implications for state policy · ©2010 d2dfund, inc.©2011 d2dfund, inc. sources: center for...

©2011 D2DFund, Inc.

Innovations in SavingImplications for State Policy

National Conference of State legislatures

Opportunities for Working Families Leadership Forum for State Lawmakers

June 27, 2011

©2010 D2DFund, Inc.©2011 D2DFund, Inc.©2011 D2DFund, Inc.

Agenda

– Why Savings, State of Saving

– Some Ideas

– Questions / Discussion


� Mission: strengthen the financial opportunity and security of low and moderate income consumers by innovating, incubating & stimulating new financial products and policies

� Non-profit 501(c)3 headquartered in Roxbury, Massachusetts

� Founded in 2000 by Harvard Business School Professor Peter Tufano

� Focus on innovation, scale & real-world testing

Doorways to Dreams (D2D) Fund


D2D Supporters & Collaborators


Savings Rate: Trend

Personal Savings Rate by Quarter1960-2008

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

Source: Federal Reserve Bank of St. Louis


State of Financial Preparedness

“How confident are you that you could come up with

$2,000 if an unexpected need arose within the next month?”

58%49% 47% 46% 44%

35% 34%27% 26% 23%

18% 18%10%

2%

7% 7% 7%5%

6% 11%

5% 4%4%

5% 6%

1%

MEX UK GER USA POR FRA ARG CAN NETH SING ITALY HKG LUX

I don’t know Can't or Probably Can't

Source: Lusardi, Schneider & Tufano (www.tnsglobal.com/news/news-97CC22ABE14E4373B863F0734D99121A.aspx)


Problem Definition

– Widespread financial insecurity

+ ¼ of Americans have no savings

– in bottom quintile, 2/3rd are not savers

+ 60MM adults are unbanked or underbanked

+ 44MM Americans live in poverty, 1 in 5 children

– Why savings?

+ Asset ownership associated with

– Higher educational achievement

– Stronger physical and mental health

– Better physical and cognitive development

Sources:US Census (2010), FDIC (2009), Harris Interactive poll (2010), Congressional testimony of Dr. Michael Sherraden (2005)


Agenda


– Some Ideas



Why Don’t People Save?

– Can’t find the money

– Not convinced it matters

– It’s not easy

– No place to save

– It’s no fun


Can Saving be Fun?


Saving Policy / Product Design Spectrum*

Coerce saving

Make it hard not

to

Make it Easier

Bribe People

Use Social

Networks

Make it Fun

US Social Security, UK child trust fund

Defaults, bundling

Workplace, tax time saving

Incentives ROSCAs, peer support

Prize-linked, collectible savings

Source: Tufano and Schneider, Using Financial Innovation to Support Savers: From Coercion to Excitement (2008)


Quick Poll – What’s More Exciting?

DEPOSIT SLIP


Gaming & Saving

38% of those with incomes below $25,000 USD think that winning the lottery represents the most practical way for them to accumulate several hundred thousand dollars.

- 2006 Consumer Federation of America study*

* http://www.commondreams.org/news2006/0109-05.htm

Lottery players may seek:

1) entertainment

2) financial planning / wealth building

Can we strengthen #2 without losing #1?


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:– $60 billion in US lottery sales

– Average of $515 per US household

– 80% of gambling revenue from HH w/ income <$50k*

*Source: Tufano, Maynard and De Neve, Consumer Demand for Prize-Linked Savings.


International Precedent

� Argentina

� Brazil

� Denmark

� Germany

� Great Britain

� Kenya

� India

� Indonesia

� Ireland

� Mexico

Noteworthy:

� $47B in UK “Premium Bonds” outstanding, 23MM holders

� Swedish “Lottery Bonds” program est. 1918

� Prizes range: $1.7M tax free (UK), Mercedes (Oman), Motorcycle (Pakistan), DVDs (Mexico)

� New Zealand

� Oman

� Pakistan

� South Africa

� Spain

� Sri Lanka

� Sweden

� Turkey

� United Arab

Emirates


A Test

– Proof-of-concept in the US+ 2009 pilot with 8 Michigan credit unions

+ $100,000 grand prize

+ $3.3K / month in smaller prizes

+ Each $25 deposit = chance to win

+ Max of 10 chances / month


Save to Win pilot year results (2009)

� Sales– 11,600 accounts opened

– $8.6MM deposits

� Survey findings� 6,000 surveys (50%+)

– Household income < $60K: 67%

– <40k: 44%

– <$20k: 16%

– < $2k in financial assets: 28%

– < college education: 65%

– Spent on lottery / gambling in prior 6 months: 59%

– Racial / ethnic minority: 27%


Save to Win continues to grow

– Continued growth – through 12/31/2010:

– Participating credit unions:

+ from 8 to 36

– Accounts:

+ from 11,600 to 16,833

– Average balance:

+ from $734 to $1,673

– Deposits:

+ from 8.5MM to 28.2MM

– Total winnings: 233k


– National expansion in credit unions

– State lotteries?

+ Over 200k retail outlets

+ Legally authorized to conduct lotteries

+ FDIC convened lotteries, vendors (2009)

+ Arkansas SB905 directs lottery to consider PLS

+ Several other states studying

Future of Prize-Linked Savings (PLS)


True Stories

In 2009 & 2010 I gave this talk… several of you acted:

+ MD legislators Olszewski & Klausmeier introduced Bill 990, 886; signed by Governor O'Malley 5/20/10

+ RI Senator Pichardo introduced Senate Bill 2399; signed by Governor Carcieri 6/2010

+ NE Senators McGill, Dubas, Hadley, Mello et al introduced LB524; signed by Gov. Dave Heineman 4/27/11

+ WA Senators Kilmer, Hobbs, Carrell, Keiser et al introduced SB 5232; signed by Gov. Christine Gregoire 5/11/11

+ NC Senators Gunn, Clary et al introduced SB 513; signed by Gov. Beverly Perdue 6/16/11

+ ME lawmakers introduced SB0645, signed into law in 2010

– Bills introduced / activity in AL, FL, IA, MS, NM


What Can State Legislators Do?

– Challenge+ State law generally prohibits “private lotteries”

– How state legislator can help+ A tailored exception to state gambling prohibitions

– most relevant for credit unions

– no cost to the state

– many examples to work from

+ Encourage state lottery to explore PLS

– what is the lottery’s mandate in your state?

– who does lottery director answer to?

– May or may not require legislation

– contact us for background materials


Can Saving be Easy?


Saving Policy / Product Design Spectrum*

Coerce saving

Make it hard not

to

Make it Easier

Bribe People

Use Social

Networks

Make it Fun

US Social Security, UK child trust fund

Defaults, bundling

Workplace, tax time saving

Incentives ROSCAs, peer support

Prize-linked, collectible savings

Source: Tufano and Schneider, Using Financial Innovation to Support Savers: From Coercion to Excitement (2008)


What Makes “Easy”?

– Convenient

– Timely

– Painless (relatively)

– Relevant

– Simple

– Someone available to help


Opportunity: Tax Season

– Huge financial event– $300 billion refunded each year

– $115B to 68MM Low / moderate-income families (< $40k)

– Average refund $1,680

– Up to $7k (25%+ of annual income)

– Also…– Universal

– Permanent

– Recurring

Source: IRS, tax year 2006 data (www.irs.gov/pub/irs-soi/06in33ar.xls)

©2010 D2DFund, Inc.©2011 D2DFund, Inc.

Tax Time as Easy Saving Time?

– What if one could pre-commit to save at tax time?

– Single decision vs. series

– Funds already available

– Finances on the mind

– Someone to help (2/3rds of US filers seek help)

But How?


D2D tests tax refund splitting

Before: Spend / Save choice after $ refunded

Split Refunds: choice before $ refunded


Outcome: IRS introduces split refund option


But where to save?

– To save, everyone needs a “bucket”

+ Ideally, accessible via tax filing process

+ With suitable characteristics

– Simple

– Accessible

– Credible

– High value

– Save for relevant goals

Goal: “Impulse Saving”


An ideal “bucket”: US Savings Bonds

– Accessible

+ Anyone can own them

+ Low initial investment

+ Federal government issues

– Attractive features

+ Safe

+ Credible

+ Can be purchased for others (kids)


An Easy National Saving Strategy

Tax (refund) Time...

$300,000,000,000+

+ Refund

Splitting...

+ U.S. Savings

Bonds

“Spend Some” “Save Some”


D2D tests tax time savings bonds

– D2D tax time “Refunds to Assets” pilots – 2007 to 2009, 27 commercial offices, 70+ volunteer sites


Findings: Easy helps even “non-savers” save

– Substantially increased savings+ In controlled trials, 6-9% take up

+ Mostly by women (79%), parents (70%)

+ Low income ($21k adjusted gross income)

– Savings by “new” savers (55% < $100 in savings)

+ Most didn’t plan to save

+ Substantially saving for kids


“…We’ll make it easier for people to save

their federal tax refunds, which 100

million families receive…You’ll be able to

check a box on your tax return to receive

your refund as a savings bond.”--Pres. Barack Obama, Sept. 5, 2009

Outcome: Policy enacted


From policy to results

Marketing campaign: Bonds Make It Easy

+ Targets: gatekeepers & consumers

+ Distribute message via partners, media, social media & direct outreach

+ Results:

– From <2k buyers / $400k saved (2009)

– to 45k buyers / $11MM saved (2011)

+ Goals:

– 100k savers / $50MM saved (2012)

– 1MM savers / $500MM saved (2020)



– Challenge:– Drive use of IRS option

– 45k people saved $11MM in (’11); goal of 1MM users (’20)

– Solution:+ Local & state marketing & awareness

– Events, constituency newsletters inserts

– Direct state tax authority to join awareness effort?

– State-wide tax time savings day, Saving Bond day

+ Complementary state policy

– California: introduced legislation (AB (1693)


How Do Improve Financial Decision-Making?

(Where Can I Find the Money to Save?)

©2010 D2DFund, Inc.©2011 D2DFund, Inc.©2011 D2DFund, Inc. Sources: Center for Responsible Lending, PBS Frontline, Time Magazine

Changing decision-making behavior

– Consider:

– $24 billion in overdraft fees (2008)

– $12 billion in credit card penalty fees (2003)

– $40.7 billion US credit card industry profit (2007)

– Imperfect Solutions

– Regulation – blunt instrument, stifles innovation, limits choice

– Consumer education – hard sell to consumers, effectiveness

unclear, expensive

There must be a better way…


Engagement is Critical

Which is more likely to get your attention?


A new approach to financial education

– D2D’s vision is Financial Entertainment

Taking cues from business and entertainment, we need to work with

and for consumers in the development of engaging, interactive new

media that teach them how to better manage their money.

– Financial Entertainment characteristics:– engaging vs. earnest

– targeted vs. comprehensive

– interactive vs. static

– accessible vs. restricted


Why games?

• Games teach as adults learn:

– Learn-by-doing (trial & error)

– Instant feedback / reward

– Repetition

– Pride of accomplishment (puzzle solved!)

– Social dimension (competition, share scores)


• Popular– 72% of Americans play video games

– FarmVille has over 69 million active users

• Accessible– Casual games can be learned quickly,

played for minutes or hours

– Play on mobile devices growing fast

• Non-traditional player– Average social gamer is 43-year-old female

– 74% of casual game buyers are women

Sources: NPD Group, August, 2008; ESA, 2009; Tech-Crunch

Why casual video games?


D2D library of games

On www.financialentertainment.org:

– Celebrity Calamity: Manage credit & debt

– Groove Nation: Dance budget game

– Bite Club: Vampire retirement savings

– FarmBlitz: Manage resources to build savings

– Refund Rush: Make the most of a tax refund


A Preview…


Game example: Farm Blitz

• Players become farmers

– Line up crops to earn income

– Borrow through “Rabbit loans”

– Pay debt or save after each round

– Buy trees (savings) to prepare for

future storms

• Game goal

– Accrue cash

– Plant trees (long-term savings)

– Don’t let rabbits (debt) run amok

2011 Nominee


– Results

– 150k+ plays in 15 months; average 24 minutes on game play

– Channels & Partners– Financial institutions (banks, credit unions, investment firms)

– Employers (retailers, hotels, fast food)

– Schools / Universities (community colleges)

– Government (state treasurer)

– NGOs (e.g. youth, job training, asset building programs)

– Military (tournaments for troops & their families)

Distribution

©2010 D2DFund, Inc.©2011 D2DFund, Inc.

Effectiveness

Table 2: Knowledge (Pre and Post, % Change)

Knowledge Area: Pre Post %

Annual Percentage Rate (APR) 55% 86% 58%

Finance Charges 48% 82% 71%

Pay More Than the Minimum 82% 93% 14%

Interest Compounding 61% 64% 4%

Knowledge & Self-confidence

Behavior Change

• Participants in randomized trial were 9 to 104% more likely to take action after playing Farm Blitz vs. those who read financial education material


Qualitative feedback

– Enthusiasm: “Can I have a copy of the game? Where can I buy it?”

– Engagement: “I’ve got the hang of it now, I can do this.”

– Education: “I’ve had credit cards for a while now, but I did not know what annual percentage rate, APR, was, until now.”

– Empowerment: “It helped me to better understand how to manage money.”


Future of Financial Entertainment

– Embed action steps in game play experience

+ e.g., pledges, transactions, product offers

– Push deeper in key distribution channels

+ Financial service firms, colleges, US military

– Explore new media, devices



– Challenge:– Re-orient discussion on financial “literacy” or education

to “financial entertainment”

– Emphasis on fun, innovation, scale, distribution and more “bite sized,” timely interventions

– Role for legislators: – Change focus, language of state financial literacy &

asset building commissions, task forces

– State-sponsored financial entertainment tournament?


Recap: Action Ideas

– Prize-linked Savings

– State “carve out” to gambling laws

– Direct state lottery to explore no lose game

– Tax Time Saving / US Savings Bonds

– State effort to promote IRS policy (tax authority?)

– Informal awareness building (events, newsletters)

– State-wide sweepstakes promotion

– State split refund and/or bond purchase bill

– Financial Entertainment– Change language, focus of official state financial

education efforts

– State sponsored financial entertainment contest


Agenda


– Some Ideas



Contact Information

Timothy Flacke

Executive Director

D2D Fund, Inc.

[email protected]

617.541.9064

www.d2dfund.org

www.bondsmakeiteasy.org

www.savetowin.org

www.financialentertainment.org

implications for state policy · ©2010 d2dfund, inc.©2011 d2dfund, inc. sources: center for...

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