Savings and asset building

Initiative Policy Goal

Make Individual Development Accounts (IDAs) available to all youth currently or formerly in foster care ages 14-24, with developmentally appropriate financial literacy training and asset purchases such as vehicles and security deposits on housing.

Issue definition

In federal fiscal year 2008, more than 29,000[1] teenagers "aged out" of foster care. Many young people who leave or "age out" of foster care have not benefited from typical growing-up experiences that teach self-sufficiency skills, nor do they have family and community networks that help them make successful transitions to adulthood. When most young people are discharged from foster care, they are on their own; in most states, this occurs at age 18 or 19. As a result, many have difficulty with tasks like finding housing, finding and keeping a job, taking care of their health, and undertaking educational and training opportunities, and they often end up experiencing financial and legal trouble.

One way to impact the dismal outcomes faced by youth exiting foster care is to help change their life trajectory with opportunities such as the experience of saving money through an individual development account. Savings and assets are key ingredients to success in society. Young people aging out of foster care often do not have the typical developmental experience of learning how to manage money and may leave care without even the basic financial and asset development skills that enable people to achieve economic success.

An individual development account, also known as a matched savings account, can help young people learn financial management, obtain access to the mainstream banking system and save money for assets.  It is important that young people in foster care are afforded similar opportunities as their peers such as having the resources to rent an apartment, purchase a car, and attend college or other post-secondary training.

The Jim Casey Youth Opportunities Initiative designed the Opportunity PassportTM for young people between the ages of 14 and 24 that have been in foster care on or after their 14th birthday. The Opportunity PassportTM includes an IDA program that allows young people to purchase approved assets - education, vehicle, housing, investments, microenterprise and health care - and receive a dollar for dollar match, up to $1,000 per year based on the participant's savings. In addition to the IDA, young people receive financial literacy training, and have a personal bank account. Asset training is also offered to teach young people how to purchase and maintain their assets. Nearly 4000 young people have participated in the Opportunity PassportTM through the support of Jim Casey Youth Opportunities Initiative since its inception in 2001.[2]

Research shows that IDAs create financial stability within families and make communities more stable as well. Ray Boshara of the New America Foundation, an advocate of savings programs for low-income populations, suggests that the IDA found in the Opportunity PassportTM is not just as an individual activity but  also has relevance as a community development and family-strengthening tool, pointing to research that asserts that:

  • Assets lead to positive attitudes and behaviors, and positive attitudes and behaviors lead to assets, which may be a glimpse of a 'virtuous cycle' wherein household development is a reinforcing feedback loop;
  • Low-income, single mothers' assets are positively associated with children's educational attainment;
  • The presence of small wealth at critical times can have 'transformative' effects on the life course;
  • Holding assets at age 23 is associated with later positive outcomes such as better labor market experience, marriages, health and political interest; and
  • The presence of the asset appears to matter more than the monetary value of the asset.[3]

Early trends of self-reported data by participants in the Opportunity PassportTM show some differences in outcomes for asset purchasers as compared to those who have not yet purchased an asset. Those who purchased assets reported being employed, and having safe, stable and affordable housing, and they experience greater rates of improvement over time[4].

State and federal policies should support young people aging out of foster care to ensure their futures are as bright as their peers raised in "intact" families. One way to do this is through comprehensive policy that encourages young people in and aging out of foster care to save money and receive matched dollars in individual development accounts, become financially literate, purchase assets, obtain better life outcomes and begin to live the American dream. To accomplish impact on a national scale IDA programs should be encouraged to utilize multiple state and federal sources for match funds, including from the Chafee Foster Care Independence Act, Temporary Assistance for Needy Families (TANF) and the Assets for Independence Act of 1998 (AFIA).  These sources are already flexible enough to be used to support IDAs for young people in and formerly in foster care with some restrictions. TANF funding must be targeted to TANF-eligible foster youth and could be of particular benefit to young mothers. AFIA funds are restricted to certain types of assets such as post-secondary education and training.

Status

Although there are approximately 1,100 organizations throughout the United States offering individual development accounts to a variety of populations including children and adults, aside from the Opportunity PassportTM, very few programs focus solely on youth aging out of foster care. Many IDAs are funded by AFIA through the Department of Health and Human Services. The Assets for Independence Act expired in 2003 and it is hoped that it will be re-authorized in 2011.

IDA legislation has been passed in 35 states, Washington, D.C., and Puerto Rico although states vary in their level of support for IDAs. In 2009 there were 21 state funded IDA programs.[5] In addition, at least 30 states have included IDAs in their state Temporary Assistance for Needy Families (TANF) plans. [6]  These efforts could be expanded to target young people in and transitioning from foster care.

In 2010 the Foster Youth Financial Security Act (H.R. 6193) was introduced to Congress. The bill is intended to prepare youth who are transitioning to adulthood from foster care to properly manage their finances and provide greater protections of their financial information while they are under the care of the state.  Among other things, the bill would require states to establish and manage IDAs for each foster youth that is at least 14 years old.

It is also worth noting that the ASPIRE Act was re-introduced to Congress in 2010 (S. 3577 and H.R. 4682). If passed the bill will create Lifetime Savings Accounts (LSA) for children at birth and allow for match dollars and incentives that include tax-free earning and financial literacy education. This would provide a universal savings platform for all children that could also be used to provide children that have experienced foster care a similar opportunity to amass savings and to purchase critical assets.

Many national organizations are working to address policy reform in the area of IDAs. They include the Corporation for Enterprise Development, the Aspen Institute, New America Foundation, and the Center for Social Development at Washington University.

Examples from Communities

Iowa

The Youth Policy Institute of Iowa (YPII) used its credibility and history of collaboration to create partnerships and influence the use of local funds to support the Opportunity PassportTM. In Iowa, the Opportunity PassportTM was implemented in partnership with direct service providers that already had contact with young people and delivered supports and services to them.

Youth outcomes are being positively impacted in Iowa though this work. Opportunity PassportTMparticipants in Des Moines continue to save and purchase assets. As of 2008, savings among participants over the past year had increased by 11 percent, purchases of assets had increased by 26 percent, and 32 assets had been purchased by 20 participants. The Des Moines site has retained 58 percent of participants since enrollment began nearly four years ago.[7]

Michigan

In Northern Michigan Bill Schramm, 21, used his savings and matched funding through his Opportunity PassportTM IDA to create a booming disk jockey business. Schramm, who lived in four different foster homes during his three years in care in Traverse City in Northern Michigan says, "It's unbelievable - being an 18-year-old, having nothing and being able to save up that type of money and then getting the match and becoming independent and starting your own business." He went on to say that financial literacy really helped him with the intricacies of money and "all the things you don't learn in foster care because you don't have parents, such as bill paying."

Schramm has made four total IDA matches, starting with his first purchase of a 1985 Toyota Supra. Then, he started saving again and paid off medical bills. He also used his match to buy equipment including a van to transport his equipment for his business.

Schramm is also a full-time student, studying business administration at Northwestern Michigan College. He credits his success to having a good mentor who advises him about his business and his life.

In Detroit, Michigan, Mona Perdue has worked with the Michigan Youth Opportunities Initiative since its inception.  She helped to create two youth advocacy documents, Voice and Voice 2 that gave young people a medium to present their recommendations to Michigan legislators and state administrators. The Voice documents became successful advocacy tools that help keep focused attention on the issues of youth aging out of foster care and the systems that serve them. Perdue went on to become a trainer on strategic sharing, and co-facilitated an all site convening for the Initiative.

Perdue was later employed by Michigan DHS.  She saved her money, and used her IDA for her educational pursuit. Although she had to stop and restart her college educational pursuits over the past few years, she completed her college degree in December 2009. She did this through supportive adult connections, peer educators, and mentors.

Related Resources

Ray Boshara. Individual Development Accounts: Policies to Build Savings and Assets for the Poor. The Brookings Institution. 2005. http://www.brookings.edu/papers/2005/

The Corporation for Enterprise Development

The Corporation for Enterprise Development (CFED) is a national organization working to "address economic opportunities across local, state and federal levels."  The Assets & Opportunity Scorecard is an excellent tool that provides an assessment of all 50 states and the District of Columbia on how well residents are faring and what states can do to help residents build and protect assets. In addition to the Scorecard CFED offers a wide array of knowledge on IDAs and the asset building agenda. www.cfed.org    Assets & Opportunities Scorecard http://scorecard.cfed.org

Jim Casey Youth Opportunities Initiative

The Initiative supports matched savings accounts in communities that are implementing the five core strategies.  Related materials from the Initiative include:

References

[1] http://www.acf.hhs.gov/programs/cb/stats_research/afcars/tar/report16.htm, visited January 29, 2010

[2] Data collected from ten Jim Casey Youth Opportunities Initiative demonstration sites through March 2010

[3] "Policy Approaches for Savings and Asset Building by Low-Income Americans," a presentation to the FDIC Advisory Committee on Economic Inclusion by Ray Boshara

[4] Cross Site Report: Youth Indicator Findings on Opportunity PassportTM Participants, Jim Casey Youth Opportunities Initiative, November 2008.

[5] 2009-2010 Assets and Opportunity Scorecard, Corporation for Enterprise Developmenthttp://scorecard.cfed.org

[6] State IDA Program Support Resource Guide, 2009-2010 Assets and Opportunity Scorecard, Corporation for Enterprise Development, 2009

[7] Cross Site Report: Youth Indicator Findings on Opportunity PassportTM Participants, Jim Casey Youth Opportunities Initiative, November 2008.

JIM CASEY YOUTH OPPORTUNITIES INITIATIVE 222 South Central Avenue, St. Louis MO 63105-3509