Financial Education and Savings Outcomes in Individual Development Accounts

Margaret Clancy, Michal Grinstein-Weiss and Mark Schreiner
Additional contact information
Margaret Clancy: Washington University in St. Louis
Michal Grinstein-Weiss: Washington University in St. Louis

HEW from University Library of Munich, Germany

Abstract: Individual Development Accounts (IDAs) are subsidized savings accounts. Unlike other subsidized savings accounts such as Individual Retirement Accounts (IRAs) or 401(k) plans, IDAs are targeted to the poor, provide subsidies through matches rather than through tax breaks, and require participants to attend financial education. Participants accrue matches as they save for purposes that build assets that increase long-term well-being and financial self-sufficiency. Matched uses of withdrawals typically include home purchase, post-secondary education, and microenterprise. The purpose of this study is to examine the relationship between the hours of financial education attended by IDA participants and savings outcomes. The data are from the Downpayments on the American Dream Policy Demonstration (ADD). The goal of financial education is to make people more aware of financial choices and possible consequences. IDA programs require financial education, but there is no systematic/scientific evidence that this requirement is essential. As of June 30, 2000, 81 percent of the 2,378 participants in ADD had attended general financial-education classes. Most participants (65 percent) had one to twelve hours of attendance recorded, 16 percent had 13 hours or more, and 14 percent were recorded as having no hours. Mean attendance was 10.4 hours, with a low of zero and a high of 35. To measure the association between attendance at financial education and savings outcomes, we used a Heckman two-step regression in which the first step predicted exit from the IDA program (and thus a high likelihood of a low opportunity for attendance at financial education). The second step predicted average monthly net deposit (AMND) for those participants who did not exit, controlling for length of participation and a wide range of other factors that might affect AMND. These results broadly suggest that between 0 and 12 hours of financial education have large, positive effects on savings (in the range of one dollar of AMND for each hour of general financial education up to 12 hours). After that point, the effects leveled off. Results for asset-specific education were similar. In short, financial education seems to have had large effects on savings outcomes.

Keywords: education; financial literacy; savings incentives; Individual Development Accounts (search for similar items in EconPapers)
JEL-codes: D91 H43 I2 I3 N3 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2001-09-02, Revised 2001-12-27
New Economics Papers: this item is included in nep-mfd
Note: Type of Document - Adobe Acrobat 3.0; prepared on Windows 98; to print on Adobe Acrobat 3.0; pages: 18 ; figures: Included in pdf file
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/hew/papers/0108/0108001.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwphe:0108001

Access Statistics for this paper

More papers in HEW from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).