Original Source Date: August 1, 2004
Impact Highlights
| Annual ROI | Time Horizon | Confidence |
|---|---|---|
| 10.0% | 5.0 years | 4 - Weak |
| Activities | Outcomes | Indicators |
|---|---|---|
| Community Development / Capacity Building, Housing / Shelter | Opportunity | Bank Accounts, Housing units, Mortgage |
| Geography | Demographics |
|---|---|
| United States | All, Working Age |
Article Details
The American Dream Demonstration (ADD), conducted from 1997 to 2002, was the first large-scale test of Individual Development Accounts (IDAs) in the United States. Spearheaded by the Corporation for Enterprise Development (CFED) with research oversight from the Center for Social Development (CSD) at Washington University in St. Louis, ADD aimed to evaluate whether structured savings programs could assist low-income individuals in accumulating assets and improving their socioeconomic status.
Program Focus
IDAs are matched savings accounts designed to encourage savings for specific purposes such as homeownership, business startup or expansion, post-secondary education, home repair, vehicle purchase, and retirement. Participants’ savings are matched at rates that can exceed 1:1, providing a substantial incentive for low-income individuals to save. Beyond the financial match, IDA programs often include financial education and staff support to foster effective saving habits and financial literacy.
Implementation and Participant Demographics
ADD operated across 13 sites nationwide, enrolling approximately 2,364 low-income participants. The demographic profile of participants revealed significant economic challenges: 46% lived below the poverty line, and 21% had incomes less than half of the poverty threshold. The average annual income was $9,843 for individuals and $16,687 for a family of three, representing 116% of the federal poverty level at the time.
Savings Performance and Asset Accumulation
Over an average participation period of two years, participants saved a total of $1,248,678, averaging $19.07 in net savings per month. When accounting for matching funds, the average participant accumulated approximately $1,543. Withdrawals were utilized for various asset-building purposes:
- Homeownership: 28% of participants used their savings for purchasing homes.
- Business Development: 23% invested in starting or expanding a business.
- Education: 23% allocated funds toward post-secondary education expenses.
- Home Repair: 18% used savings for home repairs.
- Retirement: 7% saved for retirement purposes.
Impact on Social Outcomes
The ADD findings challenged prevailing assumptions about the saving behaviors of low-income individuals. The demonstration showed that, with appropriate incentives and support structures, low-income participants could and did save effectively. The accumulation of assets through IDAs was associated with several positive social outcomes:
Economic Stability: Asset accumulation provided a financial cushion, reducing participants’ vulnerability to economic shocks.
Homeownership: Facilitating home purchases contributed to community stability and personal financial security.
Entrepreneurship: Business investments led to increased self-employment and potential job creation within communities.
Educational Advancement: Funding education enhanced participants’ skills and employability, potentially leading to higher lifetime earnings.
Return on Investment and Time Horizon
While specific quantitative metrics on the return on investment (ROI) for ADD are not detailed in the available sources, the program’s design inherently provided a significant immediate return to participants through matched savings, often at rates exceeding 1:1. This structure effectively doubled participants’ savings, offering a substantial incentive for asset building. The time horizon for realizing the full benefits of participation varied depending on individual goals. For instance, investments in education might yield returns over several years as participants complete their studies and enter higher-paying jobs, whereas homeownership could provide more immediate improvements in living conditions and long-term financial stability.
Policy Implications
The success of ADD influenced policy at both state and federal levels, leading to the adoption of IDA programs aimed at promoting asset building among low-income populations. The demonstration underscored the importance of structured savings programs combined with financial education, suggesting that policy designs focusing on creating opportunities and incentives for savings can effectively empower economically disadvantaged individuals.
In summary, the American Dream Demonstration provided compelling evidence that low-income individuals, when given the appropriate tools and incentives, can successfully save and invest in assets that enhance their economic and social well-being. The program’s outcomes have had a lasting impact on asset-building policies and continue to inform strategies aimed at reducing economic inequality.
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