Gaining Financial Capability Through Credit Building in IDA Programs
Building the financial capability of clients is a focus of Individual Development Account (IDA) programs. Clients build their financial knowledge through participation in general and targeted financial education, and gain access to appropriate financial products and services through program participation. One element of financial capability is knowledge about and ability to take action to build financial credit. Strong financial credit is a critical element in accessing affordable loan products to build assets, yet little research is available on the impact of IDA programming on credit.
The major research questions for this study are: 1) Does initial credit score provide an indication of IDA program participation, type of asset purchased, completion, or time to completion?; and 2) Do IDA participants and participant groups differ in credit score, history, or change in score from one another or nonparticipants after two years? Presented here are data from Baseline, Year One, and Year Two for the three-year study.
Methods
Three community agencies recruited low-income people who had been initially screened for the IDA program for eligibility and were invited to an orientation, at which they were invited to participate in the study. Using a convenience sample of IDA participants (N = 164), this presentation will provide year two findings of a longitudinal, three-year study of participant credit within an IDA program. To answer the research questions, the statistical tests included chi-square for independence, Mann-Whitney U Tests, Wilcoxon Signed Rank, Krukal-Wallis tests, and Friedman Tests.
Results
The results do not support the hypothesis that initial credit score is a meaningful indicator of program completion, timing of goal completion, or type of asset purchased. However, participants and nonparticipants were statistically different at Baseline, Year One, and Year Two on credit score and credit history elements. Participants had higher credit scores and more positive credit histories than nonparticipants at Year One and Year Two. Participants also had significant increases in credit scores during both years, while nonparticipants experienced a decline in the first year and an increase in the second year, yet no significant change across the two time periods.
Conclusions and Implications
These results have implications for programs that build financial capability. While initially there were no significant credit differences among participants, those that completed the program were significantly different then those who dropped out or were still saving. Results indicate that programs may wish to specifically focus on the first year of IDA participation for credit building programming, and take measures to encourage credit building in Year Two. Administrators in programs may want to carefully examine their policies that result in participant drop-out, and consider allowing for a “time-out” of the savings requirement to prevent drop-out. Those that complete the IDA program benefit from many aspects of the program, including building their financial capability through building their credit.