Individual Development Accounts IDAs Andrea Olson North Dakota Community Action Partnership

Community Action Agencies Non-profit agencies throughout the United States including North Dakota Encourage self-sufficiency for low-income individuals and families through programs, services, and community building 1,000 agencies operating nationally -North Dakota has seven CAAs -Serve all 53 counties across state Assist 11 million individuals per year - North Dakota CAAs served 20,979 individuals in 2009

Programs and Services Asset Development Case Management Head Start Emergency Services - rental assistance - utility assistance Housing Nutrition Seniors Weatherization Sportsmen Against Hunger

ND Community Action Partnership Established 1976 Enhance capacity and program service delivery Technical assistance Poverty training Research Public relations Organizational effectiveness

Community Action Agencies in North Dakota Southeastern North Dakota Community Action - Fargo Community Action Region VI - Jamestown Red River Valley Community Action – Grand Forks Dakota Prairie Community Action – Devils Lake Community Action Opportunities - Minot Community Action Partnership Regions I and VIII – Dickinson and Williston Community Action Program Region VII - Bismarck

IDA Overview Matched savings accounts for low to moderate-income individuals Utilized towards the purchase of a lasting asset Eligible assets: - First home - College - Small business capitalization

IDA History and Theory Michael Sherraden, “Assets and the Poor” -People are trapped in a cycle of consumption and dependence in current public assistance system -Need long-term solutions to poverty rather than maintenance efforts American Dream Demonstration -National five-year program (1997) -Found that low-income people could save and accumulate assets -Average savings of $19.06/mo + lump sum deposit = $700 annually -When matched 2:1 lays a foundation for asset accumulation -Help people get ahead by focusing on the future and setting long-term goals to become self-sufficient

IDAs Across the U.S. Assets for Independence Act 1998 (AFI) - Federal support of IDAs - Protects IDA from being used when applying for other services (TANF, Pell Grant) 500+ IDA initiatives nationwide Over 44,000 participants Saved over $36.8 million Many states have passed IDA legislation

IDAs in North Dakota History -Initiated in 2002 by SENDCAA, RRVCA, and Dickinson -Expanded to encompass remaining regions partnership with South Dakota CAAs Statewide program across North Dakota North Dakota Community Action Partnership -Administers the program across the state

IDAs and Community Action Agencies Marie J. Hawe, “Community Action Agencies and IDAs: A Natural Partnership” Long-standing relationships and experience with target population Operate many programs that can be linked with IDAs Strong relationships with several community partners

Eligible Assets to Purchase with IDA First home -Down payment, closing costs Small business start-up or expansion -Initial inventory, equipment, marketing College -Tuition, books, fees, and certain required supplies *All assets must be purchased in ND

Participant Eligibility Guidelines Current ND household income of less than 200% of poverty -Department of Human Services publish federal poverty guidelines annually Guidelines: Household of 1 = $21,660, Household of 2 = $29,140 -Add $7,480 for each household member Net worth does not exceed $10,000 - Car and primary residence are excluded Documented employment history North Dakota resident Willingness to participate in necessary trainings Ability to save for a minimum of six months -Demonstrating consecutive monthly savings

Application and Enrollment Process Complete application and submit to appropriate Community Action Agency -Application is available online or can be requested -Income verification (household) -Credit score/report Acceptance into IDA program is contingent on : -Meeting income and credit requirements -Availability of slots Open custodial IDA account at bank -Regular monthly deposits -Only emergency withdrawals are allowed

Ongoing Case Management with IDA Coordinator Research asset to be purchased Budget creation and monthly review Financial planning Career exploration Referrals for necessary trainings Work plans (detailed)

IDA Savings Requirements Deposits must come from earned income Must be made regularly each month Minimum monthly deposit of $25 is expected $500 per year may come from EITC Savings must be for at least 6 months Graduation goal is a two-year period

North Dakota IDA Match Breakdown Maximum matched savings amount is $2,000 Match rate is 2:1 -If full $2,000 is saved an additional $4,000 will be earned Interest is earned but not matched Participant can earn $6,000 by end of savings period: -$2,000 Personal savings -$2,000 Federal AFI match -$2,000 Non-federal match

Financial Literacy Education 10 hours required -Offered by Community Action Agency or various community partners -Classroom setting, one-on-one trainings offered General topics covered: -Bank services -Borrowing, credit -Checking -Savings Accounts -Budgeting -Loans -Homeownership

Benefit of Making More than the Minimum Payment Original Balance APRMonthly Payments Total # of Monthly Payments Total Years to Pay Off Total of Payments $250018%Minimum Payment (MP) 12310$3915 $250018%MP + $25504$3258 $250018%MP + $50333$2839

Predatory Lending Traps SOURCE: Aspen Institute Community Strategies Group Check Cashing Buy Here/Pay Here Car Dealerships Payday Loans Refund Anticipation Loans Rent-to Own Title Loans Serve those without bank accounts Sell bad cars to desperate customers Loans secured by post-dated check Short-term loans by tax preparation chains Rent goods at high interest rates Fastest growing and least regulated Charge 3-7% of check’s face value Charge % more than what car is worth Typical cost is % APR 235% APR to get refunds 5-7 days earlier $200 TV would typically cost $700 Short-term loans secured by car title Gateway to other predatory loans High interest (25% APR and up) $500 for two weeks typically costs $625 Cost poor families $900 million in 2006 Interest rates range from % APR Typically charge 300% APR

Asset Specific Education Eight hours required -Offered by numerous community partners General asset-related topics covered: -Affordability of home -Purchase process and maintenance after purchase -Free Application for Federal Student Aid (FAFSA) -Career and education exploration -Developing business plan -Determining marketing strategies

Asset Purchase Process Allowable after completion of at least six month consecutive savings period and required trainings Participant notifies IDA Coordinator to initiate process -Necessary paperwork is completed Participant savings in the IDA are matched 2:1 -Not required to save full $2,000 but it is strongly encouraged Check for asset purchase is issued directly to vendor -No match money is deposited into IDA or made payable to participant under any circumstances Multiple withdrawals allowed (max. 3) Asset must be purchased in ND

ND IDA Legislation Biennium Bi-partisan and bi-cameral support 62 new slots created across the state Signed into law by Gov. John Hoeven April 29, 2009 Anticipated return on investment: -$375,000 invested in lasting assets -Over 100 households will complete financial and asset training -Participants will have saved over $100,000 for assets -Increase in self-sufficiency and a decrease second-tier financial services

Region 8 Homes – 0 Education – 10 Small Business - 1 Region 7 Homes – 2 Education – 5 Small Business - 1 Region 6 Homes – 1 Education – 3 Small Business - 0 Region 5 Homes – 2 Education – 11 Small Business - 3 Region 4 Homes – 10 Education – 10 Small Business - 0 Region 3 Homes – 2 Education – 4 Small Business - 1 Region 2 Homes – 0 Education – 10 Small Business - 0 Region 1 Homes – 1 Education – 3 Small Business - 0 IDA Current Savers in Each Region * As of 7/12/10

Region 8 Homes – 0 Education – 7 Small Business - 0 Region 7 Homes – 0 Education – 2 Small Business - 0 Region 6 Homes – 0 Education – 2 Small Business - 0 Region 5 Homes – 6 Education – 5 Small Business - 2 Region 4 Homes – 6 Education – 1 Small Business - 2 Region 3 Homes – 0 Education – 0 Small Business - 1 Region 2 Homes – 4 Education – 0 Small Business - 0 Region 1 Homes – 0 Education – 0 Small Business - 0 IDA Graduates in Each Region * As of 7/12/10

Region 8 Homes – 0 Education – 17 Small Business - 1 Region 7 Homes – 1 Education – 5 Small Business - 1 Region 6 Homes – 1 Education – 4 Small Business - 0 Region 5 Homes – 8 Education – 17 Small Business - 4 Region 4 Homes – 14 Education – 9 Small Business - 2 Region 3 Homes – 3 Education – 3 Small Business - 2 Region 2 Homes – 4 Education – 10 Small Business - 0 Region 1 Homes – 0 Education – 3 Small Business - 0 IDA Graduates in Each Region by 2011 * As of 7/15/10

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Amanda purchased her first home with an IDA! September 2009

Britney – Dickinson UND Senior, Business Administration “ I had my own personal savings, but not enough to cover four years of college. The money from my IDA went toward my senior year’s tuition and really helped me in setting goals with money. It was encouraging for me to put as much into the account as possible because I knew it would be matched times two. I looked forward to getting my statements each quarter to see my progress. I am very grateful that I qualified for this program and I recommend it to others to utilize to achieve their educational goals.”

Michelle – Fargo Small Business Owner “Through the IDA program I have saved over $1,600 and it has been matched 2:1 therefore cumulatively I have received $4,800. With these dollars I have purchased photography computer software, studio props, paid a portion of studio rent, and rented a Santa for holiday picture packages. Without the IDA I would have not had the resources to make these purchases and expand my business. I never thought my dream would become a reality! I am so proud of my business, my studio is beautiful, high ceilings, perfect set-up, low rent!”

Linda – Grand Forks Small Business Owner “My plan was to purchase a home the summer of 2007 and have all the paper work done by I participated in all the required classes thinking that my goal was homeownership. In the spring of 2007, I had major medical issues to handle and so I was faced with changing my goal. I proceeded to take all the new required classes and met with a business consultant to develop my business plan. When I was able to realize the goal and recognize the great benefit this program has to offer, I pushed to save more money. My total savings with the matching funds was over $ ! My studio is more conducive to learning and allows more avenues of developing the various aspects of music to allow students to expand their knowledge and skills in music.”

Effects of IDAs and Asset Ownership Stability and Personal Empowerment - Strengthen Families Decrease of generational poverty Increased civic involvement Outstanding economic impact - Property taxes -College education = better jobs -Job creation -Human capital investment

Effects of IDAs and Asset Ownership Promote economic independence -Bridge to the middle class Teach slow and realistic savings Combine private and public support Build financial knowledge and skills Deliver measurable outcomes

ND IDA Program Recap Potential participants must income-qualify and be able to make deposits from earned income Upon acceptance an IDA is opened at the participating financial institution and monthly deposits begin immediately Participants work with an IDA Coordinator in their region to complete financial literacy and asset-specific trainings in addition to case management Upon completion of trainings and demonstration of consecutive savings, the participant is eligible to receive a 2:1 match to their savings to purchase their approved asset

Frequently Asked Questions Can I change my mind about what asset I’m going to purchase? -Yes, you would have to notify your IDA Coordinator and it would still have to be one of the three approved assets; a first home, small business, or college tuition. What happens if I drop out of the program? -You would get all of the money you had saved returned to you but you would not be eligible to receive any match funds.

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. 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 various financial institutions across North Dakota. We work primarily with Bremer Bank. Accounts do not incur any service fees and do accrue interest.

Frequently Asked Questions I attend a two-year college, can I participate in the IDA program? -Absolutely! The IDA program can be utilized at any accredited post- secondary institution in North Dakota towards an Associate’s Degree, a Bachelor’s Degree, Master’s Degree, 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 go be true! The IDA 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.

Additional Asset Building Resources Federal Reserve Credit Card Calculator NDSU Extension Services ND Tuition Rates Personal Finance Calculators

Who do I call with questions? Andrea Olson Asset Development Program Coordinator ND Community Action Partnership