The Inclusive Economy
Spotlight on innovation: Opportunity Fund’s New Take on Traditional IDA Programs
By Gwendy Donaker Brown, Guest Contributor on 08/23/2011 @ 03:00 PM
“I really want to start saving, but I’m not ready to go back to school.” “I’d like some help with saving– not for anything specific - just to have some savings.” I’ve heard variations of this sentiment countless times over the years – from young single mothers, seniors recovering from foreclosure and many people in between. Our clients’ requests for a flexible savings account to get started were based on their understanding that you can’t really think about long-term assets (like a business, college degree or home) without having a basic level of financial stability. And stability means you have savings available in case of life’s emergencies.
We created our newest savings innovation, Start2Save, based on the need we saw within our community. For many applicants (and some of our unsuccessful IDA participants) our existing IDA products simply didn’t take into account their financial reality. In the paycheck to paycheck reality, you are only one unexpected expense (car repair, medical bill etc.) away from falling behind. So in order to have the stability and confidence to dream big, first you need some rainy day savings.
Here’s how Start2Save is similar to traditional IDA programs:
- Savers complete a comprehensive financial education course
- Monthly savings deposits are required - minimum of $20
- Case managers supports savers to work through problems and meet their goals
Here is how Start2Save is different:
- The savings account is the asset – so it doesn’t need to be withdrawn or spent down within a certain time period. Success is when someone is able to build up a savings balance – and rebuild it after the inevitable emergency.
- Smaller savings goal and match amount. Participants aim to save $500 within 1-2 years, which is matched 2:1 (for a total balance of $1,500). This makes the product accessible to people with even lower incomes – and makes it easier to scale due to smaller match requirements.
- No list of “allowed” purchases. Once someone reaches their $500 savings goal, they automatically receive the match in their account. We trust our savers to make the right financial decisions with their own savings – and monitor the accounts as an added protection.
- Wider target population. Rainy day savings is a (far-too) universal need that is relevant at every stage of life. Because Start2Save is privately funded, we’re able to serve individuals without traditional incomes – such as those living on disability or social security income.
- New improved account features. Together with Citi we are piloting their Microfinance Savings Account which (unlike our traditional account structure) offers no deadline to closeout, an ATM card for easier deposits (rather than requiring in-branch deposits), online and mobile access, ability to set up electronic deposits from other accounts, and easy monitoring for outcome evaluation.
We launched Start2Save this spring to very high demand – we’ve already “sold out” the first 50 accounts and have another 100 slots to fill this fall. We’ll be evaluating the program impacts by monitoring savings behavior and interviewing a sample of savers every six months over a 3 year period. Our goal is to show that rainy day savings serves two critical functions:
- Prevention: Savings keeps a minor issue (e.g., needing new brakes for your car) from turning into a major problem (e.g., Inability to pay for car repairs leads to missing work, even risking losing a job or taking out a high-interest payday loan).
- Aspiration: Having some savings set-aside makes it possible to set and achieve longer term goals – you have the confidence to try something new (e.g., take a class to improve your skills) and the reserves to stick with it (e.g., not drop out of class after you have to miss a day of work staying home with a sick kid).
My personal aspiration is that eventually, emergency savings is understood to be an essential piece of the asset-building spectrum – and is offered by IDA programs around the country with full support from both private and public funders.
Gwendy Donaker Brown is Director of Policy & New Initiatives at Opportunity Fund in San Jose, CA. Gwendy helped develop and launch Opportunity Fund’s groundbreaking savings products including Start2Save emergency savings, Saving for Citizenship and customized products for foster youth and single mothers. www.opportunityfund.org.