America Saves Week: Time to Make a Plan

America Saves Week kicks off February 25.  This annual event offers people a chance to assess the status of their own saving and take financial action.  America Saves Week is coordinated by America Saves and the American Savings Education Council, and also includes hundreds of partners who promote the event across the country.  The theme this year encapsulates three essential steps: “Set a Goal. Make a Plan. Save Automatically.”  It is hoped that with practice individuals can turn these three actions into healthy financial habits.

Last summer, a survey by Bankrate.com reported that 22% of Americans have insufficient savings and 24% have no savings at all.  The situation in Oklahoma, as discussed in a previous post, is not any better with nearly 44% of residents living without sufficient savings to cover a job loss or other crisis. However, storing up assets for a rainy day is only one reason to save.  Putting money aside for vacations, education, retirement and large purchases are also examples of wise financial planning.  By saving money for large purchases, families can avoid paying high finance rates.  Saving money to invest in education can lessen the burden of future student debt.  And saving for vacations and retirement will lead to a higher quality of life.

While the positive aspects of savings are easy to understand, as the statistics point out, a significant number of the Americans still fail to take steps to build savings into their budget. 

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President Calls for Tax Savings Pioneered by CAP

I was pleased to see recent news that President Obama used his weekly address to announce new initiatives to promote savings. (White House, New York Times, New America Foundation). Among other ideas, he charged the IRS with implementing a checkbox on tax returns that would allow you to save a portion of your refund in savings bonds. Behavioral economics teaches us that making saving simpler and available at an opportune time will lead to more people saving. CAP worked with D2D Fund in a pilot to offer savings bonds through our free tax preparation program.

Additionally, the president is seeking new rules that would encourage employers to automatically enroll their workers in retirement plans unless employees opt out. As I’ve mentioned before, “opt out” rules increase take-up of positive behaviors dramatically without limiting one’s freedom or constraining their choices.

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Image used under Creative Commons license from Flickr user alancleaver_2000.

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Budget Blogging

President Obama released his budget for the 2010 fiscal year. The document is a kind of roadmap for the President’s initiatives over the next several years, but he’s left lots of room to Congress to fill in details.

Anyway, I thought I’d put up some topics of potential interest to our readers:

• Early Childhood – The President will build on the investments made in the stimulus bill (e.g. doubling Early Head Start slots), as well as expand early childhood eduation by encouraging state and local investment, promote coordination among state, local, and federal partners, and improve information about program options and quality. Additionally, the budget proposes to create the Nurse Home Visitation program to “provide home visits by trained nurses to first-time low-income mothers” and expectant mothers. This program is based on the evidence-based Nurse Family Partnership model, of which Oklahoma’s Children First is a part. the Read more here.
• Quality Jobs – The Labor Department budget supports transitional jobs and career pathway programs that help low-income Americans attain quality jobs that pay a living wage and offer opportunities for advancement. New workforce programs will continue to focus on “green jobs” that prepare workers for jobs in renewable energy and energy efficiency.
• Savings and Economic Stability – Building on the work of behavioral economists that demonstrates automatic enrollment in 401(k) programs dramatically boosts participation, the President seeks to create a system in which every employer would automatically enroll every worker into a retirement or pension program. If the employer didn’t offer such a plan themselves, the money would be deposited into an IRA account instead. Such programs have been shown to boost participation rates to as high as 90%. See this article in Harvard Magazine for more on automatic enrollment and behavioral economics. The budget also boosts the Saver’s Credit by providing a 50% match on the first $1,000 of savings for families earning less than $65,000.
• Promise Neighborhoods – The President includes his campaign commitment to supporting “Promise Neighborhoods,” which would be modeled after Harlem Children’s Zone and seek to improve “life outcomes in high-poverty areas” through intensive services and innovative educational strategies.
• Social Innovation – Finally, in a move sure designed to forever win the hears of people like Diama, the President proposes a Social Innovation Fund, which would support new approaches to major challenges and leverage private and philanthropic funding. The Stanford Social Innovation Review recently published an article suggesting four federal policies to promote social innovation and entrepreneurship.

Did you see anything else of interest to you?

Obviously all these well-laid plans must still ultimately be funded by Congress, so keep watching.

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Image used under a Creative Commons license from flickr user Ma1974.

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Urban Institute Event on Assets for Economic Security

A NEW SAFETY NET FOR WORKING FAMILIES:

ASSETS FOR ECONOMIC SECURITY

Tuesday, January 13, 2009

9:00–10:30 a.m. ET / 8:00-9:30 a.m. CT

To sign up for the audio webcast visit http://www.visualwebcaster.com/event.asp?id=54377.

Panelists:

• Greg Acs, principal research associate, Income and Benefits Policy Center, Urban Institute
• Leonard Burman, senior fellow, Urban Institute, and director, Tax Policy Center (moderator)
• Caroline Ratcliffe, senior research associate, Center on Labor, Human Services, and Population, Urban Institute
• John Weicher, director, Center for Housing and Financial Markets, Hudson Institute, and former assistant secretary, federal housing commissioner, and chief economist, U.S. Department of Housing and Urban Development
• Andrew Yarrow, vice president and Washington director, Public Agenda, and author, Forgive Us Our Debts: The Intergenerational Dangers of Fiscal Irresponsibility.

Asset building and saving are essential components of a strategy for promoting economic advancement and security. While public policy has focused on increasing income for low-income working families, far less has been done to encourage them to save. For example, just 3 percent of the more than $400 billion in annual federal tax breaks subsidizing assets (such as the mortgage interest deduction) benefit the lowest-income 60 percent of households. In today’s uncertain economy, putting something aside for the future is more important than ever.

Be part of the conversation as experts discuss and debate proposals aimed at improving low-income families’ opportunities to save and invest. These include tax subsidies that increase disposable income for working families and policies directly aimed at helping families reduce debt and increase savings.

To further new thinking on protecting vulnerable households and helping them thrive, the Urban Institute published “A New Safety Net for Low-Income Families” (available at http://www.urban.org/projects/newsafetynet). Two of its papers — “Making Work Pay Enough: A Decent Standard of Living for Working Families” and “Enabling Families to Weather Emergencies and Develop: The Role of Assets­” — will be the focus of this forum.

Note: Speaker bios and resource materials will be posted at http://www.urban.org/events/other/SafetyNet-Assets.cfm by January 12. Audio files of the event will be posted on the same page soon after January 13.

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A Primer on the President-elect

No matter what your politics, you’ve got to admit that the times are a-changin’! I thought since it’s official I’d post up a few links on President-elect Obama’s positions/plans on topics of TI interest:

Children and Family: see the campaign page and a post on Early Ed Watch.

In a nutshell, the Obama administration intends to invest in zero-to-five early childhood programs using what they call “Early Learning Challenge Grants.” The goal is to build capacity and quality, improve state accountability standards, and encourage public-private cooperation. Additionally, Obama hopes to quadruple Early Head Start, increase Head Start funding (especially to build quality), increase funding for the Child Care and Development Block Grant, and support a proven intervention called nurse-family partnerships (called Children First in Oklahoma). The President-elect also supports policies that strengthen “work/family balance” by expanding the Family and Medical Leave Act, provide funding to states that establish paid leave laws, expand the Child and Dependent Care Tax Credit, and promote flexible work arrangements.

Economic Security

• Workforce and jobs: Obama proposes to fund career pathways that lead to steady jobs with opportunities for advancement, expand the EITC (especially for non-custodial parents), and improve access to job transportation.
• Poverty: The President-elect admires Geoff Canada’s Harlem Children’s Zone and hopes to replicate it by creating twenty “Promise Neighborhoods.” Like HCZ and even Tulsa Initiative, the program will support neighborhoods that offer intensive interventions in areas of concentrated poverty that focus on improving the prospects for low-income kids from birth to college. That includes early childhood education, after-school programs, youth violence prevention, and parenting education.
• Asset building: See this document (PDF) from the New America Foundation. Obama wants to encourage employers to make opting into retirement plans the default, which is shown to dramatically improve take-up. He also proposes to make the Saver’s Credit refundable and to use federal funds to offer a 50% match for the first $1,000 in contributions per family. Finally, Obama says he will clamp down on abusive credit practices by improving accountability in the subprime mortgage industry, improve bankruptcy protections for mortgage-holders, create a quality rating system for credit cards, and institute a bill of rights for credit cardholders.

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Behavior Change, One Cup of Coffee at a Time

One thing we’re interested in at the Tulsa Initiative is how to get people to change their behaviors, borrowing heavily from ideas in psychology and behavioral economics (see Nudge or the work of two of our colleagues on the Tulsa Children’s Project, Michael Barr and Sendhil Mullainathan). So I like to keep my eyes on what others are doing to fool, cajole, or “nudge” people into behaving in a preferred way.

Capital Ideas, a marketing publication from the University of Chicago’s Graduate School of Business and, apparently, something I subscribe to, has an article in the November issue on why marketers should use customer rewards programs to trick persuade their loyal customers to spend more.

The first experiment looked at coffee purchases by customers who participated in a coffee rewards program at a café located within the campus of a large university. Customers were offered a card that would let them earn one free coffee after buying ten coffees. To keep track of the timing of purchases, a participant’s card was stamped after each purchase.

As participants in the rewards program accumulated more stamps on their cards, the authors observed that the average length of time before the next coffee purchase decreased. Members bought that next coffee sooner the closer they were to getting a free one. In fact, the average time between purchases accelerated by about 20 percent from the first to the last stamp on the card. In other words, members purchased two more coffees in the time it took to complete the card than they would have if they hadn’t accelerated their purchases. (emphasis mine)

The author, Oleg Urminsky, recommends that marketers structure rewards programs that create “the illusion of progress” so that customers will shell out more cash more quickly increase their frequency of participation. For instance, customers who were given a 12 stamp card with 2 “free” stamps already given completed the program 3 days faster than customers with a regular 10 stamp card (12.7 vs 15.6 days).

For people like me, who usually forget that I have a rewards card in my wallet until I’ve walked out the door, Urminsky adds that the customer should get “regular updates about where they are in the program.” Sage advice indeed.

The obvious implication for service delivery is that programs should contain a rewards program that incentizives the desired behavior. But it seems to me that this effect, which is unsexily titled the “goal-gradient hypothesis”, could be leveraged outside of rewards programs per se. For example, if we were to design a matched savings program with the goal of purchasing a $4,000 car (clearly this is strictly hypothetical…), this research suggests that matching at the front end could be more effective than matching at the same rate throughout. That is, a 100% match up to the first $500 would move the participant toward the savings goal quickly and help the participant overcome any initial resistance to savings (e.g. the goal seems too distant). The match rate could then be reduced as the participant increases their own savings behavior as they near their goal.

What am I missing?

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