Match Rates and Savings: Evidence from Individual Development Accounts

How do people respond to matched-savings incentives? Studies of 401(k) plans find that matching increases participation but that higher match rates do not increase--and may decrease--the level of savings. This paper analyzes saving by low-income people in Individual Development Accounts (IDAs), a new savings incentive that matches withdrawals if used for home purchase, post-secondary education, or self-employment. The model controls for several sources of bias common in estimates of match-rate effects: unobserved heterogeneity among firms and among participants, censoring of savings at the match cap, and an inverse relationship between match rates and match caps. In IDAs, higher match rates are associated with an increased probability of continued participation but also with a decreased level of savings.