Savings Innovations for Low and Moderate Income Workers.ppt

© 2009, D2D Fund, Inc.,1,Savings Innovations for Low and Moderate Income Workers,Preeti Mehta D2D Fund, Inc. Retirement Issues in the 21st Century June 2, 2009,,© 2009, D2D Fund, Inc.,2,Agenda,Why Savings, State of Saving The Challenge Can Low and Moderate Income People Save? Saving For Retirement? Some Ideas Questions / Discussion,© 2009, D2D Fund, Inc.,3,Introductions,D2D Fund, Inc. Mission: expand access to financial services, especially asset building opportunities, for lower-income families by creating, testing & deploying innovative financial products & servicesBoston (Roxbury) based, non for profit Founded in 2000 by Harvard Business School professor and senior associate dean, Peter Tufano Response to need to think in terms of scale, and link private sector capabilities to public / non-profit ideals,© 2009, D2D Fund, Inc.,4,State of U.S. Saving / Wealth,10% of HH have financial assets of <$100 Bottom ¼ of HH: mean net worth of ($1,400) 25 to 33% are “asset poor” can’t survive three months at poverty line Est. asset poverty by specific group: Blacks / Hispanics 62% Head aged less than 25 years 72% Head with < high school degree 60% Female heads with children 71% 2/3rds of HH in lowest quintile of income had not saved in last 12 months,Sources: Bucks, Kennickell, and Moore (2006), Survey of Consumer Finance (2004 & 2007), Haveman and Wolff (2001), Caner and Wolf (2002),© 2009, D2D Fund, Inc.,5,Challenges to Saving…,It’s no fun It’s tough to remember / follow through (at opportune moments) I’m not sure where to save I don’t have the money to save,© 2009, D2D Fund, Inc.,6,….Especially for Low and Moderate Income Families and Workers,Mistrust mainstream financial service firmsNo bank accountLong-term goals & liquidity needs in tension,,But they can and do save, with the right support,Institutional Savings Theory D2D experiments with Spilt Refunds; U.S. Savings Bonds, Prize Linked Savings,© 2009, D2D Fund, Inc.,7,“ Institutionalized arrangements provide tremendous access and incentives to accumulate assets. People participate in retirement pension systems because it is easy and attractive to do so. This is not a matter of making superior choices. Instead, a priori choices are made by social policy, and individuals walk into the pattern that has been established.”- Sherraden, M. (1991) Assets and the Poor: A New American Welfare Policy, Armonk, NY: M.E. Sharp, Inc. (p. 127),Saving for Retirement? – some evidence from D2D pilot work,Low and Moderate Income workers save for the long term save for education (62%), retirement (16%) in ‘08 buyer survey redemption rates are remarkably similar to national Series I bond redemptions,© 2009, D2D Fund, Inc.,8,Source: Bureau of Public Debt, May ‘09,,Saving for Retirement – impact of incentives on take-up of IRAs*,tax filers in St. Louis H&R Block offices were divided into three groups: One group received no matches, and two others received matches of 20% and 50% of IRA contributions both take-up and dollars saved were higher in “higher match” groups Take-up: 3% in the group that received no match, vs. 8% and 14% respectively in the others IRA contributions averaged $765 in the “zero match” group and $1,100 in the groups that received matches,© 2009, D2D Fund, Inc.,9,*Saving incentives for low-and-middle-income families: Evidence of a Field Experiment with H&R Block, by Esther Duflo, William Gale, Jeffrey Liebman, Peter Orszag, Emmanuel Saez,© 2009, D2D Fund, Inc.,10,Can Saving be Fun?,© 2009, D2D Fund, Inc.,11,Quick Poll – What’s More Exciting?,DEPOSIT SLIP,© 2009, D2D Fund, Inc.,12,Gaming & Saving?,38% of those with incomes below $25,000 think that winning the lottery represents the most practical way for them to accumulate several hundred thousand dollars. - 2006 Consumer Federation of America study*,* mondreams.org/news2006/0109-05.htm,Lottery players may seek: entertainment financial planning / wealth building Can we strengthen #2 without losing #1?,© 2009, D2D Fund, Inc.,13,How about “Prize-Linked Savings”?,Concept: Earn chance(s) to win by saving Forego part of return to fund prize(s) Why? Make saving fun, exciting, interesting Divert gaming dollars to saving Exploit our weakness for evaluating odds Consider: $57.4 billion in US lottery sales (2006) Average of $515 per household 80% of gambling revenue comes from HH w/ income < $50k*,*Source: Tufano, Maynard and De Neve, Consumer Demand for Prize-Linked Savings.,© 2009, D2D Fund, Inc.,14,,A Test: Save to Win,Test concept in the US 8 credit unions in Michigan Led by D2D support from Center for Financial Srvcs Innovation / Wal-Mart Fdn $100,000 grand prize, smaller prizes monthly $25 deposit to Share Cert. = 1 chance to win,© 2009, D2D Fund, Inc.,15,Save to Win: Interim Results,Launch: January, ‘09 Results as of May 12 ‘09 5500 accounts opened $1.6m deposits Survey findings: $2k or less in financial assets & savings: 29% Report household income less than $40K: 43% Spent on lottery / gambling in prior 6 mos: 62% less than a college education: 67%,。