Incentivized savings accounts, including individual development accounts (IDAs), matched savings accounts, or children’s savings accounts (CSAs), are a specific type of savings product designed to encourage low-income families to build financial reserves. Incentives vary, but a key feature of most incentivized savings accounts is an initial deposit, in addition to savings matches. 

Building savings is critical for low-income households, who experience income shocks more frequently than other households and often have no reserves to draw on during a financial emergency. And it is a key equity issue: according to Prosperity Now, about 19 percent of white households and 41 percent of households of color are asset poor, meaning they do not have sufficient assets to subsist for three months at the federal poverty level. The absence of emergency savings can drive people to use predatory financial products like payday loans and vehicle title loans that often entrap them in cycles of debt and prevent them from building credit. For youth it means less educational opportunity: A 2013 study found that low- and moderate-income kids with up to $500 in savings are three times more likely to attend college than their counterparts with no school savings. Residents’ financial insecurity also exerts a significant toll on city budgets

Since the 1990s, cities and states have implemented two key types of incentivized savings accounts to help increase residents’ financial security:

• Individual development accounts are geared toward adults who meet certain income thresholds. They usually have at least a dollar-for-dollar match for savings toward higher education, homeownership, or starting a business.
• Children’s savings accounts tend to have an explicit focus on savings toward post-secondary education or training, and provide initial deposits or program contributions to help children and their families build educational savings.
   

Incentivized savings programs are proven to serve diverse constituencies and have bi-partisan policy appeal. They are proliferating across the country. By the end of 2020, there were 109 children’s savings account programs operating in 36 states and D.C. serving more than 922,000 children—nearly three times as many children as in 2016. Studies have shown that IDAs are effective: A 2020 Urban Institute evaluation found that participants increased their savings, had fewer financial hardships, and used check-cashing services less frequently. And while research on CSAs is more nascent, experimental studies of large programs in Oklahoma and the Detroit area found they successfully helped participants build savings and assets.

In addition to the PolicyLink resources listed on the right, see Prosperity Now; the Institute on Assets and Social Policy; 1:1 Fund; the Center for Social Development at Washington University in St. Louis; and the Center on Assets, Education, and Inclusion (AEDI) at the University of Kansas for more resources on incentivized savings accounts.

• Elected and appointed city officials can establish local savings accounts programs that reach a specific population or are delivered universally. For example, cities, counties, or school districts can decide to implement a child savings program for all students.
   
• Financial institutions such as banks, credit unions, and community-development financial institutions can serve as account custodians.
   
• Business leaders and philanthropies can provide funding to supply or increase the match for a savings program.
   
• Community-based organizations and other advocates can work with city officials to develop an incentivized savings program and can facilitate community outreach to ensure community members know about the programs for which they are eligible.

Cities seeking to establish a matched savings account program must consider a range of practical and logistical questions.

• Public-private partnerships with financial institutions: Cities need to vet and select partner institutions to act as account custodians (and potential match providers). Cities should consider the institution’s history and relationship with the community, ensuring that it does not engage in predatory practices within the community.
   
• Automatic enrollment: The most robust matched savings account programs have an automatic enrollment process — where families choose to opt out rather than opting into child savings, for example — that significantly increases program participation.
   
• Permanent funding: The most significant challenge to establishing a matched savings account program is securing permanent funding to provide the match through public or private sources or a combination of the two. The federal government’s Assets for Independence program is currently the largest provider of matching funds for individual development accounts.
   
• Legal access to accounts: In the case of children’s savings accounts, city officials may limit who can legally access the account. In most cases, family savings and incentives are held in “parallel” accounts, so parents can usually withdraw their contributions, but not the matched funds.
   
• Impact on eligibility for public benefits: Many public assistance programs such as Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) have asset limits that cap the amount of savings and other assets a recipient may have. Cities should understand how matched savings accounts could impact eligibility for public assistance and design programs to protect program participants from risks to their public benefits.
   
• Progressive program structure: Many matched savings programs set asset limits for eligibility; the most effective also have a progressive structure so that the savers with the lowest incomes will receive the most significant incentives to save.