Saving for post-secondary education in individual development accounts

Journal of Sociology and Social Welfare, Sept, 2005 by Min Zhan, Mark Schreiner

Purpose of the Study

Can low-income people save for post-secondary education in IDAs? How do their savings outcomes differ from those of participants who are saving for other purposes such as home ownership or microenterprise? Given the current development of IDA programs, these are important questions. This study addresses these questions through an analysis of data from the American Dream Demonstration (ADD), a national IDA project. As far as we know, this is the first quantitative research on how low-income people save for post-secondary education in a structured, matched savings program.

Data and Methods

ADD Programs

ADD was a national demonstration of IDAs for low-income people. The 14 IDA programs in ADD were run from 1997-2001 by 13 not-for-profit host organizations (one host had two programs) which include community development organizations, social-service agencies, credit unions, and housing organizations. A consortium of private foundations provided funding. All programs in ADD provided matches for home purchase, microenterprises, and post-secondary education, and some programs also provided matches for job training, home repair, or retirement savings. Match rates ranged from 1:1 to 7:1, with the most common rate being 2:1. Eight programs had annual deposit limits, ranging from $180 to $3,000 per year; and six programs had lifetime deposit limits, ranging from $1,800 to $ 8,000 per participant.

The savings data are unusually accurate, as they come directly from the monthly passbook savings-account records of the depository institutions.

Participants

ADD programs used a variety ways to market IDAs, and ADD participation was voluntary. Enrollment in ADD began July 1, 1997 and ended by December 31, 1999. As of December 31, 2001 (the date at which deposits were ended), ADD had 2,353 participants. A participant is defined as an enrollee with at least one account statement, whether or not he or she later dropped out (Schreiner, Clancy & Sherraden, 2002). Important characteristics of ADD participants are presented in Table 1. Most participants were female (80 percent), and nearly half were African-American (47 percent). Almost half were never-married (49 percent). About 58 percent had attended some college or had some type of college degree, and 82 percent were employed (full-time or part-time) at enrollment. Compared with the general low-income population (Sherraden et al., 2000), ADD participants were more educated and more likely to be employed. On the other hand, compared with the general low-income population, a higher proportion of ADD participants were women, African-American, or never-married. These comparisons suggest that ADD participants tended to be somewhat disadvantaged members of the "working poor".

Measurements

The dependent variable in this study, Average Monthly Net Deposits (AMND), is defined as deposits plus interest minus unmatched withdrawals, divided by the number of months eligible to participate. Withdrawals in ADD may be matched or unmatched, depending on whether they are used to purchase matchable assets, such as home, postsecondary education, or microenterprises. AMND measures net deposits but also controls for the length of time that a participant has had the opportunity to save. All else constant, greater AMND implies greater saving and asset accumulation in IDAs.