Interim Report to Congress
Assets for Independence Demonstration Program
Status at the Conclusion of the Third and Fourth Years
Executive Summary |
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| Grantees | |||
| Characteristics of Account Holders | |||
| Project Reserve Accounts | |||
| Individual Deposits | |||
| Individual Withdrawals and Their Uses | |||
| Support Services Offered by Grantees | |||
THE ASSETS FOR INDEPENDENCE (AFI) DEMONSTRATION PROGRAM provides funding for asset-building projects that feature Individual Development Accounts (IDAs). Congress authorized the program in 1998 to gauge the usefulness of IDAs and other related asset-building strategies as tools to improve the social and economic prospects for very low-income American households. The Office of Community Services (OCS) in the Administration for Children and Families (ACF) of the U.S. Department of Health and Human Services administers the program, appropriated at $10 million annually during fiscal years (FYs) 1999–2000 and $25 million a year during FYs 2001–03.
The Assets for Independence Act authorizes OCS to award grants to nonprofit, community-based organizations and government agencies to conduct five-year demonstration projects. IDAs are savings accounts that enable low-income (and low-wealth) families and individuals to combine their own savings with matching public and private funds to purchase a first home, pay for college education or vocational training, start up or expand a business, or support an IDA owned by a dependent. AFI projects can offer participant account holders match rates ranging from 1:1 to 8:1 for qualified withdrawals. Many grantees work in partnership with financial institutions that hold the participants’ IDA deposits.
This report serves as both the third and fourth reports to Congress on the AFI Program, for it provides key findings from two reporting periods: from projects administered through the Program’s third year – from August 1999 (the year the program began) through September 30, 2002; and from those implemented through its fourth year – from August 1999 through September 30, 2003.
The findings for the third year period are based on reports submitted by 120 of the 144 projects OCS supported from FYs 1999 through 2001. The findings for the fourth year period are based on reports submitted on 176 of the 211 projects for which OCS issued grants from FYs 1999 through 2002. Grantee reports were not used in the analysis unless the grantee submitted data for both years. The response rate for the grantees was 88 percent.
Information included in this document is in addition to data being developed through the OCS-supported national AFI Program evaluation. Initial findings and several mid-course reports that have been developed for the national evaluation are posted on the OCS website at http://www.acf.hhs.gov/assetbuilding
Grantees
At the conclusion of both the third and fourth years of the program, a large percentage of grantees were nonprofit Community Action Agencies, accounting for nearly one third of all grantees. Nonprofit Community Development Corporations accounted for about one fourth of grantees. The remaining grantees were government agencies, faith-based organizations, United Way organizations, and other private nonprofit entities, such as credit unions.
By the end of the fourth year, the AFI grantees were located in 45 states and the District of Columbia. Grants were fairly evenly distributed across the nation, roughly in proportion to population dispersion.
Characteristics of Account Holders
AFI Project participants include former welfare recipients, the working poor, and other disadvantaged individuals. The vast majority of participants who had opened IDA accounts are women – about 80 percent in both reporting periods. Nearly half of all account holders in both reporting periods were African American. About one third were Caucasian. More than half of all accounts were opened by single individuals, and about 23 percent were opened by married people. More than half of all account holders were from small households of one or two persons.
Participant account holders were fairly evenly divided across three income categories: between 150 and 200 percent of the poverty level; between 100 and 150 percent of the poverty level; and below poverty level. By a slight margin, the largest proportion of participants had incomes between 150 and 200 percent of the poverty level.
About half of all participants who ever opened an IDA account with the support of an AFI project lived in urban areas but not in inner cities. Approximately 20 percent lived in inner cities. About 20 percent lived in rural areas. And, only about 11 percent of participants lived in suburban areas.
Though participant account holders came from a host of education backgrounds, at the end of both the third and fourth years of the program, nearly 90 percent had at least a high school diploma – with many having some college education or an Associate’s degree. More than one third of all participants who ever opened an account were between ages 26 and 35. For many participants, the IDA account was their first checking or savings account. More than a third had never used a checking account before enrolling in the AFI program. About half had never had a prior savings account.
Project Reserve Accounts
As of the end of the Program’s third year, the 118 grantees that responded reported that they drew down a total of $10.9 million (40 percent of the grant). By the end of the fourth year, the 171 reporting grantees indicated that they drew down $16.7 million (43 percent) of their federal grant.
The grant drawdown rate varied by grantee. By the end of the third year, 32 percent drew down more than three quarters of their grant. And, 78 percent of grantees drew down at least a portion of the funds. By the end of the fourth year, 35 percent drew down more than three quarters of their grant amounts, and 77 percent drew down at least some of their federal funding.
Naturally, over time, grantees drew down larger percentages of their total grant amount. The reporting organizations that received AFI grants in 1999 drew down 60 percent of the federal funds by September 2002 (their third year of operation), and 69 percent by September 2003 (their fourth year). Similarly, the organizations that received AFI grants in 2000 drew down 61 percent by September 2002 (their second year), and 72 percent by September 2003 (their third year).
The nonfederal funds deposited have well exceeded the federal funds used for AFI Projects. Grantees reported that by the end of the third year, they had deposited more than $13 million of nonfederal funds in the project reserve accounts, exceeding the federal funds drawn down by about 20 percent. By the end of the fourth year, the number had grown to nearly $20 million, which calculated to 38 percent more than the federal funds drawn down at that time.
Individual Deposits
Project participants had opened 7,813 IDA accounts and deposited a total of $3.97 million by the end of the program’s third year. At that time, 6,576 accounts remained open, with a total balance of $2.98 million. The average IDA account balance was $508. Across almost half of all AFI projects (47 percent) the average was less than $400. Yet, for 27 percent of the projects, the average balance was over $600.
By the end of the fourth year, project participants had opened 12,252 accounts and deposited a total of $7.23 million. There were 9,028 open IDA accounts at that time, with a total balance of $4.4 million. The average balance was $592 per account. In addition, 41 percent of AFI projects reported average balance of less than $400, while 34 percent reported average balances of over $600. The distribution of IDA balances shifted from year three to year four from the lower end (average less than $400) toward the middle range (average between $400 and $600) and the upper end (average greater than $600).
By the end of the third year, the grantees that received AFI grants in 1999 were well on their way to meeting the planned number of open IDA accounts. Those grantees had opened 84 percent of total accounts projected to be opened during the overall project. By the end of the year four, these grantees had exceeded the number of open accounts originally planned.
Individual Withdrawals and Their Uses
Through the end of the third year, participants had made approximately 2,500 withdrawals from their IDA accounts, totaling $1.29 million (averaging $524 per withdrawal). Withdrawals were made for a range of qualified and nonqualified purposes. By the end of the third year, about 67 percent of the withdrawals were for qualified purposes such as home purchases, small business expenses, postsecondary education, and transfers to IDAs owned by a dependent. The number of withdrawals for the qualified purposes was evenly distributed between the three primary qualified purposes. Withdrawals for home purchases were the largest both in number of withdrawals and in average dollar value. A total of 566 withdrawals were made for this purpose, averaging $933. The number of withdrawals for education expenses (557) and small business expenses (528) approached the number for home purchase. In addition, 339 withdrawals were made for qualified emergency purposes and another 493 withdrawals were made for nonqualified purposes.
Through the end of the fourth year, participants had made 5,237 withdrawals from their IDA accounts. It is notable that during the single year ending September 2003, more withdrawals were made (2,738) than during the entire first three years of the program. As of the end of the fourth year, the overall average withdrawal had grown to $548. The share of withdrawals made for the primary qualified purposes at the end of the fourth year remained 67 percent. The amounts of withdrawals for home purchases were the largest, averaging $1,107. In addition to the withdrawals for home purchases, small business expenses, and education expenses, 15 percent of all withdrawals were for emergency purposes, with 18 percent for nonqualified purposes.
Most AFI projects offered one match rate for all withdrawal purposes. However, 19 projects that received an AFI grant in 2002 and 23 that initiated a project in 2003 offered varying match rates. The rates varied depending on the participant’s goals. More than half the AFI projects offered a 2:1 match rate. Only one project offered the maximum 8:1 match.
Support Services Offered by Grantees
AFI projects provide basic financial education with special focus on budgeting, responsible credit use, savings, investments, and taxes. According to grantees, participants were required to attend an average of 19 hours of basic financial education by the time they purchased their asset.
Asset-specific training is another important aspect of most AFI projects. This type of training is meant to ensure that participants are knowledgeable about purchasing and maintaining the asset they acquire. About 90 percent of grantees offered home purchase and ownership training. About 80 percent also offered training in micro enterprise. About three fourths reported that they offered training on identifying the most appropriate postsecondary education institution for participants’ needs. More than half of the grantees also offered specialized or advanced financial education.
Many grantees are community-based organizations that provide numerous support services to their AFI participants and other clients. Some of these services are financial in nature, such as money counseling, credit repair, loans, and emergency grants. Many grantees reported that they also provide more general support to the AFI participants. About two thirds of the grantees offered other services in addition to those required by AFI, including employment support, crisis management, peer support, and child care. More than a third offered transportation, and about one fifth offered medical services to AFI participants.