Since the late 1990’s, Individual Development Accounts (IDAs) have
been linked to programs that have been offered by agencies across the
country to help low-income families reach savings goals. And although
the model is sound, participant completion rates have notoriously been
low.
It has been speculated that the reason for these low completion rates are threefold: the lack of structure and accountability placed on the participant, easy access to saved funds and the protracted completion date, which is often several years after the participant enters the program.
Most
IDA participants must take part in an extended program—some as long as
five years—during which expectations can be set very low and, above all,
the finish line appears light years away. The result is that
the participants’ motivation wanes over time, while unexpected expenses
appear, making the partially-saved funds an easy target for early
withdrawal.
With eMoneyPool’s community finance tool, a technologically-updated version of a traditional money pool (you might know them as a Tanda, Cundina or Susu), we have been able to remove the challenges of traditional IDA programs, resulting in a 99% program completion rate.
The best part is that the tool is free for agency partners from all sectors, including nonprofits. They are not required to register and can use eMoneyPool easily and effectively. Most importantly, it’s scalable, so anyone offering IDAs across the country can tap into this tool with little to no training and reap the benefits of a 99% completion rate.
First, a quick review of how a traditional money pool works. A group of 10 people agree to contribute a fixed amount of money (say $100) on a fixed interval (say monthly). Every time the group pools the money together, one member of the group receives those funds to spend on anything they need. The next month, the same 10 people again make their contribution and the $1,000 is taken by the next member in the circle. This continues until everyone in the group has received their lump sum of money.
By design, eMoneyPool’s model creates a short-term, structured plan, which locks participants into the dates of their expected savings contributions. Also, by nature of working in a group of people who are all depending upon each participant’s monthly contribution, a high level of accountability, or “social pressure,” is placed upon the participant to make payments on time. Finally, there is no access to the funds until the specified payout date, which removes the issue of participants “dipping” into saved funds.
To prove the validity of the concept, eMoneyPool partnered with a local non-profit, Local First Arizona, which offers an IDA program to aspiring small business owners, known as the Business Accelerator Program. The participants must take part in a six-month program, which includes a curriculum covering topics such as Creating a Business Plan, Marketing and Tax Preparation.
Since
2013, the program has also required that participants join a money pool
in order to meet their IDA savings goal and qualify for their
one-to-one savings match. This specific accelerator program requires the
participants make bi-monthly payments over five months, but the money
pool platform can be offered in a variety of options, such as monthly
payments of about $50.
As of this writing, five classes, or 60 individuals, have participated in the program and despite some of the participant’s concerns about their ability to successfully manage the payment schedule, have demonstrated a 99% completion rate.
As one of our participants, barber Benjamin Carrillo said, “At first I was concerned about being able to make my payments on time, but I knew the group was counting on me. I was able to make adjustments to my expenses and it was easy to save. I’m going to do it again.”
By applying technology to an age old practice, used all over the world due to its ability to create a mix of forced discipline and peer pressure, we stumbled upon one potential solution to the IDA puzzle.
For more information or questions, contact Luis Cervera at luis@emoneypool.com.
Luis Cervera is President and Co-Founder of eMoneyPool, an online community finance tool based on the lending circle or ROSCA. eMoneyPool has perfected the traditional model known around the world by applying technology in order to make it easier, safer and more efficient while guaranteeing the entire process. The eMoneyPool platform helps individuals reach their short-term financial goals while building a positive payment history which is accepted by its lender partners.
It has been speculated that the reason for these low completion rates are threefold: the lack of structure and accountability placed on the participant, easy access to saved funds and the protracted completion date, which is often several years after the participant enters the program.
March 2015 - Local First Arizona Business Accelerator Graduates & Staff
With eMoneyPool’s community finance tool, a technologically-updated version of a traditional money pool (you might know them as a Tanda, Cundina or Susu), we have been able to remove the challenges of traditional IDA programs, resulting in a 99% program completion rate.
The best part is that the tool is free for agency partners from all sectors, including nonprofits. They are not required to register and can use eMoneyPool easily and effectively. Most importantly, it’s scalable, so anyone offering IDAs across the country can tap into this tool with little to no training and reap the benefits of a 99% completion rate.
First, a quick review of how a traditional money pool works. A group of 10 people agree to contribute a fixed amount of money (say $100) on a fixed interval (say monthly). Every time the group pools the money together, one member of the group receives those funds to spend on anything they need. The next month, the same 10 people again make their contribution and the $1,000 is taken by the next member in the circle. This continues until everyone in the group has received their lump sum of money.
By design, eMoneyPool’s model creates a short-term, structured plan, which locks participants into the dates of their expected savings contributions. Also, by nature of working in a group of people who are all depending upon each participant’s monthly contribution, a high level of accountability, or “social pressure,” is placed upon the participant to make payments on time. Finally, there is no access to the funds until the specified payout date, which removes the issue of participants “dipping” into saved funds.
To prove the validity of the concept, eMoneyPool partnered with a local non-profit, Local First Arizona, which offers an IDA program to aspiring small business owners, known as the Business Accelerator Program. The participants must take part in a six-month program, which includes a curriculum covering topics such as Creating a Business Plan, Marketing and Tax Preparation.
As of this writing, five classes, or 60 individuals, have participated in the program and despite some of the participant’s concerns about their ability to successfully manage the payment schedule, have demonstrated a 99% completion rate.
As one of our participants, barber Benjamin Carrillo said, “At first I was concerned about being able to make my payments on time, but I knew the group was counting on me. I was able to make adjustments to my expenses and it was easy to save. I’m going to do it again.”
By applying technology to an age old practice, used all over the world due to its ability to create a mix of forced discipline and peer pressure, we stumbled upon one potential solution to the IDA puzzle.
For more information or questions, contact Luis Cervera at luis@emoneypool.com.
Luis Cervera is President and Co-Founder of eMoneyPool, an online community finance tool based on the lending circle or ROSCA. eMoneyPool has perfected the traditional model known around the world by applying technology in order to make it easier, safer and more efficient while guaranteeing the entire process. The eMoneyPool platform helps individuals reach their short-term financial goals while building a positive payment history which is accepted by its lender partners.
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