>>Do you have a >>savings account? Could you buy a house right now? Would you be able to pay to start college next semester if you wanted to? For more than half of working North Carolina women the answer to all of those questions is not just no but “hell no.” Our state has one of the highest degrees of income disparity in the country, with women who head households >>making an average of $20,000 a year, well under the poverty level.
There’s a tool designed to help poor-and-middle income families save for a house, a college, or even to open a small business. And this tool could put thousands of dollars in women’s pockets. But strangely, no one ever seems to talk about it.
An individual development account (>>IDA) is a program that matches families’ savings contributions as they put away money. North Carolina actually has one of the >>strongest such programs in the country, with recipients receiving a 2-1 match, a 3-1 match or even a 4-1. In case that’s a bit confusing, that means for every $1,000 you deposit in your savings account, you are receiving $2,000, $3,000, or $4,000 in additional funds. Free money!
Of course, it’s not exactly free. Recipients have to be income eligible and must take some (free) financial literacy classes before they can participate. And the amount that can be invested per year is somewhat limited as well. But after those limits are met, participants in the program can save like it’s 1999 and the financial crisis never happened. While the rest of us are making a measly 1% on our long term savings, they’ll be getting a ridiculously amazing 100% to 400% returns on their savings.
When it’s time to cash out, IDAs limit what you can pay for. The most common use is as a down-payment for >>a home. A person who has saved $100 a month for three years in a 4-1 match IDA will have $18,000 to buy a house with. In some markets that’s nearly a 20% downpayment on a house that will have a >>$436/month payment. What an incredible way to build wealth.
What it is: Individual Development Account
Who can have it: Anyone who receives TANF or federal Earned Income Tax Credit (EITC) and who has a net worth of less than $10,000
What it does: Matches monetary savings with donations from community
How can you spend it: On a home purchase, home repair, college or school tuition, or new business