Evidence for asset building
Increasing homeownership is a core asset building strategy because research shows that owning a home can create positive economic and social capital for families and individuals.
Individual Development Accounts (IDAs) are a common approach to help lower income families become homeowners. IDAs encourage savings toward a downpayment through matched savings accounts. While IDA programs are widely used, the only long-term study of their impact showed that they were ineffective in increasing homeownership for low-income families.
Homeownership counseling is another strategy to increase homeownership. There is some evidence in favor of programs that provide comprehensive advice for homebuyers, but so far there have been no controlled studies to provide definitive results.
In addition to homeownership counseling, there is a growing body of research that supports financial education more generally.
For low-income adults, financial education could provide greater financial security. The FDIC recently conducted a long-term study to test the viability of their financial education program, Money Save. The results were encouraging: participants were more likely to open deposit accounts, save money, use a budget, and have increased confidence in managing their finances. But, the study had limitations because no control group was assessed.
Financial education can also be a valuable tool for youth from low-income families. In the “I Can Save” program, elementary students were tested to see the effectiveness of matched savings and financial education. The “I Can Save” study found that students receiving financial education and matched savings accounts scored higher on a financial fitness score than students in a control group. While this evaluation delivered positive findings, the sample size was small. Additional research is needed to validate these results.
Fostering savings is another asset building strategy. Studies show savings provide financial security for low-income individuals. Savings also allow people to build wealth by investing in education or small businesses.
IDAs are a popular method to help low-income households build savings. Families participating in the large American Dream Demonstration study increased their savings as a result of the matched savings accounts. Another short-term study measured the impact of Learn$ave IDAs in Canada. The results showed that matched savings accounts can help low-income participants increase educational enrollment and business start-up creation. Unfortunately, both of these evaluations only looked at short-term impacts. The long-term benefits of IDAs on income and employment are still unknown.
The Child Development Account (CDA) is another strategy to promote saving. CDAs are savings accounts for children with the purpose of building assets over time from a young age. A recent study on the effects of savings on college attainment found that low- to moderate-income youth with savings set-aside for school were two and half times more likely to be financially on track to go to college than low- to moderate-income young adults without savings.
Another CDA evaluation is the Saving for Education Entrepreneurship and Downpayment Initiative (SEED). SEED research suggests that CDAs are successful in developing assets for low-income children and causing overall improvements in their lives. However, both of these assessments lack a control group and an evaluation of the long-term effect of the program.
Entrepreneurship is another promising asset building approach. Research demonstrates self-employment increases earnings for low-income individuals, particularly for young minority men.
Given the positive attributes of entrepreneurship, there has been a lot of research on programs to increase entrepreneurship. For instance, one study found that participants who attended training and developed a business plan, opened a business bank account, and obtained finances were almost 30 percent more likely to have surviving businesses as compared with people in a control group.
New VariationsAs the asset building field grows, new variations of the strategy are emerging. One example is a program called the Family Independence Initiative (FII). This asset building approach focuses on strengthening social relations among low-income families. Money is distributed based on family progress (such as improving credit scores, raising children’s grades, etc.) and attaining monthly feedback from the families within the program. The FII has reportedly helped low-income families participating in their program become more self-sufficient. For instance, within two years, 86 families participating in Oakland saw their income rise by 20 percent on average. They also reported lower debt levels, improved children’s grades, and increased homeownership and business startups. The FII is working to scale the program to replicate these impressive results and validate them with more rigorous evaluation.
The asset building framework relies on a number of tactics to reach many different populations. As innovators experiment with this approach, it is critical to develop a better understanding of what works and for whom. This is essential information for communities working to help low-income families succeed in a challenging economy.