up to $2,000 in their IDA which was matched at a rate of 2:1 allowing them to earn up to an additional $4,000 at the end of the savings period giving them a grand total of $6,000 towards their asset purchase: a first home, post-secondary education, or small business capitalization.

Since its inception in 2002, the program has evolved utilizing funds from AFI and non-federal sources including United Way, the State of North Dakota, the Bush Foundation, and the Wells Fargo Foundation. By 2006, the program encompassed all seven CAAs. To-date the program had a total of 120 graduates: 35 who purchased their first homes, 65 who utilized the IDA for education, and 20 participants capitalizing their small businesses. Additionally, 55 more participants are currently saving in an IDA and will be purchasing their asset over the next few years.

Each CAA has an IDA Case Manager that is responsible for marketing the program, enrolling participants, providing case management including establishing budgets with participants and ensuring completion of their work plans specific to the asset being purchased. They also verfiy that deposits into the IDA are being made on a regular basis and encourage deposits from the Earned Income Tax Credit (EITC).  IDA Case Managers also initiate the withdrawal process for asset purchases and will work with participants if emergency situations present themselves.  For example, the IDA Case Manager will try to secure assistance from other resources within the CAA network for car repairs or rental assistance rather than the participant utilizing their IDA funds. Additionally, IDA Case Managers facilitate ten hours of financial literacy training and eight hours of asset-specific training for participants.

The North Dakota Community Action IDA Collaborative feels strongly that the program’s numerous successes led to the passage of legislation in 2009 which provided an appropriation for IDAs; a first in North Dakota history.  This landmark victory has catapulted the IDA endeavor in the state to a new and exciting level of expansion.

With both federal funding from AFI and non-federal from the state, the North Dakota Community Action IDA Collaborative continues to target families in the region, whose income falls below 200% of the Federal Poverty guidelines, focusing mainly on those at or below 125% of the guidelines.  The families are recruited from programs within the CAAs, partnering agencies, and the general population.

Agencies within the North Dakota Community Action IDA Collaborative have established partnerships to meet the goals of the IDA program.  All partners are committed to the overall asset-building strategy through their support of participant’s needs and providing resources needed to ensure success.  The Collaborative currently partners with numerous organizations across the state to promote family and community outcomes.  Each agency has an established partnership with at least one financial institution and additional agencies that provide financial education, homebuyer classes, educational assistance, or micro-enterprise training. The primary responsibility of partner organizations is to notify agencies of upcoming classes, new services, and providing classes.  In addition, partners refer potential applicants to the IDA program in the appropriate region.  Successful referrals have come from existing CAA programs, local social service agencies, TANF, VITA locations, housing authorities, and colleges and universities.

The program is dedicated to teaching participants how to save and invest rather than borrow and spend.  Participants are not required to borrow or buy; they simply save their own earned money and learn to develop savings habits and meet financial goals.  Not only is financial knowledge greatly increased through financial literacy training, but the new knowledge and skills are immediately utilized through development and maintenance of a monthly budget.    All participants learn the importance of saving for lasting assets. Those who never thought it would be possible are inclined to save for a better future and they feel a greater degree of social connectedness. Combining these aspects allows participants to reach individualized investment goals and gain a stake in their community.

Why IDAs?  Because they work! Learn more at: http://www.capnd.org/ida