Joel asks why I’m skeptical about Individual Development Accounts (matched savings for low-wage workers, IDAs), as is apparent in my note about the Bloomberg anti-poverty agenda. First, as is the case with many of the Bloomberg proposals, talking about IDAs forces the speaker into the personal responsibility frame, suggesting that low-wage workers need to change, rather than focusing on the limitations of the low-wage labor market and lending industry. But, in this case my general concern about policy proposals framed in terms of individual responsibility is bolstered by the fact that IDAs don’t work for most low-wage workers – at least in the only full-scale evaluation completed so far. You can read the entire evaluation report on the Abt Associates website, but here are some low points buried in the findings:

1) Less than 40 percent of the account holders successfully withdrew matched savings in the four-year demonstration;

2) Eighty-seven percent of the account holders withdrew savings for an unmatchable reason during the evaluation period;

3) Slightly more than half of account holders closed accounts without ever making a matched withdrawal;

4) Offered the chance to have their savings matched at least dollar for dollar, and two dollars for every one saved for a home purchase, only 85 percent of the low-wage workers even opened an account.

While the report’s abstract reads like a major success story, and I won’t argue that some small minority of savers really did benefit from the trial, the evaluation outcome measures really drive the story. These measures did not even include, for example, successful withdrawal of matched savings for an allowable investment. Further, the Abt evaluation did not include any cost analysis. To their credit, the idea people and the funders decided that a cost analysis would help future decision-makers. (This kind of honest analysis doesn’t always happen after the fact.)

But the findings are disappointing, if inconclusive. This high-touch, community-based pilot cost $3 for every $1 of net savings – and that does not even include the matching dollars. The author of the cost analysis points out that we still don’t know whether the benefits beyond savings might make this idea worthwhile, but seems doubtful that services built into this design could become widely available to other low-wage workers. And the report’s author suggests there’s reason to be concerned that a more broad-based savings initiative, one without the same services, would be of much benefit to those stuck in low-wage jobs.

So, yes – I am highly doubtful about the Bloomberg proposal, just as I’ve been privately skeptical about progressive proposals that support expansion of IDAs for the limited purposes already tested. I am persuaded that there may be benefits if matched savings incentives succeed in linking low-wage employees to better savings and banking options than the pay-day and car title lenders proliferating in so many places. It would be great to test savings options for smaller investments like cars, computers, rental housing deposits, and child care pre-payments. My theory is that it’s more logical for employees stuck in low-wage jobs to save for a short time in order to make an investment that they KNOW will change their lives immediately. (For example, there’s a great deal of evidence that workers with a car have more income and work more hours than those who don’t. No surprise here since having a car increases employment options significantly.)

Historically, the IDA field of program operators (mostly non-profits) has split over whether the allowable purchases had to be for assets, which field leadership did not define to include a purchase with declining value – like a car. The field has evolved over time though, and there are dozens of IDA initiatives that allow car purchase today. Of course, cars are not that useful in Manhattan – but in the other NYC boroughs, flexible and reliable transportation is an important and feasible option for low-wage workers. It would be much more interesting – and useful for future policymaking – if the NYC IDA initiative included a test of some of these smaller investments in services and goods proven to improve the low-wage labor market.