The Impacts of IDAs, Assets, and Debt On Future Orientation and Psychological Depression: Evidence From a Randomized Control Trial
Asset-building interventions are an increasingly popular approach to improving the financial lives of low-income households. Equally important but under studied, asset-building theory suggests such interventions can positively affect psychological well-being by increasing future orientation and decreasing depressive symptoms.
Future orientation refers to an individual’s willingness to sacrifice immediate benefits to achieve a desired future state. Few studies have examined how assets affect future orientation. The scant evidence suggests a relationship between savings and asset ownership with indicators of future aspirations. However, prior studies did not use psychometrically valid measures of future orientation or experimental data.
Although recent research shows stressful life events (job loss, divorce, financial difficulties) play a major role in the onset of depression, the mechanism by which assets influence depression is not well understood. We hypothesize assets impact depression by providing a financial cushion that dampens financial shocks of stressful life events.
Data come from the American Dream Demonstration, a longitudinal randomized experiment of Individual Development Accounts (IDAs). Participants had family incomes below 150% of the federal poverty level. After completing baseline interviews (Wave 1), 1,103 participants were randomly assigned to treatment or control conditions. This study uses Wave 4 data collected 10 years after random assignment via follow-up interviews with 855 participants. We use a conservative intent-to-treat approach, assessing the relationship between treatment assignment, asset/debt accrual, future orientation (Zimbardo Time Perspective Inventory), and depression (Center for Epidemiological Studies Depression 10-item scale). Missing wealth data are multiply imputed. We use bivariate comparisons and regressions with control variables measured at baseline.
When examining IDA program participation and psychological outcomes, we found no significant treatment effect. This finding might be due to the weak relationship of total assets at 10-year follow-up with initial treatment assignment. We explored the effects of total assets and debts for both study conditions and found total assets were negatively related to depressive symptoms, as hypothesized. Notably, total debt was also negatively related to depressive symptoms. We found no relationship between assets or debts and future orientation.
Conclusions and Implications:
Increased assets are associated with fewer depressive symptoms, suggesting assets protect against financial stresses contributing to depression. The relationship of total debt and depressive symptoms suggests greater debt contributes to less depression. However, this finding might be due to our study measure that included mortgages and education loans as debt, but which can not only increase standards of living and human capital but also contribute to overall feelings of financial security. The evidence does not support a relationship between assets and future orientation, suggesting assets might improve psychological well-being without affecting future orientation. Nevertheless, these findings indicate the effects of asset holding might be more extensive than previously thought, and assets might improve mental health and reduce effects of depression (poor job performance and family functioning). These findings can inform the design of policy to help asset-poor households build wealth and support efforts of social advocates working toward social and economic development of low-income households.