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Directors of three youth individual-development-account (IDA) programs in the Third Federal Reserve District find that parental involvement and support are essential to motivating children to save money for specific goals in youth IDA accounts.
Financial education is a requirement of the three programs, which are administered by the Boys and Girls Clubs of Delaware (BGC), based in Wilmington, DE; Isles Inc. in Trenton, NJ; and the West Philadelphia Financial Services Institution (WPFSI) in Philadelphia, PA.
BGC is a partner in the Saving for Education, Entrepreneurship, and Downpayment (SEED) foundation-funded initiative managed by CFED, a national nonprofit dedicated to expanding economic opportunity. Young people between the ages of 10 and 13 receive a one-to-one match of up to $250 a year for four years in the BGC program.
Since it started in October 2003, 71 youths have been enrolled, 15 of whom have saved approximately $6,367 (excluding matching funds), according to Francine McGriff, manager of the BGC program. Four of the 15 have each saved over $1,000.
Savers in the BGC program receive trust accounts held by Smith Barney, a division of Citigroup Global Markets Inc., that they cannot access prior to age 18. (The only exceptions are post-secondary educational needs and medical emergencies.) BGC is the custodian of the accounts until they are 18. From 18 to 21, account funds can be used only for asset-related uses (car purchase, post-secondary education, homeownership, small business start-up, or job skill training). At 21, the funds may be used however the participants wish.
Most of the youngsters in the BGC program are taking five one-and-a-half-hour financial education classes as part of a four-year educational program. Parents must also attend six hours of financial education workshops.
McGriff has found that the program has had “a great impact” on the families of 10 young savers after parents attended the workshops, started saving, and opened IDAs in addition to the youth IDAs. A father who recently arrived from Jamaica saved over $1,500 of his own funds for future expenses of his family, which includes six children. An Ecuadorian immigrant saved $1,500 in six months and opened a checking account, purchased a certificate of deposit, started an emergency fund, and is buying a house.
McGriff said that the 10 families “understand the importance of financial stability and are taking steps to achieve that goal – not only for themselves but also for their children.”
She observed: “If you work with only the children, it’s just a Band-Aid. To be effective, you need to get to the root of the problem, the parents. Only parents know what’s best for them and their children.” A parents’ board and a statewide steering committee advise McGriff on the program.
Meanwhile, Isles in Trenton administers a youth IDA to very low-income individuals who participate in a HUD-funded YouthBuild program. (In YouthBuild programs, unemployed and undereducated young people from 16 to 24 work toward their general equivalency or high school diploma while learning construction job skills by building affordable housing for homeless and low-income people.) Since the program started in 2003, 35 students have been enrolled; the 23 of these who are currently enrolled have saved $5,400 from their own funds.
Martin Johnson, president of Isles, said: “By most measures, our adult IDAs are more successful than our youth IDAs. For many students, IDAs alone are not a large enough carrot to change behavior. Despite training, the benefits of IDAs are just not evident to them. They are barely meeting their own basic financial needs now while they are being trained and educated.”
Johnson said: “The expectations for savings must be realistic. Participants in our youth IDA program earn about $100 a week in our program. If they saved only $5 per week, that would be 5 percent of their income – a higher saving rate than the vast majority of middle-income earners in America. The amount of saving is not as important as the habit of saving developed alongside the habit of learning a trade, education, and life skills. We should measure habits as well as wealth.”
In addition, Isles is working with HUD to expand the uses of IDAs. Many students must first pay down some of their debt (such as traffic and court fines), obtain a driver’s license, or purchase a car. While these goals may seem less significant, trainees who don’t achieve them have little chance to succeed as full-time students, workers, or homeowners, Johnson noted.
In the WPFSI program, students in households that meet income guidelines and attend West Philadelphia, Overbrook, or University City high schools may participate in a youth IDA program that provides a one-to-one match of up to $2,000. Acceptable savings goals include college or trade school tuition, computer or car purchase, business start-up, Internet access, and summer camp. Financial-education classes are taught by students from the Wharton School at the University of Pennsylvania.
Wilhelmina Cockroft, a program coordinator at WPFSI, said that 100 students have been enrolled since the program started in March 2003. Of these, 90 students have saved approximately $45,000 from their own funds, she added. The majority have had a goal of going to college and 35 of the 90 are presently in college.
Cockroft noted that the students must be currently earning income through employment or an alternative source, such as an allowance from their parents or gifts from family members. Those students who are unemployed are seeking employment.
Cockroft commented: “It is difficult for them to rely on financial support from their parents because their parents’ income is at the poverty level and the parents cannot provide their children with money to save. The students could greatly benefit from businesses that could offer employment or sponsor a community service project that would offer each student a stipend that would be deposited in their IDA account.”
Sovereign Bank maintains the accounts and waives its low-balance fees for both the Isles and WPFSI programs. Joseph Schupp, vice president and community development officer with Sovereign Bank, said that the programs “help low- and moderate-income young people with financial education and hopefully help break a cycle of poverty.”
Jim Burnett, executive director of WPFSI, said “it’s important to sell the program to the parents and to be sure the parents attend financial education classes. We need the parents to participate and encourage their children.”
For information, contact Francine McGriff of BGC at (302) 655-4591 or firstname.lastname@example.org; Martin Johnson of Isles at (609) 341-4700 or email@example.com; or Jim Burnett of WPFSI at (215) 452-0100 or firstname.lastname@example.org.