# Presentation: 489242

## Using Financial Innovation to Support Savers:  From Coercion to ExcitementFDIC Committee on Economic InclusionMarch 19, 2008

**Using Financial Innovation to Support Savers:  From Coercion to Excitement****FDIC Committee on Economic Inclusion****March 19, 2008**

**Peter Tufano****Harvard Business School, **
**D2D Fund, and NBER**

## Why this discussion?

**Savings is important for families, both to achieve long-run goals and *****to withstand short-term shocks***
**A large fraction of households are *****asset-poor***** **
**People differ and no one solution will fit all**
**Array the full range of ways to support savings for low to moderate Americans**

## The continuum of programs

**   ****Force     Make Hard     Make Easy    Bribe      Social      Make Fun**
** ****to Save    *****Not***** to Save     to Save      to Save    Support   & Exciting**

## Force to Save

**   ****Force     Make Hard     Make Easy    Bribe      Social      Make Fun**
** ****to Save    *****Not***** to Save     to Save      to Save    Support   & Exciting**

| Impediment | People can’t or won’t save |
| --- | --- |
| Change | Take away the decision;  Mandate or Grant Savings |
| Partner | Government |
| Resources | Political will and money (grant) |
| Examples | Mandate: Social Security
Grant: UK Child Trust Fund; Aspire Act and others |

## Make it hard NOT to save

**   ****Force     Make Hard     Make Easy    Bribe      Social      Make Fun**
** ****to Save    *****Not***** to Save     to Save      to Save    Support   & Exciting**

| Impediment | Procrastination |
| --- | --- |
| Change | Make people to decide not to save |
| Partner | Government, employer, businesses |
| Resources | Process and product innovation |
| Examples | Defaults:  Auto-enrollment, Auto-IRA
Bundling: Savings added to credit, payments, other products |

## Make it easier to save

**   ****Force     Make Hard     Make Easy    Bribe      Social      Make Fun**
** ****to Save    *****Not***** to Save     to Save      to Save    Support   & Exciting**

| Impediment | Institutional barriers to savings – it’s too hard |
| --- | --- |
| Change | Simplify the savings process |
| Partner | All |
| Resources | Process innovations |
| Examples | Change place of savings:  Tax-refund based programs, workplace programs, AFS programs, retail programs (buying savings)
Change time of savings:  Pay yourself first |

## Bribe to save

**   ****Force     Make Hard     Make Easy    Bribe      Social      Make Fun**
** ****to Save    *****Not***** to Save     to Save      to Save    Support   & Exciting**

| Impediment | Savings is economically unattractive |
| --- | --- |
| Change | Provide financial incentives to save |
| Partner | Government, perhaps employer |
| Resources | Money |
| Examples | Tax advantaged savings programs (401k, IRA), IDA programs, Savers Credit |

## Support social savings

**   ****Force     Make Hard     Make Easy    Bribe      Social      Make Fun**
** ****to Save    *****Not***** to Save     to Save      to Save    Support   & Exciting**

| Impediment | Savings not culturally attractive enough |
| --- | --- |
| Change | Support social savings |
| Partner | Social groups |
| Resources | Network bonds |
| Examples | Geographic: America Saves!                                  Preexisting Groups: ROSCAs, cultural groups    New Groups: Web-based social network sites                 Families: Gifting savings |

## Make Savings Fun

**   ****Force     Make Hard     Make Easy    Bribe      Social      Make Fun**
** ****to Save    *****Not***** to Save     to Save      to Save    Support   & Exciting**

| Impediment | Savings is boring |
| --- | --- |
| Change | Make savings fun and exciting |
| Partner | Business (with policy support) |
| Resources | Marketing and policy change |
| Examples | Collectible Savings
Prize Based Savings |

## The British Premium Bond Program

**The British Premium Bond Program**

## What are promising low-cost opportunities? What can the FDIC do?

**Defaults: Auto-savings **
**Bundling: Plus-savings**
**Lowering barriers – tax refunds and nearly-auto save**
**Lowering barriers—supporting “buying” savings with simpler retail processes and KYC rules**
**Train to save—kid’s programs**
**Social networks—gifting and supporting informal savings**
**Exciting—prize based**

**Encourage auto-save pilots **
**Study and encourage broader use**
**Help banks with *****split-refund IRA work*****; support *****indirect savings*****, support *****savings bonds***
**Study modifications to *****KYC rules***** (e.g., two step process); help  banks support non-bank programs**
**Convening to *****focus attention***
***Paradigm shifts*****: We vs. I savings; savings as gifts**
**Study; explore how to make *****prize linked permissible***

- _OPPORTUNITY__	__	__	__         FDIC STEPS_