Association for Public Policy Analysis & Management

Panel: Lessons Learned and Innovative Practice from Savings Initiatives for Low-Income Families

(Poverty and Income Policy)

The distribution of wealth is extremely unequal. In 2012, the top one percent of families in the United States hold 42% of wealth (Saez and Zucman, 2014). In contrast, the bottom quarter of families has no wealth, with zero or negative net worth (Wolff, 2012; Federal Reserve Bulletin, 2014). Racial and gender wealth gaps are also well documented. In response, there has been growing interest in ‘asset-building,’ which include policies and institutional arrangements that help low and moderate income households to accumulate assets and build wealth. This includes individual development account (IDA) and child development account (CDA) initiatives that allow families to save for specific asset-building purposes over time as well as innovative practices that encourage greater savings. For example, techniques from behavioral economics have been tested to see if particular messaging or prize-linked savings might increase deposit levels or frequency. This panel includes new data from structured savings initiatives as well as recent findings from tests of innovative practice. It also offers perspectives on how low-income families might save across various motives and time horizons: long-term savings for young children, mid-term savings for asset purchase, dedicated savings at tax time, or lottery savings which reduces other gambling. The first paper presents initial findings from an experimental evaluation of Individual Development Accounts undertaken at three Assets for Independence (AFI) program sites. Results summarize the impact of AFI participation on savings, asset purchases, and material hardship. The second paper uses mixed method data from a quasi-experimental child development account program offered at Head Start centers in Michigan. Baseline survey data is available from 790 treatment and control participants. There is also a second wave survey, TIAA-CREF account data, and in-depth interviews with 50 adult caregivers. Although these low-income families face many barriers to saving, most treatment participants maintain initial account deposits and value the money dedicated to their children’s education. The third paper uses data from a randomized controlled trial (RCT) and associated survey data aimed at testing methods for increasing tax-time saving among low-income households. The research tests the use of behaviorally-informed interventions aimed at leveraging the income tax refund as a means to increase emergency saving in spite of the often turbulent financial lives of low-income households. Data from an RCT with over 600,000 participants provides insights into how low cost nudges increased savings outcomes. The fourth paper uses data from field experiments with 895 IDA participants across 48 implementation sites testing four program features, including lottery-based savings incentives. None of the interventions significantly increase savings, but the paper offers insights into how liquidity constraints and distracting communication might make low-income families hesitant to save for remote savings goals. Together, the papers offer key insights to understanding under what circumstances low-income families are likely to save and build assets. When there are liquidity constraints and financial hardship, regular saving for long-term purposes may be challenging. In spite of these challenges, findings suggest taking advantage of behavioral nudges, tax-time refunds and lump sum deposits can still encourage savings.