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Inclusion and College Savings Plans:

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Post-secondary education savings. Small initial contributions. Earnings are free from federal tax ... Many offer state tax deduction. Who is Participating? Few ... – PowerPoint PPT presentation

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Title: Inclusion and College Savings Plans:


1
Inclusion and College Savings Plans IDA
Research and Results from Survey Center for
Social Development Washington University in St.
Louis Margaret Clancy May 5, 2003
2
A Key Theoretical Perspective
Saving is shaped by institutions, not merely
individual preferences.
3
Factors That Affect Saving
  • Incentives
  • Financial information and education
  • Access to institutionalized saving mechanisms
  • Facilitation
  • Expectations

Sherraden, Schreiner, Beverly, 2003
4
Individual Development Accounts
  • Matched savings accounts
  • For low-income individuals
  • Intend to build assets
  • With financial education

5
American Dream Demonstration (ADD)
  • First major demonstration of IDAs
  • Funded by 11 foundations
  • 13 program sites
  • 2,364 participants
  • Research designed by the
  • Center for Social Development

6
IDA Savings Outcomes
  • Average monthly net deposit 19.07
  • Gross deposits - Unmatched withdrawals
  • Months of participation
  • Excluding exits 33.81
  • Net deposits plus match 1,543
  • Deposit frequency 6 of 12 months

Schreiner, Clancy, Sherraden, 2002
7
Income and Saving
  • Controlling for other factors, income is not
    associated with program dropout or with the
    amount of net deposits in IDAs
  •  
  • Welfare recipients save as successfully as other
    IDA participants
  •  

Schreiner, Clancy, Sherraden, 2002
8
Saving Patterns
  • IDA deposits increase sharply in March,
    probably reflecting income tax returns and the
    impact of the Earned Income Tax Credit (EITC)

Schreiner et al., 2001
9
Institutional Characteristics and Saving
  • Savings increased with more financial education,
    up to 8-10 hrs
  • Direct deposit appears to help people stay in the
    program, but not to save more

Schreiner, Clancy, Sherraden, 2002
10
Practice Implications
  • Match incentive encourages people to join and to
    save.
  • Focus on goal is incentive for saving.
  • Legitimacy of program and source of information
    about the program are important factors in
    effectively marketing to disenfranchised
    populations.

11
Practice Implications
  • Inclusive asset-based policy can be successful
    for low-income individuals.
  • IDA participants, regardless of income are
    responding to matches and expected saving
    amounts.

Sherraden, 2002
12
IDA State Policy
gwbweb.wustl.edu/csd/statepolicy/states.html
13
College Savings Plans
  • Post-secondary education savings
  • Small initial contributions
  • Earnings are free from federal tax
  • State tax-free growth of earnings
  • Many offer state tax deduction

14
Who is Participating?
  • Few states track demographics
  • Tax incentives benefit people in higher tax
    brackets
  • Brokers and tax planners market to high-wealth
    individuals

15
State Innovations for Inclusion
  • Match for low- to moderate-income
  • savers (5 states)
  • Link college savings plans with IDAs facilitate
    rollovers or use plan as investment vehicle for
    IDA (3 states)

N40
16
State Innovations for Inclusion
  • 501(c)3 registration (31 states)
  • Assets not counted for state tuition grant
    purposes (18 states)

N40
17
State Innovations for Inclusion
  • Creditor protection (17 states)
  • Scholarships and awards (9 states)
  • Gear Up programs (4 states)

N40
18
Community-based Partnerships
76 agree or strongly agree that partnership with
community-based organizations provides
opportunities to reach low-moderate income
participants.

N38
19
Include Low-Income Savers
86 agree or strongly agree that plans should
include more low-income participants

N36
20
Plan Rules not a Hindrance
Majority disagrees that plan rules and
regulations discourage participation by
low-moderate income group

N37
21
Workplace Enrollment
95 agree or strongly agree that the effort to
introduce 529 plans into the workplace provides
an opportunity to reach participants of all
incomes

N37
22
Potential for Partnership
  • Facilitate outreach and enrollment
  • Provide financial education sessions
  • Encourage deposit of EITC refunds
  • Allow for rollover of balances into college
    savings plan

23
Why is this Important?
  • Opportunity for increased participation by people
    of all income levels

24
Publications and Resources
Center for Social Development George Warren Brown
School of Social Work Washington University in
St. Louis Website http//gwbweb.wustl.edu/
csd Phone (314) 935-8178 E-mail
mclancy_at_gwbmail.wustl.edu
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