The Individual Development Account (IDA) is a tool to help poor people build economic assets. It can be used to help low-income families buy a home or start a business. Here’s how it works:
1. A basic orientation is provided at a community meeting or a workshop in a local church. At the end of this short meeting, participants have opportunity to ask questions and are given an application to complete.
2. A savings account is set up with a financial partner (credit union, bank, etc.) for each participant. The participant signs a commitment to save a certain amount of money toward a specific goal and the donor organization matches this as dollars are deposited, usually on a two-for-one basis.
3. Each participant has a private meeting with a financial counselor who helps him/her develop a specific savings plan; how much out of each paycheck, etc.
For example, let’s say that an individual can get a second job delivering newspapers as an independent contractor if they have a car. The plan for the IDA is to save $1,000 to purchase a car. A third of this amount ($333) will come from a savings plan of $10 a week for 33 weeks and two-thirds from the donors. In about ten months this person will have the money to purchase a car and get that second job with its additional income.
The goal is to help poor people obtain assets that give them independence and financial security, not just current incomes. The method has been used successfully in developing nations around the world; although it remains to be seen how effective it can be in an industrial economy like that of the U.S. where there is a much greater disparity between the incomes of the working poor and the affluent class to which the costs of doing business are pegged.
There are more than 250 IDA programs currently operating in the U.S. according to the Council for Enterprise Development (CFED). You can find a program serving your community on their website, or by phoning the CFED at (202) 408-9788.