NCUA Report - March 2012

Office of Small Credit Union Initiatives Report
BUILDING WEALTH AND DEPOSITS:
AN OPPORTUNITY FOR CREDIT UNIONS – PART II

In the January 2012 edition of the NCUA Report, we provided an overview of Individual Development Accounts (IDAs). We suggested IDAs as a strategy for credit unions seeking to increase wealth-building among their low-income members. In this report, the Office of Small Credit Union Initiatives answers questions that may arise as your credit union considers this asset-based approach to help families build wealth, while creating opportunities for a way out of poverty.

What are the benefits of participating
in an IDA program?

IDAs are a way to encourage low-income individuals to save. The goal is for the account holder to use the funds to achieve any of three objectives: acquiring a first home, capitalizing a small business, or enrolling in postsecondary education or training. Each dollar the account holder deposits into an IDA is matched with public and/or private funds. This dynamic allows the individuals to achieve their desired economic goal sooner than they otherwise expected, while instilling the discipline of savings.

As noted in our January article, offering IDAs provides a credit union with several benefits. The first is simply adding to the membership ranks as member loyalty is often soon established. Over time, the member is likely to use a variety of credit union products and services that may include tapping their IDA accounts for the purposes mentioned above.

How difficult is it to implement an IDA program?

Operating an IDA program involves recruiting eligible participants, providing them financial education, and supporting them from establishing and maintaining a savings plan through to the asset purchase. There are also fiscal responsibilities, such as monitoring participant deposits and tracking matching funds as they are allocated, earned, and spent. Credit unions are well situated to manage IDA programs because many of these activities correlate with work they already do. For example, recruiting participants can be part of membership development or member services, and tracking IDA deposits is similar to tracking loan payments.

A way to ease the transition or share the work involved is to
identify and work with a community partner. A community
partner is a local organization that has experience providing
social services to individuals who are potential IDA program
participants. Examples of such organizations include the
United Way, community action agencies, and homeownership
organizations. A partner may facilitate program operation by
providing financial education, credit counseling, asset-specific
training such as entrepreneur training, follow-up for goal
monitoring, or other similar services. 1

There is no single approach to partnering to deliver IDA program services. Under one model, the partner may administer the IDA program and only need a credit union to serve as the depository of the accounts. Under another model, the credit union may administer the program and rely upon the partner to provide other program services.

What are the most common sources of
matching funds for IDA accounts?

Matching funds for IDAs may come from various sources, depending upon the program requirements. Sources for these matching funds may include government agencies, churches, charities, and foundations.

What is required of IDA participants?

Eligibility and other program requirements vary depending upon the particular IDA program. Financial education is a key element in any IDA program. Typically, an account holder is required to participate in financial education training in addition to making regular deposits into the IDA. Programs generally have provisions to ensure that funds are used for eligible purposes. For example, at the time an account holder is ready to purchase an eligible asset, funds would only be distributed to the title company, into a business account, or to an accredited school. 2

Where can I obtain additional information
on IDA programs?

Websites for learning more about IDA programs include:

; Federal government: Assets for Independence Program, http://idaresources.org/Home

; State agencies: Search individual state government websites using “Individual Development Account” as keywords.

;General information: the Corporation for Enterprise
Development (CFED), http://cfed.org/programs/idas/
To learn about the other resources available through
NCUA’s Office of Small Credit Union Initiatives, watch our
informational video at http://bit.ly/vsHHfE.

1 See Individual Development Account Initiatives, Connecticut Department of Labor, Project Management Office at http://www.ctdol.state.ct.us/ida/dir/partners.html