Individual Development Accounts for Beginning Farmers and Ranchers

Asset-Building for Beginning Farmers

California FarmLink developed the first of these savings accounts for agriculture; they recently trained others on their program

by Michael Holton, michaellh@cfra.org

Individual Development Accounts have been around since 1995. IDAs are matched savings accounts designed to help low-income persons accumulate a targeted amount of funds for a specified purpose. The most common use so far has been purchasing homes, forming small businesses, or furthering education.

Account holders generally make a monthly contribution to an account, usually over a one to four-year period, and their savings are matched by funders. The match is typically from one to three dollars for every dollar saved. Funds accumulate in a savings account, which for some is their first experience as an account holder at an insured institution.

IDAs grew from three programs in 1995 to more than 500 programs by 2002. They now encompass more than 20,000 account holders. These matched accounts are similar to 401 (k) plans, but serve a broader range of purposes. Now, federal, state, and local governments; the private sector; and nonprofit organizations can match IDA deposits made by low-income or targeted persons.

California FarmLink created the first beginning farmer IDA asset building program in 2005. This linking group is patterned after the Center’s pioneering Land Link program. The main focus of California FarmLink’s program is to direct the IDA money to farm equipment and land purchases, particularly downpayments.

Working with Wells Fargo and other banking institutions, California FarmLink recruited eight clients the first year. The match ratio was three to one. At a $100 contribution from the client, that entitles the aspiring farmer to $9,600 in 2 years or $4,800 per year.

Participants in this program must attend educational classes and workshops geared to helping them save money and showing them what farm financing is all about. Partners in this relationship were the Farm Service Agency and the Alliance for Land Based Agriculture.

On February 8-10, 2006, California FarmLink hosted training for groups around the country on their IDA program. Michael Holton attended from the Center, as did staff from varied groups and organizations in Michigan, Minnesota, North Carolina, New England, and Washington state.

The training aligned farming groups around the country to see if the concept of Individual Development Accounts would work in their regions. The consensus of the group is that it would work and that each partner should take back information and begin to design the program.

Beginning farming programs need to diversify their offerings as many of the traditional methods of helping the beginner have either dried up or are simply not enough. Adding the potential of an IDA to the portfolio of services offered in Nebraska for beginning farming makes sense and should be explored.

With the passage of an increase in the Nebraska Beginning Farmer Tax Credit in 2006, IDAs could be another way to entice beginners to save for their future. There is a future in farming, and with tools like the IDA, we can help make it happen.

post a question or comment here or contact John Crabtree, johnc@cfra.org

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