Research That Matters (January 17 - 20, 2008)

This study examines how participants view institutional features of Individual Development Accounts (IDAs) and to what degree attitudes toward institutional features are associated with savings outcomes in an IDA program. Given that attitudes toward a saving plan influence whether individuals will participate as well as how much they will save in the plan, examination of attitudes toward IDAs may enhance our knowledge of saving behaviors among low-income households. With these goals in mind, three research questions are posed: How are attitudes toward IDAs classified?; To what degree do attitudes toward IDAs change?; Are attitudes toward IDAs associated with savings outcomes in IDAs while controlling for institutional effects on these outcomes?

This study uses latent class analysis (LCA) and a longitudinal survey. LCA provides parameters accounting for the prevalence of latent class and response probabilities within a certain class. The longitudinal data is a series of American Dream Demonstration (ADD) collected at a Tulsa IDA program.

Six items of attitudes toward IDA program features were measured at both Wave 2 and Wave 3. They are “Your IDA account has seemed secure,” “Your IDA has earned enough interest,” “The match rate for your IDA has been adequate,” “You have wanted to save for a certain goal,” “You have liked the rules about taking money from your IDA,” and “The IDA classes have helped you to save.” The questions were measured on a 4-point Likert-type scale ranging from strongly disagree (0) to strongly agree (3).

Average monthly net deposit (AMND) is a measure of savings outcomes calculated by dividing net deposits by the number of participation months.

Broadly, participants in IDA program have positive attitudes toward institutional features of IDA program. However, LCA finds that some participants have a negative view regarding whether the IDA account has earned enough interest and whether the matching rate has been adequate. According to criteria of LCA, 4 classes at Wave 2 and 3 classes at Wave 3 emerged. There appear to be dynamic changes in attitudes toward IDAs between Wave 2 and Wave 3. While about 54.25% (n=166) of participants stayed in similar classes between Wave 2 and Wave 3, other participants showed changes in the attitudes. In particular, while 14.05% (n=43) indicated an increase in positive attitudes toward the IDA program, 17.97% (n=55) showed a decrease in positive attitudes. In addition, while 3.59% (n=11) moved from negative attitudes to positive attitudes, 5.88% (n=18) of participants showed decreases in the positive attitudes toward the IDA program between the two waves. Furthermore, attitudes toward institutional features of IDAs seem to matter for IDA savings. Participants with the most positive attitudes toward IDAs have significantly higher average monthly net deposits (AMND) than those with moderate and negative attitudes toward IDA program.

Policy makers and practitioners should consider how to increase understanding among participants of IDAs and how they are operated. Formal and informal communication, financial education, and peer group meetings might play important roles in influencing the attitudes of participants toward institutional features of an IDA program.