In recent years there has been discussion about presenting Individual Development Accounts as a product rather than a program. IDA programs offer a unique opportunity for moderate to low income Americans to begin building their assets. Some leaders in the IDA movement have argued that a new model is needed in order to reach a broader base of asset- poor Americans. They have proposed a private sector account project that would be similar to a 401 (K) or an expanded IRA and would be managed through the financial services industry.
A study conducted by the National Economic Development and Law Center explains why some have argued that it is necessary to transition IDAs to a standardized financial product. The assumption is that over the long run, a standardized financial product would reduce per unit costs, and increase efficiency which would allow more low- income people to benefit from IDAs. They argue that the current program based model is too expensive and resource intensive to be offered to millions of people and that it is not a profit maker for financial institutions.
Some large IDA sites have already begun standardizing some programmatic components and procedures. For example, they have used technology to standardize curricula for financial education and asset- specific education, online applications, data collection and management, training tools, and outreach. Some leaders are arguing for even greater standardization.
Despite the benefits that standardization could provide, there is concern about how this will affect IDA clients. A standardized web based financial education curriculum might meet the needs of the “average” IDA client but not specific needs of other users. There is also a concern that this would exclude some populations in favor of less- labor intensive and more cost- efficient segments of the population.
Over the years, New Century IDA has maintained its “high touch/ hands on” approach. New Century attributes much of its success to this approach, realizing that it allows them to have a much deeper impact on participants. For example, a “high touch” program is able to change behavior, provide lifelong budgeting skills, and help clients become “banked” for the first time. These are high quality services that are difficult to measure but have a significant impact on the lives of clients.
Dan Kornelis, Executive Director of the Forsyth County Department of Housing, argues that the depth of service is more important than the number of people served. By investing more in each individual client, New Century is able to have a more lasting impact. Although high touch programs may not directly serve as many people as standardized programs, the reach is still broad. For example, if New Century is able to change the life of a single mother by helping her become more financially stable and purchase a home, then New Century has touched the lives of her children as well. The children benefit from growing up in their own home, and they also have a role model from which to learn budgeting and money management.
There is also the concern of whether or not low income Americans would access standardized programs. Financial products such as 401 (K)s and IRAs are already available to them. Since they are not accessing these products in large numbers now, it is unlikely that they would utilize a standardized IDA product. According to a 2008 report by the Employee Benefit Research Institute, participation rates in a 401 (K) type plan increase with income. The study found that among workers with family incomes less than $10,000, only 7.4% participated in 2005. That is compared to 45.2% of workers from families with incomes of $75,000 or more.
It would also be more difficult to complete a financial literacy curriculum online. Not all potential clients have access to the internet. Furthermore, the element of accountability is lost. With a high touch program, clients have coaches and build relationships with people that support and encourage them throughout the entire process. This element of a high touch program is essential for long term success, and it is lost with standardization.
The value of a high touch program is evident in the great success New Century has had since 1999. The program has helped 440 families purchase homes, and 98% of these families still live in these homes. This impressive success rate can be attributed to the relationships New Century builds with its clients and the support system it provides. As New Century continues to utilize this “high touch/ hands on” approach, we look forward to helping many more families become first time homebuyers!
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