08-075 

Using Financial Innovation 

to Support Savers: 

From Coercion to 

Excitement 

Peter Tufano and Daniel Schneider

Copyright © 2008 by Peter Tufano and Daniel Schneider 

Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It 

may not be reproduced without permission of the copyright holder. Copies of working papers are available from the 

author. 
2

Using Financial Innovation to Support Savers: 

From Coercion to Excitement1

Peter Tufano* and Daniel Schneider** 

We review a wide variety of programs that support savings by families, in particular by low- and 

moderate-income families. These programs range from ones that literally compel families to save, 

to those that make it hard not to save, make it easier to save, provide financial incentives to induce 

savings, leverage social networks to support savers, and finally, to programs that excite people to 

save. These programs involve a number of different stakeholders, including governmental entities, 

social intermediaries, non-profit organizations, and for-profit firms including financial institutions. 

They embody a number of different assumptions about incentives, drawing from economics, 

psychology, and sociology. We describe examples of each program and provide some information 

on their economics and effectiveness. Our goal is not to identify the “best” program, but rather to 

lay out the range of innovations to meet the needs of heterogeneous potential savers. 

* Sylvan C. Coleman Professor of Financial Management and Senior Associate Dean, Harvard 

Business School; Chairman, Doorways to Dreams (D2D) Fund; and Research Associate, NBER. 

ptufano@hbs.edu (corresponding author) 

** Doctoral student, Princeton University, djschnei@princeton.edu

Draft: February 20, 2008 

1

 This paper was prepared for the National Poverty Center Conference on “Access, Assets and Poverty” and has 

benefited from comments from the conference organizers (Rebecca Blank and Michael Barr), the discussant Jeff Kling, 

and conference attendees. It is forthcoming in a volume edited by Blank and Barr on “Access, Assets and Poverty.” 

The ideas in this paper have also benefited from discussions and comments over the past years with many groups, 

including students, faculty and alumni at Harvard Business School, our colleagues at Doorways to Dreams Fund, and 

conference attendees at the Consumer Federation of America’s Financial Services Conference, the Boston Economic 

Club, the University of Wisconsin Institute for Research on Poverty, and the Harvard Joint Center on Housing Studies 

Consumer Credit Symposium. Tufano is grateful for the ongoing support of the Harvard Business School Division of 

Research; Schneider thanks Princeton University and the National Institutes of Child Health and Development 

(NICHD) for ongoing support; and the National Poverty Center Conference is grateful for funding by the Assistant 

Secretary for Planning and Evaluation (ASPE) and the Ford Foundation. 

© 2008, Peter Tufano and Daniel Schneider . This working paper is distributed for purposes of comment and discussion only. It may not be 

reproduced without the permission of the copyright holder. 
1 

C.1.0 Introduction 

In certain stylized economic models, household savings emerges mechanically and 

effortlessly as informed rational agents optimize lifetime consumption in light of their likely income 

streams, needs, and the hazards they might encounter. In other models, households are massively 

confused about intertemporal tradeoffs. They employ a set of “hyperbolic” discount rates to 

evaluate options that vary greatly from period to period, and their resultant decisions may be time 

inconsistent (Mullainathan and Shafir, this volume). While these are both useful observations about 

household decision making, they abstract away from the messiness of savings (Murdoch and Collins, 

this volume). Families, and of particular interest to us here, low-income families, save for a wide 

varieties of reasons, including identifiable reasons such as education and retirement and others that 

they can’t even articulate (like rainy days or mad money). Definitions of what constitutes 

“enough”—enough material possessions, enough services, enough savings—vary widely from 

person to person. 

In this messy world, where companies never exhort us to “Spend Less!”, savings is hard 

work, and it is no surprise that household savings is weak. Some are pessimistic about the potential 

to address this problem. Providing sufficient financial incentives to encourage low- and moderateincome families to save is too expensive and politically unlikely. And there’s no way that the private 

sector will jump on board because there’s not enough money to make it worth their while. 

While these concerns are real, we believe they are not the end of the story. Given that 

societal pressures to consume are not likely to abate, what realistically can other stakeholders—

governments, nonprofits, social institutions, and financial institutions—do to help families save? 

Given the diversity among people, it is unlikely that there is a single solution to the savings problem. 

Rather, we lay out a continuum of solutions in this paper, many of which have great promise in 

supporting household savings. The continuum ranges from solutions that force families to save 
2

(coercion) to others that seek to work consumers into a frenzy about savings (excitement.) These 

varied solutions emphasize different elements of human behavior or impediments to savings. Some 

require massive government policy, some require small changes in existing regulations, and still 

others are completely market oriented. Some require large subsidies, while others might be 

profitable on their own. We discuss each program from the perspectives of would-be savers as well 

as from those of other key stakeholders. 

Our notion of savings in this piece is explicitly broad: Savings is the deferral of consumption 

today to enable the use of funds later. That later period may be decades away, as in retirement. Or, 

in low-income communities, the deferral may only be a matter of weeks or months until a water 

heater breaks. We make no value judgments that only “long term” savings can be helpful to 

families. To the contrary, short term savings can be critical. An emergency fund that allows a family 

to quickly repair a car needed to get to work can be essential. Also, while most of the concepts we 

discuss could apply to people of all incomes, our emphasis is on savings structures that would be 

relevant to low- to moderate-income households, rather than high net worth households. For 

example, we discuss “excitement” as a means to foster savings, but emphasize lottery-like structures 

rather than the rush of a “ten-bagger” hedge fund investment unavailable to low-income families. 

 

C.1.1 The Savings Continuum: From Coercion to Excitement 

Beyond merely listing a number of savings programs, our work attempts to create a typology 

of savings along a variety of dimensions. Exhibit 1 provides a quick summary of the various 

dimensions. The first dimension is the mechanism by which the innovation changes the ability or 

motivation of the saver. At one extreme, families may not save because they simply do not have the 

financial resources after tending to necessities. In these instances, outright transfers may be 

necessary to create savings. Similarly, one might force families to save through government 
3

coercion. Short of coercion, other innovations may make it easier to save, or harder not to save. 

Certain interventions change the process of saving: who makes the savings decision, when the 

decision is made, and how the savings is collected. Other product innovations reengineer the costbenefit calculation of savings, either by adding monetary, social, or psychological incentives. Many 

innovations change both the processes and products of saving. 

Lurking behind these dimensions is a set of notions concerning the fundamental barriers 

facing would-be-savers. If individuals are rational in an economic sense and have well defined utility 

functions, then some of these programs are relatively simple to explain. If people simply prefer 

more to less, financial incentives should induce more savings. However, if individuals’ tastes and 

preferences are more pliable and multidimensional, then programs may address behavioral quirks, 

such as individuals’ tendencies to misestimate low probability events, be overly optimistic about 

their own abilities, or to draw mental fences around otherwise comparable activities. 

The interplay between impediments and solutions leads us to categorize innovations on a 

scale from involuntary to voluntary processes for stimulating savings. We 

 discuss each of these in turn: 

i. Coercing saving 

ii. Making it hard not to save 

iii. Making it easier to save 

iv. Bribing people to save 

v. Leveraging social networks 

vi. Making saving exciting 

 A second dimension of our typology addresses which stakeholders are involved in offering 

the innovation. By “stakeholder” we mean a decision maker, apart from the saver herself, who must 

act to implement the innovation. Some programs involve governmental entities, for example, 
4

programs that deliver financial incentives via the tax system or change eligibility for government 

benefits. Other programs involve financial institutions, such as those that bundle savings with other 

financial products. Still others involve nonprofits or social networks, leveraging relationships to 

spur on savings. 

 These stakeholders almost always need to bear costs to support family savings. Some 

solutions require substantial financial resources (e.g., programs that grant savings or provide 

financial incentives) and may cost not only dollars but political capital as well. Other programs may 

require efforts by social groups, drawing upon their social capital. Still others may require 

investments by financial services in systems and marketing, and some may be costly in the form of 

potential formal and informal liabilities borne by stakeholders attempting to support family savings. 

 This chapter is about innovations, but we use the word broadly and charitably. In financial 

services, there is rarely anything that is truly new. Rather, seemingly new ideas are sometimes 

updated versions of old programs (such as the prize linked savings concept we discuss, which goes 

back to 1694) or build upon other innovations. The economist Robert C. Merton (1992) speaks of 

an innovation spiral, whereby the existence of one financial innovation permits another. The 

innovation of debit cards ultimately made possible bundled products like the Bank of America Keep 

the Change program, which combines this payment system device with a savings component. 

 In each of the following sections, we briefly describe the class of savings innovation, provide 

a few examples, and give a sense of the success of the programs, both from the point of view of 

generating savings, as well as from the point of view of the stakeholder. For government-organized 

programs, this cost might be the governmental outlays required; for the private sector, it is the cost 

and profitability of each product or program. Unfortunately, much of this data is somewhat sketchy 

as formal evaluations have not been done for most of these programs, and firms are reluctant to 

release product line profitability data. Nevertheless, our intent is to provide a tour of the options, 
5

hopefully leaving the reader with optimism that while increasing savings may be hard work for all 

concerned, it is not an impossible task. And, in some cases, it may actually be fun. 

C.2.0 Coercing Saving 

The first class of innovations literally compels individual savings, under the assumption that 

without paternalistic government intervention, individuals would fail to accumulate adequate 

savings. Often, these programs offer universal participation to redistribute individual savings so as 

to lessen inequality and build a political base of support (for a more general discussion of 

universalism and social welfare policy see Korpi and Palme, 1998). Involuntary programs, overseen 

and funded by the government, tend to fall into two categories, those which force families to spend 

less to save, or those which give families additional funds but only in the form of savings. These 

general characteristics are summarized in the first column of Exhibit 1. These two process 

innovations are exemplified by two innovations, one relatively old, one quite new. 

C.2.1 Taxing to Force Savings: Social Security 

While not savings in the “traditional” sense, Social Security provides the functional 

equivalent of savings. Workers in the United States are legally required to make regular 

contributions to social security of 6.2% of the first $102,000 of income. This mandatory 

contribution is matched by employers (or doubled in the case of the self-employed) who also 

generally deduct and withhold the employee portion. These funds are savings in the sense that 

current consumption is deferred with the goal of ensuring future consumption. The actual dollars 

are not saved, but are rather used to support a pay-as-you-go system of retirement insurance. 

Savings is coerced in that the only way not to participate is not to work or to break the law. 
6

There is a substantial literature about social security and the economics of this particular 

system, and a review of that literature is beyond the scope of this chapter. Furthermore, there have 

been extended debates about modifying the social security system to create a more standard 

“savings” program, e.g., the debate over private accounts. Even so, it is important to note a few 

things about this means of saving. First, as a universal program that literally forces people to save, it 

requires government action. Second, with this, as with nearly all of the other innovations, it is 

difficult to determine the incremental savings generated, as it is hard to observe hypothetical savings 

in its absence. Third, it is largely a retirement focused program, unlike some of the other programs, 

which focus on less distant savings goals. 

C.2.2 Giving to Force Savings: The Child Trust Fund 

The United Kingdom’s Child Trust Fund (CTF) is an involuntary program as well, but takes 

a different approach, giving savings rather than mandating it. The CTF was designed to ensure that 

all British children will have savings upon reaching their eighteenth birthday and to facilitate the 

development of good savings habits (HM Treasury, 2003). It meets these goals through a policy of 

“progressive universalism” – one that is broadly inclusive with benefits apportioned according to 

need (Barr and Sherraden, 2005). 

Beginning in April 2005 every British child born after September 1st, 2002 received a grant of 

at least £250 at birth and will receive subsequent grants of similar value at age 7. Children born into 

households with annual incomes of less than £14,000 receive awards twice as large (Sodha, 2006). A 

voucher for these initial funds (of either £250 or £500) is provided to parents after the birth of a 

child. Voucher in hand, parents can choose from three different types of accounts; an interest 

bearing savings account, a shares account (invested in equities), or a “stakeholder” account 

(conservatively invested equities). Vendors are approved by the government, but accounts are 
7

offered privately by banks, building societies, or brokerages (Mensah and Schneider, 2004). As of 

2006, 119 providers offered some type of account (HM Treasury, 2006). 

If parents fail to select an account within one year of receiving the voucher, a stakeholder 

account is automatically opened for the child by the government (with the provider chosen on a 

rotating basis). Once a CTF account is established, relatives, the children themselves, or others can 

deposit up to £1,200 (in after tax pounds) each year with savings accruing tax-free. Deposits cannot 

be withdrawn until the child reaches the age of 18 at which point, he or she may withdraw the funds 

without limitation (Mensah and Schneider, 2004). 

The costs of the CTF can be viewed from the perspective of account holders or the 

government. Stakeholder account owners pay a 1.5 percent management fee per annum on the 

account. Annual fees are also assessed on share accounts, but these fees are not capped by the 

government (UK Parliament, 2007). Savings accounts do not carry explicit annual fees, but the 

interest rate paid builds in a spread for the vendor. These expenses are revenue sources for financial 

service vendors. 

 From the perspective of a taxpayer, the costs of the CTF are considerable. The Department 

of Inland Revenue reported that the initial administration costs would be £114 million for the 

period 2004 through 2007, tapering off to £15 million per year through 2010. Much larger costs 

arise from government contributions to CTF accounts, estimated at £240 million per year through 

the first several years of the program and then roughly doubling to £480 million once the first 

cohort of enrollees begins to qualify for the age seven top-up contributions (HM Treasury, 2006). 

As of June 2007, approximately 2.85 million CTF accounts had been opened, including 2.2 

million accounts opened within one year of the receipt of voucher by parents, and the rest opened 

by the Treasury upon the expiration of unredeemed vouchers. (HM Treasury, June 2007). A 

substantial share of families (35 percent) received the bonus funds due to lower-income households 
8

(HM Treasury, 2006). While many parents successfully opened a CTF account, preliminary analysis 

indicates that they were uneasy about choosing an account, with half of all parents feeling they did 

not know enough to choose one of the three products (Kempson, Atkinson, and Collard, 2006). 

Nevertheless, most chose some kind of account. By 2006, 74 percent of the 1.7 million accounts 

then open were stakeholder accounts, 22 percent savings accounts, and 4 percent were of other 

design (including share accounts) (HM Treasury, 2006). Approximately one-quarter of accounts 

were receiving regular monthly voluntary contributions, with higher-income families more likely to 

contribute than lower-income families (Sodha, 2006; TISA, 2007). 

This early data is in some ways encouraging. Advocates make the case that 75 percent of 

parents choosing an account (rather than triggering the auto-enrollment) speaks to high levels of 

parental support. One account provider has gone so far as to claim that “there is absolutely no 

doubt that child trust fund is transforming the nation’s saving habits and fundamentally changing 

the way parents think about saving for their children” (White, 2006). 

However, the CTF raises a number of issues. First, deposits may simply reflect a reshuffling of assets in family financial portfolios. Second, though designed to be equity-enhancing, 

the CTF may in fact raise a number of equity issues. In the short run, the CTF may cause some 

inter-cohort inequality by awarding funds to prospective cohorts but not existing cohorts. In the 

longer run, although the CTF may increase the absolute level of asset-ownership among low-income 

children, it may spur greater contributions among more well-off families than among poorer, 

increasing differences between these groups. Finally, some commentators have expressed concerns 

about “stake-blowing,” that upon turning 18, CTF-holders will gain access to their funds and 

promptly squander them, possibly as a side-effect of the funds being granted rather than consciously 

accumulated (White, 2004). 
9

Though the U.S. does not have an analogous program to the CTF, advocates have pressed 

for Congress to pass the ASPIRE (America Saving for Personal Investment Retirement and 

Education) Act which would create a similar system of national accounts for children. Accounts 

would be established for all children at birth and endowed with a $500 initial deposit, with more for 

children in low-income families. These funds could be augmented over the child’s life by up to 

$1,000 a year with matching funds available to encourage saving by low-income parents. Funds 

could only be used for asset-development purposes, such as purchasing a home, paying for 

education, or saving further for retirement (Cramer, 2006). While the bill has been stalled 

legislatively, private-sector efforts to establish children’s savings accounts have moved forward. 

Established in 2003, the Saving for Education, Entrepreneurship, and Downpayment (SEED) 

program is a partnership between national academic and policy organizations, local not-for-profit 

groups, financial institutions, and foundations. These groups offer a mix of savings accounts, 529 

accounts, and investment accounts to participating children in twelve states and territories. The 

accounts are endowed with an initial deposit of between $500 and $1,000 with further deposits by 

participants and their relations matched by the program (CFED, 2006). These account terms and 

product structure are quite similar to those proposed in the ASPIRE act, as SEED is designed to 

provide preliminary evidence on the efficacy of such a policy. 

The CTF (and various American proposals along the same lines) compel savings, but do so 

in a way so as not to inspire much complaint – they simply give savings away. Nonetheless, these 

policies are coercive. But, these innovations differ from a program like Social Security in that they 

incorporate design elements, like auto-enrollment, which are derived from other theories of saving. 

We take up one of these approaches, the next along our continuum of savings, in the following 

section. 
10

C.3.0 Making it Hard Not to Save 

With Social Security or the UK CTF, it is nearly impossible not to save except by not 

working or not being born. Closely related would be the concept of making it difficult for people 

not to save, that is, making not saving an affirmative decision. In this section and the following, we 

present a set of innovations that are slightly less coercive than either granting savings or forcing 

people to save. First, we discuss those that make it hard not to save through the use of defaults and 

bundling, and then we turn to those that make it easy to save (or harder to dissave), through 

commitment savings products and by lowering the impediments to savings. 

Innovations of this sort proceed from a slightly different set of behavioral assumptions than 

coercive savings innovations. People are subject to certain behavioral biases such as a susceptibility 

to procrastination, problems of self-control, orientations towards the status-quo, and other 

behavioral foibles that have a powerful effect on human action (see Shafir and Mullainathan, this 

volume). This behavioral logic is summarized in the first row of column two of Exhibit 1, which 

also details the other key programmatic aspects of innovations of this sort. If behavioral flaws 

predominate, the economist Richard Thaler and the legal scholar Cass Sunstein’s (2003a & 2003b) 

concept of libertarian paternalism sketches out a philosophical basis for exploiting these flaws. 

Arguing that humans are generally “irrational” decision makers, Thaler and Sunstein (2003a) argue 

that intervention by third parties in decision making is difficult to avoid and that, when designed 

carefully, policy can thus guide choices in a way that is beneficial (and so is paternalistic), yet still 

leaves room for individual choice (and so libertarian). We see this embodied in 401(k) defaults and 

opt-outs. 
11

C.3.1 Defaults and Opt-Ins/Opt-Outs 

Inertia makes us “go with the flow,” continuing on the same course or avoiding decisions, 

especially when faced with complex or unpleasant choices. By setting up savings processes where 

the inertial or default behavior is “savings,” savings increases. This idea is popular in retirement 

savings, although the setting of defaults has a long heritage, embodied in the old adage of “paying 

yourself first.” An increasing number of U.S. companies are changing their 401(k) enrollment 

policies from requiring employees to “opt-in” to plan participation to new policies where employees 

are automatically enrolled upon hire and are required to affirmatively choose not to participate, or 

“opt-out” if they would like to avoid enrollment. 

Companies’ interest in opt-out plans is partly driven by a desire to help their employees save 

for retirement. But, other considerations also enter into the calculus, in particular, employers may 

face significant costs if their retirement programs are not in compliance with government nondiscrimination rules. Firms must increase participation among lower-paid employees to avoid 

limiting retirement benefits for executives (Madrian and Shea, 2001). 

Broadening plan participation may create new administration costs. Automatic enrollment 

may increase employee participation, but because default contribution rates are generally quite low, it 

may also create a large number of new small-balance accounts whose cost to serve on a per dollar 

basis will be high (Anderson and Atlee, 2001). 

A number of studies have assessed the effect of automatic enrollment plans, generally with 

an eye towards participation rates, contribution rates, and asset allocations (Madrian and Shea, 2001; 

Vanguard, 2001; Choi, Laibson, Madrian, and Metrick, 2006). These evaluators conclude that 

automatic enrollment dramatically increases participation, raising initial enrollment rates significantly 

above both initial and subsequent rates for standard opt-in plans. For example, the economists 

James Choi, David Laibson, Bridgitte Madrian, and Andrew Metrick (2004) find that plan 
12

enrollment rates rose to 90 percent at three companies adopting automatic enrollment plans, versus 

previous rates of 20 percent to 40 percent at 6 months tenure or 60 percent at 36 months tenure. 

Automatic enrollment leverages inertia to dramatically increase participation rates. However, 

defaults also exert a powerful effect on contribution rates and investment allocations. Large shares 

of employees enrolling in plans under automatic enrollment tend to stay at the default contribution 

rate (Choi, Laibson, and Madrian 2004). For example, Choi, Laibson, Madrian, and Metrick (2004) 

find that a large plurality of employees at one company hired under auto enrollment maintained the 

default rate – in this case shifting the modal rate from 6 percent before auto enrollment to the new 

default rate of either 2 percent or 3 percent after auto enrollment. The literature finds that most 

employees also stick with the initial investment choices (Beshears, Choi, Laibson, and Madrian, 

2007). Newer concepts build in automatic adjustments in contributions and some automatic 

rebalancing, which can also be accommodated through life-cycle investing products. 

Nationally, retirement account ownership is highly correlated with household income. In 

2004, only 10 percent of households in the lowest income quintile and 30 percent in the second 

quintile had retirement accounts compared with between 70 percent and 90 percent of households 

in the top two quintiles (Bucks, Kennickell, and Moore, 2006). Nevertheless, the 401(k) defaults 

literature does present some interesting findings with regard to low-income families. Auto 

enrollment seems to equalize participation across income and racial groups, raising participation 

rates for lower-paid and African American and Latino employees far more than for their higher-paid 

and white colleagues (Madrian and Shea, 2001). Lower-income participants were also more likely to 

maintain default contribution rates than other employees. In sum, auto enrollment has ambiguous 

effects on aggregate account balances; they are driven up by increased enrollment but driven down 

by low contribution defaults. However, defaults increase balances for those who would otherwise 

not participate (Choi, Laibson, Madrian, and Metrick, 2004). 
13

There has been little research that examines defaults in the context of overall household 

saving, which is a general challenge that can be leveled against many savings programs. However, 

evidence that participation in company stock plans is unaffected by opt-outs suggest that automatic 

enrollment likely does not simply reshuffle workplace saving (Madrian and Shea, 2001). 

The concept of defaults can be used far beyond retirement saving. Businesses have long 

used the concept of defaults to affect consumer behavior, for example capitalizing on inertia to keep 

us with the same phone service, cable television provider or magazine subscriptions. If defaults can 

be used to increase consumption, their use to increase savings seems quite natural. But, there are a 

number of high level questions surrounding defaults. First, how does one ensure that the defaults 

are in the best interests of consumers? In particular, how does a default strategy work for very 

heterogeneous consumers who might need different defaults? Second, what is the liability of the 

program designer if the participant complains ex post? While new regulations begin to address this 

question, it remains a broader concern than the immediate change in pension reform. 

One proposal for a more widespread adoption of the concept of defaults and opt-outs is the 

Automatic IRA. This concept (Iwry and John, 2007), which is embodied in various legislative 

proposals, would compel employers to facilitate the opening of IRAs for workers without retirement 

plans. These workers would be auto-enrolled in the program, though they could voluntarily opt-out. 

As compensation, the employers would receive certain tax credits. The proposal, aimed at 

addressing retirement savings for the 75 million Americans working at jobs which do not offer 

employer-sponsored retirement plans, would leverage existing infrastructure of direct deposits and 

IRA vendors. 
14

C.3.2.0 Bundling 

A second strategy makes it difficult to avoid saving by bundling saving with a product or 

service that consumers would typically otherwise purchase such as shopping, using a credit or debit 

card, or borrowing. This type of product innovation is embodied simply in amortizing mortgages. 

A person who wants to buy a house can get a loan whereby over time the borrower essentially “pays 

herself” or saves by investing in the equity in her home as the loan is paid off. Each month, the 

mortgage bill not only covers interest, tax and insurance escrows, but is also effectively a “savings 

bill,” which cannot be ignored (Campbell and Henretta, 1980; Parcel, 1982; Chen and Jensen, 1985; 

Moore, Beverly, et al, 2001). 

Similarly, certain loyalty programs bundle spending and savings. In the past, some grocery 

stores paid shoppers “S&H Green Stamps” for each purchase, which could be used to make future 

purchases. By shopping, one could support future consumption, just as if saving. Credit card and 

airline loyalty programs that offer cash rewards are most savings-like. 

The basic logic of bundling is to leverage demand for highly desirable activities to spur less 

enjoyable savings. Given natural complementarities, many bundled savings products are offered by 

financial service firms, although loyalty programs are more widely offered. When these schemes 

work, individuals get a product and a bonus of savings, and firms differentiate their offerings, 

generate profits and perhaps customer loyalty. 

C.3.2.1 Bundling: Keep the Change and Upromise 

In October of 2005, Bank of America introduced the “Keep the Change” program. 

Designed to enhance debit card usage while spurring savings, the program allows enrollees to 

authorize the bank to automatically round-up the value of every debit-card purchase to the nearest 
15

dollar and transfer the difference from their checking account to a traditional savings account. 

Under the terms of the program, Bank of America matches these transfers at 100 percent for the 

first three months of enrollment and at 5 percent thereafter, up to an annual maximum of $250 

(Enrich, 2005). In spirit, the program is a successor to both home mortgage structures and loyalty 

programs. Like a home mortgage, the customer is essentially paying herself. Yet, like a loyalty 

structures, savings is proportional to customer activity. 

Modern versions of S&H Greenstamps are very common. Some allow you to “save” for 

consumption of a single type of item (like additional airline travel), while others offer less 

constrained savings. For example, some reward programs will pay back cash, use the rewards to buy 

savings bonds, or invest it in long term savings accounts. An example of the latter is Upromise. 

Launched in 2001, Upromise enables users to save for college by earning rebates of up to 10 

percent on consumer purchases from local and national partners including AT&T, McDonald’s, 

ExonMobil, and General Motors. Participants sign up through Upromise; the company collects the 

rebates and invests the funds in a 529 college savings account (Kim, 2006; Bulkeley, 2001). The firm 

also offers a loyalty credit card in conjunction with CitiBank with rewards deposited into a 529 plan. 

Products of this kind have had some success. Bank of America attributes 1.8 million new 

savings accounts to the Keep the Change program (Mierzwa, 2007) and as of April 2007, its 4.3 

million program participants had saved approximately $400 million collectively or about $93 on 

average – a steady rise from average savings of $30 in April 2006 and $67 in October of 2006 

(McGeer, 2007; Davis, 2006; Tescher, 2006). Part of this uplift likely comes from the general 

increase in the use of debit cards over time, and from the initial appeal of matching. It is too early to 

measure long-run impact on total savings, but we suspect that the program may be attractive as a 

commercial proposition. 
16

Enrollment in Upromise has grown rapidly since its inception, reportedly by as much as 50 

percent a year to 8 million in mid-2007 (Chaker, 2004; UPromise, 2007). While Keep the Change is 

credited for being relatively easy to join, critics point out that Upromise has a more involved 

enrollment process whereby customers must register their credit cards and pre-existing companyspecific loyalty cards with Upromise (Davis, 2001). Further, given current reward rates and annual 

caps on rebates, savings accumulation for any family may be modest (Wyatt, 2001). 

There are no direct costs for customers of either program. Nevertheless, both programs 

offer their parent corporations several revenue streams. Upromise receives a portion of the member 

rebate, per-enrollment fees from some partners, and the float on consumer rebate funds that are not 

yet invested in 529 accounts (Sahlman, 2003). As an indication of its profitability, Upromise was 

acquired by Sallie Mae in 2006 for $308 million (Sallie Mae, 2006, page F-33). 

The Keep the Change program also appears to have fairly attractive economics. Bank 

reports indicate that the program is a valuable customer acquisition tool, bringing in 1.8 million new 

savings accounts and 1.3 million new checking accounts over 19 months of program operation 

(Mierzwa, 2007). The program has the potential to increase debit card use, can reduce bank costs 

associated with processing paper checks, and generates incremental interchange revenues from each 

debit card transaction (Editor, 2006; Lubasi, 2005). While the deposits generated by Keep the 

Change pale relative to Bank of America’s total assets of $1.46 trillion, the funds currently earn an 

interest rate of just 0.20 percent in the bank’s regular savings account permitting the bank to profit 

from the net interest margin (Bauerlein, 2007; Freeman, 2005; Bank of America, 2007). 

While fascinating examples, Keep the Change and Upromise programs raise some concerns. 

As a psychological matter, they may further confuse consumers. In recent market research that we 

have done with low-income consumers, there was a general confusion between saving (in the form 

of putting money away) and saving (in the form of paying less for goods). See Maynard and 
17

Zinsmeyer (2007). Consumer advocates fear that these programs may encourage people to spend 

more, to ignore the need to accumulate more substantial savings, or to further conflate savings and 

spending (Singletary, 2005; Enrich, 2005, Singletary, 2001). 

C.3.2.2 Bundling: The Salary Advance Loan

The North Carolina State Employees Credit Union (NCSECU) offers an innovation which 

bundles savings and credit. NCESCU entered the $40 to $50 billion payday lending market in 2001 

with the Salary Advance Loan (SALO). The Credit Union offers the SALO at 12 percent annual 

percentage rate (APR), far less than the 400 percent to 1000 percent APRs standard in the industry 

(Stegman, 2007). Loans of $500 or less are available with a maximum term of one month and with 

fees capped at $5 per loan. The program is available to members with direct payroll deposit. 

Repayments are due at time of the next payroll payment. 

There has been significant demand for these loans, with nearly $400 million loaned out since 

the program’s inception in 2001. Each month, approximately $12 to $13 million is loaned to 

individuals in the pool of 53,000 SALO-registered members (out of 1.25 million total members). 

The bundled saving element was added in 2003, with all SALO borrowers required to deposit 5 

percent of each loan into a share account. The bundled cash account makes SALO borrowers save, 

with the goal of helping them to accumulate sufficient savings “to break the payday loan cycle” 

(North Carolina State Employees Credit Union, 2006). The share account also secures the payroll 

loan. While the account is interest bearing, withdrawals must be approved by a lending official. 

Under the terms of the contract, withdrawals can trigger suspension of borrowing privileges on the 

Salary Advance Loan. Observers report that in practice withdrawals lead to ineligibility for SALOs 

for six months (Fellowes and Brooks, 2006). 
18

 In terms of its economics, the Credit Union has earned $2.5 million in interest income on 

loans of $400 million with charge-offs of just 0.27 percent combined with overhead and funding 

costs of 2.00 percent and 2.75 percent respectively (Stegman, 2007). 

In terms of it scale, both the payday loan balances and savings in the SALO program have 

grown. The 53,000 enrolled members have grown their savings deposits from $5.5 million in June 

of 2004 to approximately $9.7 million in June of 2006 (North Carolina State Employees Credit 

Union, 2004 – 2006). These savers (and borrowers) are predominately low-income and low-asset 

with annual earnings usually below $25,000 and savings of about $130 on average (Stegman, 2007). 

About 75 percent of SALO users said that the funds which have accumulated in their SALO 

accounts make this the “first time in their lives that they have had any significant savings” (Fellowes 

and Brooks, 2006). 

Like an amortizing mortgage, the SALO encourages borrowers to pay themselves, in the 

form of the bundled share account. Like the home in a mortgage, the SALO provides the bank with 

some security. The withdrawal restriction presumably prevents careless dissaving (discussed more in 

the following section), but the denial of loans to savers making withdrawals may raise interesting 

issues. In particular, it is important to see whether participants tap other credit sources to maintain 

their access to SALO rather than draw down their savings, and if so, it is important to assess the 

total impact on the entire family balance sheet. If the program, like other secured credit programs, 

encourages consumers to borrow high and lend low, its overall impact might be unclear. 
19

C.3.3 Making It Hard To Dissave: Withdrawal Commitments 

While the spirit of this section is about innovations that make it hard not to save through 

defaults and bundling, there is a complementary set of products which make it hard to dissave 

through withdrawal commitments. These commitments take many forms, such as the requirement 

for bank officer signoff for saving withdrawals in the SALO, term deposits in banks with early 

withdrawal penalties, tax advantaged programs (like Individual Retirement Accounts (IRAs)) that 

have withdrawal penalties, or private equity investments with limited opportunities for exit by 

limited partners. If the key behavioral problem causing a lack of savings is self control, then 

bonding in the form of commitment savings products can provide a solution. The lack of self 

control can come from the saver, or it can arise from the demands placed upon the saver by his or 

her social network of family and friends. The economists Nava Ashraf, Nathalie Gons, Dean 

Karlan and Wesley Yin (2003) review the evidence on commitment savings products (including both 

withdrawal commitments and savings commitments, which we discuss elsewhere in this section.) 

Ashraf, Karlan and Yin (2007) then conducted a randomized study of a withdrawal commitment 

project in the Philippines. About 28 percent of those offered took up the restricted withdrawal 

product, and after a year saved 81 percent more than the control group. 

From the perspective of financial service firms, withdrawal commitment products may be 

attractive in a variety of ways. In particular, the need to respond to redemptions forces banks to 

hold liquid assets and plan for the uncertainty of asset runoff. Commitment savings products offer a 

form of core deposits that many banks find attractive, both to model and to hold. 

At the same time that withdrawal commitment savings programs are seen as a way to 

discourage dissaving, there may be seemingly contradictory evidence that easy access to funds can, 

under some circumstances, increase savings. Some have argued that the increases in holdings of 

money market funds are partly attributable to making the funds easier to liquidate, in the form of 
20

adding features like check-writing to the product. Similarly, there is some evidence that 401k 

programs which allow loans are more attractive to potential savers. Specifically, being able to take a 

loan against 401k deposits seems to increase contributions, with estimates ranging from a less than 

one percentage point increase to a ten point increase (Holden and VanDerhei, 2001; Munnell, 

Sunden and Taylor, 2000; and Mitchell, Utkus, and Yang, 2005). By giving would-be savers the 

assurance that they can gain access to their funds if they need them, these innovations might 

increase the demand for certain savings products. 

These two observations need not be contradictory. Different people may have varying 

preferences for commitment versus liquidity. Furthermore, the increased saving may come from the 

relative attractiveness relative to the baseline product. Some products are framed as having 

substantial withdrawal restrictions, while others are framed as being nearly as liquid as cash. 

Suppose the “optimal” product was somewhere in between these extremes, offering some liquidity 

and some element of commitment. Adding an element of commitment to an otherwise liquid 

product or adding some liquidity to an otherwise illiquid product could both enhance saving by 

moving closer to the preferred product. 

C.4.0 Making it Easy for People to Save 

Innovations that make it easy for people to save still require individuals to make a conscious, 

unbundled savings decision, but simply lower the impediments to savings. Making saving easy 

involves making savings products available when and where people can save, that is, where they 

have “free” money. These attributes are described succinctly in column three of Exhibit 1. In the 

following, we briefly discuss three strategies and associated savings innovations for “going where the 

free money is:” the workplace, tax preparation sites, and retail point of sale. These innovations 

typically open up new convenient distribution channels and make savings less of a hassle. In the 
21

extreme, consider how quickly one can walk into a retailer and spend $2,000. The spirit of these 

innovations is to make it just as simple to save that money. 

C.4.1 The Workplace as a Distribution Channel 

For most Americans, the primary source of savable funds comes from their employment 

income. Workplace saving options, whether in the form of retirement plans, tax deferred annuities, 

on-site banks or credit unions, or employer-based savings bond distribution all attempt to divert 

funds at this source. Groups such as the Employee Benefit Research Institute (EBRI) and the 

Center for Business and Poverty at the University of Wisconsin, as well as firms such as pension 

administrators, occupational credit unions, and start ups like Eduction (Tufano and Schneider 2005), 

focus on the potential of the workplace as a channel for providing financial services. The AutoIRA, discussed above, is a proposal aimed at expanding the use of the workplace as a distribution 

channel for savings products. 

One clever innovation that marries product and process innovations in the workplace is the 

Save More Tomorrow (SMarT) plan by economists Shlomo Bernartzi and Richard Thaler (2004), 

which allows people to save easily with “free” money, that is, their future raises. Behavioral research 

has shown that individuals may have perverse discount rates for far-off cash flows, and furthermore, 

may act differently with “house money” such as unanticipated winnings. First implemented in 1998, 

SMarT leverages these behaviors by allowing workers to pre-commit to saving a portion of future

salary raises. Enrollment occurs well before the salary increase takes place because employees often 

discount future funds quite heavily and thus the dollars committed to savings feel less “real” than 

present dollars. Furthermore, as the raises might be considered windfalls, they might be spent 

differently than current income. Once enrolled in the program, employees may opt-out, but given 
22

inertia, such decisions are uncommon (Thaler and Benartzi, 2004). In essence, the program is 

designed to mitigate or capitalize on well-known behavioral phenomena in order to increase savings. 

Assessing three implementations of SMarT, Thaler and Benartzi (2004) find strong take-up 

and that participants’ savings increased dramatically relative to pre-take-up levels and relative to 

other employees. Take-up varied with the level of marketing and the enrollment process. At one 

firm where employees met one-on-one with a financial advisor, take-up rates were as high as 80 

percent. However, at a second firm where marketing was limited, take-up was lower, at about 18 

percent of 401(k) participants and 10 percent of non-participants. At a third company, take-up rates 

were about 25 percent, but varied considerably by employee characteristics. Lower-income workers 

had higher take-up rates than more highly paid employees at 36 percent (compared with 29 percent 

to 20 percent among higher paid workers). These findings may be explained by the hypothesized 

tendency of less financially skilled workers to interpret changes to company savings plans as advice 

(Madrian and Shea, 2001). 

SMarT participants saved more in their 401(k) accounts. In the first administration of the 

program, participants had a pre-enrollment savings rate of 3.5 percent, lower than those workers 

who did not participate at all and those that attended an initial meeting but declined to participate. 

But participants increased their saving more than any other group – up to 13.6 percent after four pay 

raises. Thaler and Benartzi (2004) found similar, though not as dramatic, results at two other 

research sites. While these savings rates are a dramatic increase over prior levels, the research on 

SMarT to date lacks a baseline survey of household assets and savings, and so it is difficult to 

determine if these deposits into 401(k)s represent new household savings dollars. 

While intriguing on its own, SMarT could be joined with an automatic enrollment feature to 

completely stream-line the savings process – what some have called the autopilot 401(k) (Utkus and 

Young, 2004), whereby enrollment and increased contributions are determined in advance. 
23

C.4.2 Tax-Preparation Sites as a Distribution Channel 

The Internal Revenue Service (IRS) distributed over $230 billion in tax refunds in 2005, with 

$110 billion to families with Adjusted Gross Incomes (AGI) of less than $40,000 (Internal Revenue 

Service, 2007a) largely through the Earned Income Tax Credit (EITC) and the Additional Child Tax 

Credit (ACTC). Large in total, these refunds are also financially meaningful at the family-level. In 

2005, over 20 million low to moderate-income families claimed and qualified for the EITC, receiving 

an average EITC refund of nearly $1,900 (IRS, 2007b). Compared to the per participant savings 

figures attainable in other programs, such as Keep the Change or Upromise, these numbers suggest 

the potential to generate meaningful savings through refunds. 

Refund dollars may be particularly “savable.” Scholars have hypothesized that lump-sum 

distributions may be easier to save because individuals mentally account for these funds differently 

from regular income flows, seeing them as surplus or bonus funds - money that can be saved if 

processes are in place to facilitate such investment (Shefrin and Thaler, 1988; Thaler, 1994). Refund 

recipients do some of this saving without any intervention. Research on the uses of the EITC has 

found that many recipients either save a portion of their refund or use refund dollars to purchase 

relatively expensive durable goods such as appliances or autos (Smeeding, Ross-Phillips, and 

O’Conner, 2000; Barrow and McGranahan, 2000; Romich and Weisner, 2000; Robles, 2005; 

Schneider and Tufano, 2006; Barr and Dokko, 2006). 

However, because the large majority of refund recipients file for refunds through 

intermediaries such as commercial or volunteer income tax assistance programs, this saving could be 

made even easier (Kneebone, 2007). Specifically, these professionals can both provide filers with 

access to savings products and allow filers to pre-commit to savings months or weeks before refund 

receipt. By agreeing to save well before having dollars in hand, filers may be more likely to save if 
24

they evaluate choices using extremely high mental discount rates. In this sense, refund precommitment programs tap into the behavioral logic driving the SMarT plan. 

Scholars and practitioners as well as businesses have made several efforts to facilitate this 

type of tax time saving through process innovations. One set of efforts has focused on using the tax 

preparation process and the eventual receipt of a refund to motivate unbanked filers to open savings 

accounts. A series of pilot tests at Volunteer Income Tax Assistance (VITA) sites around the 

country have demonstrated that many low-income tax filers have a demand for savings accounts and 

are interested in opening accounts during the tax preparation process. For instance, 15 percent of 

unbanked filers offered a savings account in New York took up the offer (Rhine, Su, Osaki, and Lee, 

2005) as did 20 percent of low-income filers offered an account in Chicago (Beverly, Tescher, and 

Romich, 2004). While most account holders in the Chicago pilot quickly drew down their account 

balances, a small percentage began to accumulate balances. We note however that declining 

balances may not indicate failure, but rather saving for short-term goals. There is a larger movement 

at VITA sites towards combining tax refunds and savings (see Beverly, Schneider, and Tufano, 2006 

for a partial listing of such programs). Additionally, some private firms, most notably H&R Block, 

offer savings programs at tax time. Block’s 15.5 million retail clients can open IRAs and in 2007, the 

company reported that it had opened 120,000 of its new Easy IRA and Easy Savings accounts since 

May of 2006 and had opened a total of 600,000 such accounts between 2001 and 2005 (H&R Block, 

2007a; H&R Block, 2007b; H&R Block, 2006 ). 

However, the mechanics of the tax filing process have limited the efficacy of these efforts. 

Until recently, the IRS required that all refund dollars be sent to a single destination. Filers could 

elect to receive their entire refund in the form of a check, or have it all deposited to a checking or 

savings account. But, filers were not able to earmark a portion of their refund for spending (in say a 

checking account) and another portion for saving (in a savings account). While this might seem like 
25

a minor issue, decision making biases could make it a significant hurdle to saving. An analogous 

problem might be if employers gave employees their entire paycheck, and then left it up to them to 

contribute to their 401k program after receiving their pay, rather than offering automatic 

contributions. 

In the not-for-profit sector, D2D Fund and the Community Action Project of Tulsa County 

(CAPTC) piloted a split refund option in 2004. This small test found relatively high take-up rates, 

on the order of 20 percent, and participants made initial savings allocations worth 47 percent of 

refund dollars on average. However, while these participants proved to be more effective savers 

than members of comparison group without access to the splitting service, account balances still 

diminished significantly over time (Beverly, Schneider, and Tufano, 2006). In the private sector, 

H&R Block has also created a way for its clients to split their refunds. In that case, clients generally 

divide their funds between a savings product, such as an IRA or savings account and deposits to a 

checking account or a paper check (Tufano and Schneider, 2004). 

While these not-for-profit and private-sector initiatives have found a way to split refunds for 

some tax filers, the process is generally cumbersome and costly. However, these efforts have 

sparked policy advocacy and in turn, starting in January 2007, the IRS began facilitating multiple 

destinations for refunds with its introduction of Form 8888. This policy change substantially 

lowered the administrative and technical costs that not-for profit and business groups previously 

faced in trying to facilitate split-refunds to spur savings (Barr, 2007). There are some indications 

that filers will be interested in using this new split refund capability. Nearly two-thirds of low- and 

moderate-income filers surveyed in Detroit expressed interest in using the split refund option (Barr 

and Dokko, 2006). 

To realize the potential for refund splitting to spur savings, additional steps are necessary. 

First, financial institutions need to do a better job of tapping the potential of using split refunds to 
26

fund current year IRA accounts by incorporating the receipt of tax refunds from Form 8888 into 

their processes. Second, to fully exploit the potential of split refunds, the government must clarify 

the legal obligations faced by banks and other financial institutions under customer identification 

requirements, making it clear when tax preparers must satisfy FINRA (formerly NASD) or Know 

Your Customer (KYC) requirements. 

Finally, low-income refund recipients who lack existing accounts need a simple universal 

savings option which has a very low minimum initial deposit requirement and does not imporse a 

debit record check (Schneider and Tufano, 2007). Savings Bonds would fit the bill and, in fact, were 

easily available to all at tax time as recently as the 1960s when tax filers could buy savings bonds 

right off of the tax form (Tufano and Schneider, 2005). The bonds have no fees, are low-risk, earn 

competitive inflation indexed rates, have no credit or debit check requirement, and can be purchased 

for as little as $25. 

A series of small pilot tests conducted in partnership between H&R Block, VITA sites and 

D2D Fund begins to address the operational issues of offering U.S. Savings Bonds at tax time and 

to gauge consumer interest in Savings Bond purchase. A 2007 pilot at H&R Block sites in Boston 

and Chicago found a savings bond take-up rate of 5.9 percent of those eligible clients offered the 

product, significantly above the take-up rate for other H&R Block savings products such as Easy 

IRA. Bond buyers saved an average of $228, investments that were made on behalf of other people, 

such as children or grandchildren, in about half of all cases. Bond buyers were also more likely to 

receive the EITC than non-purchasers and more likely to have had a savings account previously, but 

not currently – raising the possibility that these clients were barred by ChexSystems (Maynard, 

2007). A contemporaneous test at five VITA sites found a 6.0 percent to 9.6 percent take-up rate. 

These bond purchasers invested an average of $185, mostly on behalf of children or grandchildren. 

These deposits, though fairly small, were significant savings for many participants. Thirty-five 
27

percent of purchasers lacked savings accounts, and 55 percent reported having no savings or 

investments. Interestingly, when the bond offer was subsidized so that it appeared that the bonds 

were offered at “20 percent off,” take-up rose significantly, to 15 percent of eligible filers 

(Zinsmeyer and Flacke, 2007). 

C.4.3 Retail Point of Sale Savings 

Think of how many steps you need to go through to buy almost anything except for a house 

or a car. You give the merchant your money (or a credit card), and you either walk out with the 

product or arrange for its delivery. In contrast, to save, you typically have to show various 

documents, fill out a variety of forms, and go through a variety of other time consuming steps. 

Would it be possible to create “point of sale (POS) savings” where a consumer could “buy” savings 

in the same way that he bought a cup of coffee, a pack of cigarettes, or a lottery ticket? This 

concept is being brought to life in prepaid cards and mobile banking products. More generally, can 

we make it as easy to “buy” savings as to buy anything else? If so, can we make the economics of 

POS savings attractive to low-income savers? This would expand the point of sale savings “outlets” 

from depository institutions to a much wider range of possible places, such as supermarkets, 

convenience stores, Wal-Marts, and other retail locations. Furthermore once the savings were 

“bought,” it would be possible to give it as a gift, in the way that one gives prepaid spending cards 

(like iTunes or mall cards). 

Technologically, payment cards are now able to accommodate some rudimentary savings, in 

the form of non-interest paying prepaid cards. For example, Green Dot offers a line of prepaid 

cards that are sold through neighborhood retailers such as Walgreens, CVS and RiteAid or via the 

internet. MasterCard or VISA branded Green Dot cards are available and are usable at millions of 

locations. Fees include a one-time activation fee of $9.95, retail reload fees of $4.95, a monthly 
28

maintenance fee of $4.95, and ATM cash withdrawal fees of $2.40 (https://www.greendotonline. 

com/Contents/Products.aspx#Fees_English). The structure and economics of this product 

emphasize its use as means of effecting payments. NetSpend and Financial Service Centers of 

America (FISCA) already offer a prepaid debit card with an associated savings component, marrying 

payments and savings features. However, one could construct an alternative card that emphasized

savings; this alternative card might be branded differently, could pay interest, and could restrict 

withdrawals, earning most of its economics from net interest margin. The appeal, if it could be 

constructed, would be the ability to “buy savings.” 

C.5.0 Bribing People to Save 

Financial economists seem especially fond of monetary incentives (bribery) to change 

behavior. The private sector is generally less enamored with bribery, but uses it in the form of 

promotions and discounting. For example, banks will sometimes offer attractive bonuses in the 

form of teaser rates on CDs and other products. Incentives of this type proceed from a set of 

behavioral assumptions embodied in the notion of homo economicus, the rational economic actor 

underlying much of neo-classical economics. While recognizing complex utility functions, this 

perspective judges that most outcomes can somehow be denominated in money. 

Savings product innovations based on financial incentives are fairly well-studied in 

economics. We discuss them briefly not because they are unimportant, but because they have 

received considerably more attention than other innovations, and because they tend to require large 

outlays. In the extreme form, compelling saving through outright grants would be the ultimate 

bribe. Here, we discuss less extreme bribery, in the form of Individual Development Accounts 

(IDAs) and the Saver’s Credit. We conclude by discussing a set of very different innovations – anti-
29

bribes that discourage saving among low-income families. These interventions, and the underlying 

behavior assumptions, are listed in column four of Exhibit 1. 

C.5.1 Financial Incentives for Low-Income Asset Building: Individual Development Accounts 

In matching the savings deposits of low-income participants, IDAs are an explicit 

application of financial incentives to encourage poorer households in the United States to save. 

However, IDAs are only partly matched savings accounts for low-income people; they also include 

financial education, high-touch case management, and restrictions on the use of accumulated funds. 

These other features address other institutional impediments to saving, as discussed by economist 

Mark Schreiner and social welfare scholar Michael Sherraden (2007). A fuller discussion of IDAs 

can be found in Sherraden’s chapter in this volume. Here we give a general accounting of the policy 

in order to situate it within our framework of savings innovation. 

The IDA field first received governmental funding in 1996 and since then it has grown to 

encompass between 500 and 1,000 IDA programs serving 15,000 active participants in 2005 

(Grinstein-Weiss and Irish, 2007). IDAs have been found to have mixed success with most 

participants accumulating fairly modest savings, but some evidence suggests that IDAs may help to 

close the black-white home ownership gap (Schreiner, Clancy, and Sherraden, 2002; Mills, Gale, 

Patterson, and Apostolov, 2006). IDA programs also remain quite small, leading to high per 

account costs for the financial institutions which generally administer the accounts. These expenses, 

ranging from $64 to $45 per participant per month are alone between two and three times greater 

than the average monthly net deposits of $19 reported for the American Dream Demonstration 

project (Boshara, 2005; and Grinstein-Weiss and Irish, 2007). 

There are more efficient ways to administer IDA accounts, such as using technology (as in 

the OnLine IDA program developed by D2D Fund in conjunction with Sungard). Furthermore, 
30

there are more streamlined ways to conduct financial education and to support savers. Innovations 

to date have been constrained by limited governmental IDA funding. We suspect that were large 

scale funding available, many of these more efficient models could emerge. 

IDAs are one of the small number of financial incentives for asset building initiatives for 

low-income consumers. Much of the federal budget for asset building goes to the wealthiest 

Americans, in fact CFED calculates that less than one percent of the $335 billion spent by 

government on incentivizing asset building goes to households in the bottom two income quintiles 

(Woo, Schweke, Buchholz, 2004). However, there are a few other asset building programs for less 

well off Americans using financial incentives. For example, The Department of Housing and Urban 

Development’s (HUD) Family Self-Sufficiency Program (FSS) is designed to help residents of public 

housing increase their savings by abating rent increases to residents’ savings accounts (Cramer and 

Lubell, 2005). But, perhaps the largest program is the Savers Credit, which we turn to next. 

C.5.2 Financial Incentives for Retirement Saving 

When asked to list their most important savings purposes, over one-third of households list 

retirement, more than any other choice (Bucks, Kennickell, and Moore, 2006). The Federal 

government and private business have put a number of savings incentives in place to try to support 

this goal. Reviews of the literature on the effectiveness of these innovations by the economists 

Douglas Bernheim (2002), Glenn Hubbard and Jonathan Skinner (1996), and Eric Engen, William 

Gale, and John Karl Scholz (1996) generally conclude that IRAs and 401(k)s may have had effects 

on saving, but, for all of the incentives offered, these effects are likely small. The majority of the tax 

benefits offered by these savings policies are also targeted to higher-income savers. In an effort to 

provide lower-income savers with incentives to build retirement assets, Congress passed the 

Retirement Savings Contribution Credit (the Saver’s Credit) in 2001, a progressively structured tax 
31

benefit which awards the largest credits to the lowest-income tax payers (Gale, Iwry, and Orszag, 

2004). 

However, the ability of the credit to serve low-income savers is constrained in part by its 

non-refundability. Approximately 5 million filers claimed the Saver’s Credit in each of its first two 

years (2002 and 2003), and about one quarter of these claimants had incomes of less then $10,000. 

However, these low-income claimants received very little benefit, in large part because they lacked a 

tax burden for the credit to offset (Gale, Iwry, and Orszag, 2005a). The credit is also hampered by 

its apparent complexity. Nearly 60 million taxpayers were eligible for the credit in 2002, about 

twelve times the number who actually claimed the credit, and 2.7 million filers could have claimed 

the credit given their actual retirement saving failed to do so (Koenig and Harvey, 2005). 

A recent pilot experiment attempted to resolve some of these issues through testing the 

design of a substantially simplified retirement savings credit for low-income households. In 2005, 

H&R Block partnered with a team of academic researchers to test the effect of offering tax clients a 

match (of 20 percent or 50 percent) on their contributions to IRAs. The presence of a match raised 

average contributions among participants, but there was no substantial difference in contribution 

level between those who were matched at 20 percent and those matched at 50 percent. However, 

while a large number of participants seemingly “left money on the table,” declining very high match 

rates, participation was still markedly higher than for the Saver’s Credit, which also offers high 

match rates to some filers (Duflo, Gale, Liebman, Orszag, and Saez, 2006). 

The Universal 401(k) proposal builds on these insights. It seeks to establish a simple 

program that matches contributions to retirement savings accounts. One version of the Universal 

401(k) would provide a match to retirement savings in the form of a fully refundable tax-credit that 

would be directly deposited into the tax filer’s 401(k), IRA, or new government-sponsored account 

(Calabrese, 2007). 
32

C.5.3 The Elimination of “Anti-Bribes” 

Financial disincentives to save may also influence low- and moderate-income families. 

Public assistance programs regulate the amount of assets that recipients may hold in an effort to 

ensure that only the neediest families are aided. However, asset-building advocates argue that even 

families receiving public assistance are well served to have emergency savings and that the 

ownership of certain assets, such as a car, can be crucial for finding work and achieving selfsufficiency (Chen and Lerman, 2005; McDonald, Orszag, and Russell, 2005). 

Since 1996, states have had the ability to set their own asset-tests for Temporary Aid to 

Needy Families (TANF), food stamps, and Medicaid covering areas such as liquid assets, IDA 

ownership, and car and home ownership. These thresholds have come to vary considerably, but in 

general the trend has been towards exempting illiquid assets. For instance, in 2003, 26 states 

exempted IDAs, 30 exempted homes or businesses, and 29 exempted vehicles from welfare 

program limits (McKernan and Margrabe, 2007). However, over the same period, the real value of 

limits on liquid assets has fallen, dropping from an average maximum of $2,779 for TANF in 1998 

to $2,592 in 2003 (McKernan and Margrabe, 2007). 

These limits might be irrelevant if few low-income families could save. However, a number 

of studies have found evidence that asset-tests of this type do discourage saving among low-income 

families. An effect of asset-tests on liquid savings is evident in the case of SSI (Neumark and 

Powers, 1998), public health insurance (Gruber and Yelowitz, 1999), and public assistance (Powers, 

1998; Ziliak, 2003; but see Hurst and Ziliak, 2006). Additionally, there is some evidence that assetlimits affect vehicle ownership (Sullivan, 2006; Hurst and Ziliak, 2006). Asset-tests may also be 

confusing to welfare recipients and may create a desire to try to conceal assets from public 

authorities, leading to a resistance to using formal financial institutions for saving and exacerbating 

the problem of the unbanked (O’Brien, 2006). Further, these tests are both costly to administer and, 
33

because household debt and net worth are ignored, are often inequitable – penalizing families with 

some assets but significant debt (Chen and Lerman, 2005). 

It seems counterproductive to both encourage and discourage saving through financial 

incentives. This problem is germane for recipients of public assistance, but it is also more widely 

relevant. Federal financial aid for college tuition is determined by a complex formula that takes into 

account both household income and assets, effectively imposing a “tax” on wealth. A number of 

papers have uncovered some evidence that this tax has an effect on saving (Feldstein, 1995; Dick, 

Edlin, and Emch, 2003; Monks, 2004; Long, 2003; and Reyes, 2007). However, these effects are 

most relevant for higher income households as few families earning less than $25,000 a year face an 

asset-penalty in financial aid calculations (Reyes, 2007). Similarly, eligibility for certain Medicare 

benefits for senior citizens include asset tests, forcing seniors to spend down or to create elaborate 

structures to qualify for benefits. While it may be appropriate to only provide benefits to certain 

people, we must be mindful of their impact on incentives to save. 

C.6.0 Making Savings a Group Activity 

Whereas economists tend to see money as a universal motivator, psychologists and 

sociologists see other quantities as the building blocks of motivation. Whereas behavioral 

economics tends to view these other factors as leading to various decision making “biases,” other 

disciplinary perspectives see fear, greed, guilt, excitement, and belonging as the determinants of 

behavior. These other lenses provide inspiration for a variety of savings programs, including those 

that leverage groups’ approval and norms. 

Leveraging the power of groups, rotating savings and credit associations (ROSCAs) are 

found in communities around the world. A number of people come together for regular ROSCA 

meetings. At each meeting, each member of the group contributes funds which are aggregated and 
34

presented to one member of the group. These meetings continue until each member has been 

awarded the pooled sums. For instance, a ten member group may meet weekly. At each meeting 

every member contributes $25 dollars. In the first week these funds are awarded to member A, in 

the second week everyone again contributes $25 (including A) and are awarded to B. This process 

continues until all ten members have received the “pot.” In this way members who received the pot 

early on become debtors to those members who have not (who are essentially creditors). This basic 

structure has been modified extensively. The order of receipt can be set by seniority, lottery, or 

bidding. The amount of the pot can be fixed over time or adjusted to compensate members who 

receive it later in the process. The group’s savings can be regularly distributed, or saved up to serve 

as capital for loans (Bouman, 1995). 

ROSCAs are widespread, and membership in many countries is high. ROSCAs are found in 

South America, Asia, and Africa particularly (Biggart, 2001). The micro-finance scholar Fritz 

Bouman (1995) reports that upwards of 50 percent of the adult population in Congo and as much as 

95 percent of the population in many rural African areas belongs to a ROSCA. They are also 

substantial in their economic impact and are essential sources of funds for households to purchase 

durable goods, invest in business, pay school fees, and meet other asset-development goals 

(Bouman, 1995). These features of ROSCAs are summarized in the fifth column of Exhibit 1. 

Some explain ROSCA participation in terms of individual maximizing behavior, particularly 

in the absence of formal financial institutions. This research posits that a rotating structure increases 

the welfare of all group members except the last, helping them to get the desired good more quickly 

than if they were saving alone (Beasley, Coate, and Loury, 1993). But, this formulation breaks down 

when considering ROSCAs where the order of award is fixed (Anderson and Baland, 2002). It 

seems that far more than this neo-classical economic approach, behavioral economics and economic 

sociology matter – with financial transactions embedded in a web of social relations. 
35

From a sociological perspective, ROSCAs may help people to manage intra-family relations. 

ROSCA members take their free cash out of the home and invest it in a form that is fairly illiquid – 

at least until they receive the pot. This structure may help members avoid the financial demands of 

family members without explicitly denying their requests, a form of withdrawal commitment (see 

Chiteji and Hamilton, 2005 for evidence of the impact of intra-family demands on saving in the 

U.S.). For instance, the economists Siwan Anderson and Jean-Marie Baland (2002) find that Kenyan 

wives protect their income from their husbands by joining ROSCAs. More broadly, the sociologist 

Viviana Zelizer (2005) suggests that money is often used to define intimate ties. For instance, intrafamily transfers may be used to affirm family relationships (for instance., a son may enact his fidelity 

to parents by giving money). ROSCAs may then be useful because they allow members to keep 

their money without inflicting overt damage on these relationships. 

ROSCAs have a readily apparent financial goal, but may also have an equally important 

social purpose (Ardner, 1995). In his seminal overview of ROSCAs, the anthropologist Clifford 

Geertz (1964) argues that group savings structures allow participants to perform traditional norms 

about reciprocity and group help – what he calls “rotating communalism.” Perhaps more clearly, 

ROSCAs are often tied to social occasions. The recipient of the “pot” will frequently be required to 

host the group at her home and provide food and drink (Biggart, 2001). The law scholar Sandra 

Burman and Nozipho Lembete (1995) note that in their study of South African ROSCAs, “meetings 

were considerable occasions, with impressive party fare and photographs of the six recipients 

dressed in their most elegant clothes” (p. 34). A similar story emerges about ROSCA members in 

Kenya where establishing a ROSCA was a means by which to “develop unity among members” (p. 

10) and not solely a means of building savings (Gugertry, 2003). Americans see saving as almost 

exclusively as a way of earning money. But, elsewhere, social rewards and group feeling (not just 

peer approval) may be a powerful motivator of savings as well. 
36

Finally, upholding one’s duties as a member of the ROSCA may help participants to situate 

themselves relative to other group members. ROSCAs may help a member show responsibility (by 

contributing regularly), generosity (by joining a ROSCA organized by someone in need), or 

competence (by setting-up a successful group) (Ardner, 1964). In all cases, savings is not just an end 

unto itself, but also a means by which individuals establish social standing and define their 

relationships with others. 

Lessons from behavioral economics are also useful in understanding the potential of 

ROSCAs. Behavioralists identify a lack of saving with self-control problems, and scholars have 

proposed that ROSCAs function as commitment savings devices, locking members into a fixed 

savings schedule (Gugerty, 2003; Mullainathan, forthcoming; Ambec and Treich, 2007). People 

would keep these commitments for a variety of reasons. ROSCAs are deeply embedded in 

communities and friendship networks, so groups can screen potential members for responsibility 

and credit-worthiness (Biggart, 2001; Chiteji, 2002). This social embededness allows members to 

impose social sanctions on dead beats (Ardner, 1964; Beasly, Coate, and Loury, 1993; Anderson, 

Baland, and Moene, 2003; Karlan, 2007). But members can also exploit their social ties to 

differentiate between defaults due to genuine hardship and those due to fraud (Gugerty, 2003). 

The social nature of ROSCAs also provides a measure of peer support, not just peer censure 

(Battaglini, Benabou, and Tirole, 2005). Savings is a “not” activity, that is, not consuming. Other 

“not” activities are supported by social support. Consider Weight Watchers, Alcoholics Anonymous 

(AA), and various other cessation programs. For people who have trouble saving, ROSCAs can be 

more than a commitment device, also providing social rewards for successful asset-accumulation 

(Biggart, 2001). 

Most of the literature on ROSCAs focuses on developing countries, where formal finance is 

lacking. However, ROSCAs also exist in the United States, especially in immigrant communities 
37

(Light, Kwoun, and Zhong, 1990; Bonnett, 1981). This savings innovation could also be 

successfully implemented in non-immigrant low-income communities in the United States. The 

sociologist Nicole Woolsey Biggart (2001) identifies five factors that should be in place for ROSCAs 

to function effectively: 1) social structure is communally based, 2) obligations are collective, 3) 

community members are stable economically and socially, 4) the community is socially and 

geographic isolated, and 5) members have equal social status. These conditions are likely met where 

there are dense kin networks, relative isolation from formal financial institutions, and an 

economically homogenous population. 

In the US, there are groups that use peer support to encourage saving, without rotating the 

savings award. One well-known example of this is the America Saves! campaign. Begun in 2001, the 

program aims to encourage people to save by setting up city-wide savings campaigns around 

providing education and encouragement (Fox, Bartholomae, and Lee, 2005). Approximately 67,000 

people have enrolled in the program in the United States, making a savings plan and pledging to 

meet their savings goals (Consumer Federation of America, 2007). These savers are supported by 

1,000 organizations in 50 areas around the country (Consumer Federation of America, 2007) with 

print media, one-on-one meetings, and, interestingly, savers clubs (Consumer Federation of 

America, 2003). In Cleveland, the first city to sign on, about one-third of families made less than 

$30,000 per year (36 percent) and more than half were non-white. Notably, participants who 

participated in savings clubs were far more likely to report making progress on their savings goals 

(Cude and Cai, 2006). 

Peer-supported savings has also shown favorable results in the IDA context. Attending 

meetings with peers increased the savings of IDA participants by more than any other institutional 

or personal factor (Grinstein-Weiss, Wagner, and Ssewamala, 2006). Though the effect may be due 

in large part to self-selection, the finding is promising. 
38

For low-income families, savings circles may perform many functions: support, education, 

fewer demands upon the family saver, peer pressure, and social reward. In addition, for low-income 

savers, pooling resources might give them access to financial choices that might otherwise be 

unavailable. Furthermore, pooling monies may give low-income families an ability to bargain with—

or be more attractive to—more financial institutions. Existing social groups, such as tight knit faithbased organizations, might be useful settings for these efforts (Foundation, Tufano and Walker 

1999). 

Finally, social bonds can be leveraged to encourage savings in the form of gifts. Savings is 

almost always conceived as an activity done by a person for herself or on her immediate family’s 

behalf. Yet, in many cultures, extended social groups periodically “save” on behalf of newly married 

couples at weddings, parents at the time of the birth of their children, and children on the occasion 

of their birthdays and secular or religious transitions (such as graduation, communion, or bar or bat 

mitzvah). Recent market research on LMI adults, especially women, suggests that these savingsgifting motives are very strong (Maynard and Zinsmeyer 2007). We see them manifested in the 

savings bond research cited above, in which much of the deposits into this commitment savings 

vehicle were made in the name of children. 

C.7.0 Making Savings Exciting or Fun 

The savings innovations in the preceding sections take various approaches to trying to help 

people save. But, whether they coerce savings, make it difficult to avoid, easy to engage in, or 

financially lucrative, most of these innovations (perhaps with the exception of group saving) still 

require that people believe that savings would help them. This is not necessarily an unfair 

requirement. Americans do seem to desire saving, most can rattle off a list of saving goals and many 

own some kind of savings product (Bucks, Kennickell, and Moore, 2006). But, a bigger challenge is 
39

to find savings products that don’t require that people particularly want to save. ROSCAs may 

appeal to non-savers who want social approval. More boldly, can one create savings products where 

people save because they simply enjoy it? Is it possible to make savings exciting? Even addictive? 

Are we willing to experiment with concepts of marketing (including some faddish or gimmicky 

concepts)? 

In this final section, we discuss two product innovations that seek to create fun saving 

products. One is more than 300 years old. The other exists (as far as we know) only in this paper. 

Both have the potential to be “disruptive innovations” as defined by the business strategist Clayton 

Christensen (1997). Disruptive innovations are “second best” innovations which have enough 

features to be attractive to new or existing customers, but which seem inferior relative to the leading 

products in a market. Ultimately, they prevail over seemingly superior products. Finance theorists 

might consider lottery-linked savings or even saving bonds, as far inferior to the panoply of 

advanced products in the market. However, by virtue of their simplicity, they appeal to non-savers. 

 

C.7.1 Lottery-Linked Savings 

In 1694 the British Government offered investors the chance to join a “Million Adventure.” 

One million pounds was raised in the U.K, with investors receiving a 10 percent return and a chance 

at winning a large raffle prize (Allen and Gale, 1994). That experiment has since spurred more than 

300 years of product offerings. The form of the product has settled on a fairly simple construction: 

investors purchase a savings product with no risk of principal loss and either forfeit or accept 

reduced interest payments in exchange for the chance to win one or several large prizes allocated 

randomly. 

The “Million Adventure” was followed by prize-bond offerings in France and England 

during the 18th Century. These offerings were popular, encouraging new investors to purchase 
40

bonds, but were relatively costly compared with non-prize government debt and were primarily 

geared at fairly well-off individuals (Cohen, 1953). Prize-bonds were next offered in 1864 by the 

Russian Government. These bonds were offered at a relatively low purchase price and bond holders 

were eligible for bi-annual prize drawings. The prizes varied in value and volume from a single 

200,000 ruble prize (roughly 100 times a middle-class household’s income) to approximately two 

hundred and fifty 500 ruble prizes. The bonds sparked significant public interest at the time and a 

recent study has documented investors’ willingness to pay significantly for the risky bonds – as much 

as 8 times the expected value (Ukhov, 2002). By the late 19th century, this structure was used 

throughout continental Europe (Levy-Ullmann, 1896). The 20th century saw governments 

reintroduce prize bonds across Europe - in Sweden in 1918 (Chacko, Hecht, Dessain, and Sjoman, 

2004), in Denmark in 1948 (Florentsen and Rydqvist, 2002), and in Britain in 1956 where they are 

still offered (Tufano, 2007). Britain’s “Premium Bond” is available in denominations of £1 with a 

minimum purchase of £100. Each bond represents a chance to win a prize, with drawings held 

monthly and roughly 1.2 million prizes distributed at each drawing. The prizes range in value from 

two £1 million prizes to more than a million £50 prizes. Ownership of the bonds is widespread 

with £31.1 billion outstanding held by one-quarter of British households. Peter Tufano (2007) 

analyzes the determinants of Premium Bond sales in an effort to distill both what drives investments 

and how consumers view the product. He finds that sales are driven both by factors that correlate 

with a savings perspective, such as the aggregate interest rate (or prize rate) and by factors that are 

more gambling oriented, such as the amount of the largest prize. 

In addition to bonds retailed by governments, private financial institutions also market prizelinked savings products. Such products are sold with great success internationally, including in 

Kenya, Mexico, Venezuela, Columbia, and Japan. Focusing on Central and South America, the 

socoiologist Mauro Guillen and the business economist Adrian Tschoegl (2002) describe the prize-
41

linked deposit products of two banks. Both products offered daily prizes (of a car and of $22,000 

respectively) and larger monthly prizes (of $220,000 and $250,000 respectively). The odds of 

winning were quite low for both, around .000032 percent. Each also paid reduced interest on the 

account, between one-half and two-thirds of the standard rate. In general, it appears that the prizelinked accounts were particularly appealing to low-income individuals and served to attract the 

“unbanked” as well as to take customers from other banks. Data presented for one of the banks 

shows fairly rapid deposit growth. A Mexican bank reported accounts of 485,000 and deposits of 

$178 million over two years, similar amounts in Columbia over one year, and even larger amounts in 

Venezuela (697,000 accounts and $646 million on deposit) over one year (Guillen and Tschoegl, 

2002). 

A more recent iteration of the Prize Savings concept, in South Africa, also shows evidence 

of strong demand and illustrates the importance of marketing in making this kind of product 

offering successful. First National Bank (FNB), one of the four largest retail banks in the South 

African market, introduced its Million-a-Month-Account (MaMA) in 2005. The MaMA account is a 

no fee savings account which pays a nominal interest rate, 0.25 percent, and rewards savers with the 

one prize entry for every 100 R invested. Prize drawings are held monthly and at each drawing 114 

prizes are awarded, ranging in value from 1 million rand to 1,000 rand. Since the product’s debut, 

FNB has opened 750,000 accounts and collected 1.2 billion rand of deposits (Mabuza, 2007). The 

economics of the program can apparently be attractive, once at scale, especially if the campaign to 

sell product has ancillary marketing or selling benefits. See the case study by Cole, Collins, 

Schneider and Tufano (2008) for additional details on this program. 

There is extensive evidence that low-income families in the United States play lotteries, and 

recent survey evidence suggests that they believe they are more likely to get rich from playing 

lotteries than by saving. In 2003 alone, U.S. residents spent nearly $80 billion on legalized forms of 
42

gambling (Kearney, 2005). Though large shares of the U.S. population engage in some form of 

gambling annually, evidence suggests that low-income Americans are likely to spend a larger 

percentage of their income on such gambling activities as state jackpots. 

This lottery playing may actually substitute for savings for many families. Research 

conducted in 1999 suggests that low-income individuals may see gambling and saving as closely 

related. Some low-income respondents thought it was fruitless to save and so concluded that their 

best chance of accumulating wealth lay in winning jackpots or bets (Holton, 2000). More recent 

surveys confirm this perception. Asked if they would be more likely to accumulate $500,000 by 

saving or by playing the lottery, 38 percent of low-income adults felt that they stood a better chance 

of reaching that savings level by playing the lottery, compared with just 30 percent who picked 

savings (Consumer Federation of America, 2006). In some sense this data speaks to the difficulty 

low-income families may face in trying to motivate themselves to save – putting away $10 or $20 

dollars a month may just not feel like it will amount to enough to bother. Lotteries on the other 

hand hold out the promise, however remote, of accumulating truly life-changing sums of money. 

Lottery linked programs permit an interesting blend of classical economic and behavioral 

elements. As emergency savings vehicles, these structures can offer no principal loss and liquidity. 

Leveraging the concept of loss aversion, they offer a highly asymmetric payout: Heads you win and 

tails you don’t lose. While they don’t offer the familiar and powerful concept of compound interest, 

this tradeoff may be appropriate for savers who would (a) otherwise earn very low nominal returns 

otherwise due to the size of the account and their demands for liquidity—and thus have to wait 

years for material accumulation through interest-on-interest; (b) have relatively short and uncertain 

holding periods, thus leaving little time for the monies to compound. 

 A number of current research projects, including those we are engaged in, are studying 

lottery linked products in the U.K. and in South Africa. Currently, exact structures of the type used 
43

in these countries would likely be deemed in violation of most state laws that prohibit private 

lotteries. Research experiments in the US using similar structures need to test whether low- and 

moderate-income Americans respond to these incentives like savers elsewhere in the world. If so, 

changes in state and federal law could permit, rather than prohibit, these potentially interesting 

structures. However, they raise interesting issues. For example, while this product might be 

appropriate for certain savers, it is less appropriate for others, say people with a thirty year horizon 

and saving for retirement. 

C.7.2 Wilder Concepts 

 People react to sight, smell, taste and touch—yet while life is tangible, much of our thinking 

about savings is ethereal. Perhaps there is a way to make saving more concrete. Taking this concept 

literally, the cement maker CEMEX designed Patrimonio Hoy, a savings program for poor families 

(see Segel, Chu and Herrero 2006). The program has many elements discussed elsewhere in this 

paper: it leverages a ROSCA-like structure, combines savings with credit, and offers new saverfriendly distribution channels. At the heart of the program is the requirement that families band 

together to save to purchase construction materials to expand their small homes. After making 

some progress toward saving (but before paying for all the materials), savings materialize in the form 

of building materials on site. The program appears to be quite successful, by many metrics. 

Although CEMEX advances credit, default rates are reported to be extremely low, with only 0.4 

percent of sales written off in 2003 (Segel, Chu and Herrero 2006). The quality of housing has 

improved and the efficiency of building has increased. While it is difficult to attribute the program 

success to any one element, one wonders if making savings tangible had a role in its success. Savers 

could see and touch the product of their saving. 
44

 While American savers might not be motivated by deliveries of cement blocks, one can 

imagine other tangible manifestations of savings that might work. For example, some people are 

very motivated by the concept of collectibles, whether they be stamps, plates, Beanie Babies, beer 

labels, or other things. Could one create a collectible savings program, whereby each increment to 

savings was marked by a physical object and the goal was to “collect them all”? Before rejecting 

this concept, consider the satisfaction (now largely gone) of getting enough entries on a passbook 

savings account that you moved to the next page or flipping through a stamped passport to remind 

you of international travel. By setting concrete, incremental, and achievable goals, we might set up 

families for success, rather than the failure of always falling short of large lifetime aspirations. With 

a physical marker, it might be possible for savers to keep track of their progress easily. With an 

attractive physical collectible, the item itself might keep savers motivated. While faddish, newer 

concepts like this (which are summarized in the sixth column of Exhibit 1) might be useful in 

supporting savings. Furthermore, while the economics of the program would need to be addressed, 

the private sector might be able to bring its formidable marketing skills to bear. 

 

C.8.0 From Ideas to Action 

Our goal in writing this chapter was to acknowledge the wide range of solutions to the 

problem of low family savings. All too often, we focus on one type of savings (such as retirement or 

education) or one type of program (such as a tax credit or a default scheme) without acknowledging 

the breadth of families’ savings goals or the range of available savings mechanisms. Some solutions 

are best suited to government action (savings bonds at tax time), others to the private sector 

(collectibles or point of sale), and some to social groups or Non-Governmental Organizations 

(NGOs) (social network savings). Some solutions might appeal to lower-income families, other to 

more moderate-income families. Some might appeal to “analytic types” (for example, inflation 
45

indexed savings bonds), while others might appeal to savers with other preferences (collectible 

savings or prize-linked savings.) 

 If these are such a wide range of good ideas, then why don’t we see more of them? In part, 

we do: virtually all of the examples cited here are taken from practice, albeit not always scaled up. 

Expanding some of these policies in place does not seem particularly far fetched. The private sector 

can offer lottery savings, distribute savings products at tax-time, offer point-of-sale savings, and 

provide bundled savings vehicles like the SALO and Keep the Change. They can also design 

effective marketing strategies around the psychological factors that are emerging as salient to 

savings. They can also support, but not deliver, social savings schemes, for example, by facilitating 

the paperwork by savings groups in communities. 

Firms will be motivated because they believe these products can deliver profits. Our 

observation, based on working with financial service firms for savings products for LMI savers over 

the past decade, suggests that the barriers to adoption are real, but surmountable. In part, many 

private organizations lack basic information about LMI families as they have not previously served 

them. In part, many financial service firms are more set up for delivery, rather than innovation. 

Both of these barriers can be addressed through partnerships with other organizations. As 

examples, the non-profits Center for Financial Services Innovation (a unit of ShoreBank 

Corporation in Chicago) and Doorways to Dreams Fund (founded by one of the coauthors) create 

organizations that produce new market insights, support new product development, and link 

untraditional partners in support of new product innovation. Beyond this, we have witnessed 

firsthand how these process and product innovations may require relatively minor changes to 

existing regulations and laws. Splitting refunds to multiple destinations or permitting savings bond 

sales off of the 1040 form are not revolutionary changes. We have spoken to many financial 

institutions interested in lottery savings programs, but existing laws make offering these products 
46

problematic. Finally, even small innovations that simplify the process of point-of-sale or tax time 

savings (and thereby make the cost of customer acquisition and account opening lower) can be 

thwarted by the unintentional consequences of KYC. Even clarifying the liability around defaults, as 

has recently been done in pension reform legislation, can have a positive impact on employers’ 

willingness to support savings. 

 As optimists, we are hopeful that effective bi-partisan alliances can increase savings for lowincome families – but as realists, we can observe that this alliance may hold only so long as the 

innovation requires minimal governmental involvement and investment. For instance, recent 

regulatory changes facilitated automatic enrollment in IRAs and simplified the refund-splitting 

process. From the right, making these small changes may be seen as a way forward on President 

Bush’s “ownership society” agenda. By increasing private savings with little governmental outlay, 

these fixes can be seen as a way to reduce reliance on social insurance (Hacker, 2002; 2006). From 

the left, these small changes may be all that can be practically done to help the poor in an otherwise 

unsympathetic political environment. These small-scale policies can be conceptualized as patches to 

the welfare state. 

There is a more complicated political economy around the “big-money” governmental 

interventions discussed in this chapter. Child savings accounts and nation-wide IDA programs have 

not succeeded in Congress, perhaps in part because these policies have both support and opposition 

on the left and the right. By increasing individual and family savings, these programs may advance 

the right’s “ownership society” agenda - reducing social insurance in favor of private insurance 

(often in the form of private savings) (Hacker, 2002; 2006). However, they do so not through small 

regulatory changes but through multi-billion dollar governmental expenditure – hardly small social 

welfare state policies. At the same time, by transferring funds to the poor, these programs also 

advance the traditional left goal of assisting the poor and maintaining the role of government in 
47

providing social insurance. However, there appears to be suspicion that adopting asset-based social 

welfare policy means reducing traditional income supports. Writing well before the elections of 

November 2008, it is impossible to gauge how the election results might change this political 

dynamic. However, it is probably safe to bet that small “technical” changes in regulations are 

always more likely than large expensive programs which require broader constituencies and which 

might be undone by national and international crises. 

In the recent past, proponents of these interventions and other large-scale asset policies have 

surveyed the political landscape and adopted two strategies. The first is an appeal to “progressive 

universalism.” The logic here is that though social programs which provide their benefits to all 

citizens achieve less targeting of the poor, they may still distribute more to the poor in the end 

because the political support for such programs extends more broadly. Essentially, though the share 

of social spending directed to the poor may be smaller, it is a share of a bigger pie (Korpi and Palme, 

1998). The “progressive” aspect of the CTF and the proposed ASPIRE accounts simply accentuates 

this. The second strategy is framing these policies in such a way as to neutralize the typical 

American objection to social welfare spending – that it goes to an undeserving poor (Gilens, 1999). 

The ASPIRE act does this by distributing funds to children, a more sympathetic population than 

currently poor adults. IDAs restrict the use of funds to specific “worthy” purposes, such as 

education, home purchase, or small business development. These remain promising strategies for 

achieving more far reaching asset-building policy. 

While government policies are likely key for some of the innovations, we cannot wait for 

government action alone. We need to compare innovations from the perspectives of those involved 

(would-be savers, for-profit businesses, and NGOs.) The cost-benefit equation for these partners 

must be clear, considering direct and indirect costs (including opportunity costs) as well as benefits, 

which might be revenues or customer retention (for private sector firms), progress towards mission 
48

objectives (for NGOs), or impact on national savings or public assistance programs (for 

governments). 

Whichever innovation is considered, it is important to research its impact on total saving. 

Just because a product is adopted does not mean that it is increasing saving—it could be 

cannibalizing savings from elsewhere. While measuring savings levels may be the primary goal, it is 

important to adopt a broad perspective when measuring “impact.” If seen as a long-run investing 

vehicle, then measuring wealth impact may be appropriate. If seen as a short-run emergency buffer, 

then the measurement of success may be very different. Furthermore, it is critical to consider saving 

in the context of other financial decisions, especially credit management. Were we to induce 

families to take out debt at high rates to save at low rates, we might be working against the best 

interests of families. 

Additionally, while this chapter looks at savings broadly, we did not fully consider the 

interplay between other government programs and savings. We should. From a purely economic 

perspective, a dollar in potential government benefits may offset the need for a dollar in savings. 

From a psychological or sociological perspective, however, these may not be the same at all. We 

suspect that while a dollar of TANF grants might offset a dollar of drawn down savings, from an 

emotional level, they might be experienced quite differently. 

 Finally, researchers need research to lead the way in providing guidance about how much 

savings, and what type, is optimal for families. While there is some research on this topic for longhorizon retirement savings, we need to focus the same level of attention and rigor on the full range 

of saving. In doing so, we must be sensitive to the needs of low- and moderate-income families, 

whose concerns about short term emergencies are just as legitimate as their needs to plan for a 

retirement that may be decades away. 

 
49

Sources 

Allen, Franklin and Douglas Gale. 1994. Financial Innovation and Risk Sharing. Cambridge: MIT Press. 

Ambec, Stefan and Nicolas Treich. 2007. "Roscas as Financial Agreements to Cope with SelfControl Problems." Journal of Development Economics 82:120 - 137. 

Anderson, M., S. Atlee, D. Cardamone, B. Danaher, and S. Utkus. 2001. "Automatic Enrollment: 

Benefits and Costs of Adoption." The Vanguard Center for Retirement Research, Valley 

Forge. 

Anderson, Siwan and Jean-Marie Baland. 2002. "The Economics of ROSCAS and Intrahousehold 

Resource Allocation." Quarterly Journal of Economics 963 - 995. 

Ardner, Shirley. 1964. "The Comparative Study of Rotating Credit Associations." The Journal of the 

Royal Anthropological Institute of Great Britain and Ireland 94:201 - 229. 

—. 1995. "Women Making Money Go Round: ROSCAs Revisted." In Money-Go-Rounds: The 

Importance of Rotating Savings and Credit Associations for Women, edited by S. Ardner and S. 

Burman. Oxford: Berg Publishers. 

Ashraf, Nava, Nathalie Gons, Dean S. Karlan, and Wesley Yin. 2003. "A Review of Commitment 

Savings Products in Developing Countries." Asian Development Bank Economics and Research 45. 

Ashraf, Nava, Dean S. Karlan, and Wesley Yin. 2007. "Tying Odysseus to the Mast: Evidence from 

a Commitment Savings Product in the Philippines." The Quarterly Journal of Economics 121:673-

697. 

Atlee, S, B. Danaher, and S. Utkus. 2001. "Automatic Enrollment: Vanguard Client Experience." 

The Vanguard Center for Retirement Research, Valley Forge. 

Bank of America. 2007. "Regular Savings Rates and Fees." www.bankofamerica.com 

Barr, Michael S. 2007. "An Inclusive, Progressive National Savings and Financial Services Policy." 

Harvard Law & Policy Review 1:161 - 184. 

Barr, Michael S. and Jane K. Dokko. 2006. "Tax Filing Experiences and Withholding Preferences of 

Low- and Moderate-Income Households: Preliminary Evidence from a New Survey." Paper 

presented to the 2006 IRS Research Conference. Georgetown University Law School. 

Barr, Michael S. and Michael Sherraden. 2005. "Building Assets Building Credit: Creating Wealth in 

Low-Income Communities." In Building Assets, Building Credit: Creating Wealth in Low-Income 

Communities, edited by N. P. Restinas and E. S. Belsky. Washington, D.C.: Brookings 

Institution Press. 

Barrow, Lisa and Leslie M. McGranahan. 2000. "The Effects of the Earned Income Credit on the 

Seasonality of Household Expenditures." National Tax Journal 53:1211 - 1243. 

Battaglini, Marco, Roland Benabou, and Jean Tirole. 2005. "Self-Control in Peer Groups." Journal of 

Economic Theory 123:105 - 134. 

Bernheim, Douglas B. 2002. "Taxation and Saving." Handbook of Public Economics 3:1174 - 1249. 

Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. 2007. "The Impact of 

Employer Matching on Savings Plan Participation under Automatic Enrollment." Working 

Paper, Harvard University, Cambridge, MA. 

Besley, Timothy, Stephen Coate, and Glenn Loury. 1993. "The Economics of Rotating Savings and 

Credit Associations." The American Economic Review 83:792-810. 

Beverly, Sondra, Daniel Schneider, and Peter Tufano. 2006. "Splitting Tax Refunds and Building 

Savings: An Empirical test." Tax Policy and the Economy 20:111 - 162. 

Beverly, Sondra, Jennifer Tescher, and Jennifer Romich. 2004. "Linking Tax Refunds and Low-Cost 

Bank Accounts: Early Lessons for Program Design and Evaluation." Journal of Consumer 

Affairs 38:332 - 341. 
50

Biggart, Nicole Woolsey. 2001. "Banking on Each Other: The Situational Logic of Rotating Savings 

and Credit Associations." Advances in Qualitative Organization Research 3:129 - 153. 

Bonnett, Aubrey. 1981. Institutional Adaptation of West Indian Immigrants to America: An Analysis of 

Rotating Credit Associations. Washington, D.C.: University Press of America. 

Boshara, Ray. 2005. "Individual Development Accounts: Policies to Build Savings and Assets for the 

Poor." The Brookings Institution, Washington, D.C. 

Bouman, F. J. A. 1995. "Rotating and Accumulating Savings and Credit Associations: A 

Development Perspective." World Development 23:371 - 384. 

Bucks, Brian K., Arthur B. Kennickell, and Kevin B. Moore. 2006. "Recent Changes in U.S. Family 

Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances." Federal Reserve 

Bulletin 92:A1 - A38. 

Bulkeley, William M. 2001. "Large Companies Join Rebate Plan for College Savings." The Wall Street 

Journal, April 21, 2001, p. B 16. 

Burman, Sandra and Nozipho Lembete. 1995. "Building New Realities: African Women and 

ROSCAs in Urban South Africa." In Money-Go-Rounds: The Importance of Rotating Savings and 

Credit Associations for Women, edited by S. Ardner and S. Burman. Oxford: Berg Publishers. 

Calabrese, Michael. 2007. "A Universal 401(k) Plan." in Ten Big Ideas for a New America. Washington, 

D.C.: New America Foundation. 

Campbell, Richard T. and John C. Henretta. 1980. "Status Claims and Status Attainment: The 

Determinants of Financial Well-Being." The American Journal of Sociology 86:618 - 629. 

CFED. 2007. "Individual Development Accounts: Providing Opportunities to Build Assets." 

CFED, Washington, D.C. 

—. 2007. "The Seed Policy and Practice Initiative." www.cfed.org 

Chacko, George, Peter Hecht, Vincent Dessain, and Andres Sjoman. 2004. "Swedish Lottery 

Bonds." Case No. 204-048, Harvard Business School Press, Boston. 

Chaker, Anne Marie. 2004. "How Shopping Can Pay for College." The Wall Street Journal, September 

23, 2004, p. D2. 

Chen, Alexander and Helen H. Jensen. 1985. "Home Equity Use and the Life Cycle Hypothesis." 

Journal of Consumer Affairs 19:37 - 56. 

Chen, Henry and Robert I. Lerman. 2005. "Do Asset Limits in Social Programs Affect the 

Accumulation of Wealth?" The Urban Institute, Washington, D.C. 

Chiteji, Ngina. 2002. "Promises Kept: Enforcement and the Role of Rotating Savings and Credit 

Associations in an Economy." Journal of International Development 14:393 - 411. 

Chiteji, Ngina and Darrick Hamilton. 2005. "Family Matters: Kin Networks and Asset 

Accumulation." In Inclusion in the American Dream: Assets, Poverty, and Public Policy, edited by M. 

Sherraden. Oxford: Oxford University Press. 

Choi, James J., David Laibson, and Brigitte C. Madrian. 2004. "Plan Design and 401(k) Savings 

Outcomes." National Tax Journal 52:275-298. 

Choi, James J., David Laibson, Brigitte C. Madrian, and Andrew Metrick. 2004. "For Better or For 

Worse: Default Effects and 401(k) Savings Behavior." In Perspectives in the Economics of Aging, 

edited by D. Wise. Chicago: University of Chicago Press. 

—. 2006. "Saving For Retirement on the Path of Least Resistance." In Behavioral Public Finance: 

Toward a New Agenda, edited by E. McCaffrey and J. Slemrod. New York: Russell Sage 

Foundation. 

Christensen, Clayton M, 1997, The Innovator’s Dilemma, Boston: Harvard Business School Press. 

Cohen, Jacob. 1953. "The Element of Lottery in British Government Bonds, 1694-1919." Economica

20:237 - 246. 
51

Cole, Shawn, Daryl Collins, Daniel Schneider and Peter Tufano, 2008, “First National Bank’s 

Golden Opportunity.” Harvard Business School Case study 208-072. 

Consumer Federation of America. 2003. "New Analysis Reveals Wealth Gap Between Hispanic and 

Other Americans." Consumer Federation of America, Washington, D.C. 

—. 2006. "How Americans View Personal Wealth vs. How Financial Planners View This Wealth." 

Consumer Federation of America, Washington, D.C. 

—. 2007. "National Survey Reveals Emergency Savings Needs and Effective Saver Strategies." 

Consumer Federation of America, Washington, D.C. 

Cramer, Reid. 2006. "Net Worth at Birth: Creating a National System for Savings and Asset Building 

with Children's Savings Accounts." New America Foundation, Washington, D.C. 

Cramer, Reid and Jeffrey Lubell. 2005. "Shoring Up HUDs Family Self-Sufficiency Program." The 

New America Foundation, Washington, D.C. 

Cude, Brenda J. and Yi Cai. 2006. "Assessing the Outcomes of a Social Marketing Program: Lessons 

Learned from Cleveland Saves." Paper presented at the Eastern Family Economics and 

Resource Management Association meetings. 

Davis, Kristin. 1 November 2001. "A Not-So-Easy College Freebie." Kiplinger's Personal Finance 55. 

Davis, Paul. 2006. "In Brief: 2 Million Sign-Ups for B of A Program." American Banker, April 6, 2006, 

p. 19. 

Dick, Andrew W., Aaron S. Edlin, and Eric R. Emch. 2003. "The Savings Impact of College 

Financial Aid." Contributions to Economic Analysis & Policy 2:1 - 29. 

Duflo, Esther, Wiliam G. Gale, Jeffery Liebman, Peter Orszag, and Emmanuel Saez. 2006. "Saving 

Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with 

H&R Block." Quarterly Journal of Economics 121:1311-1346. 

Editor. 2006. "BofA Earnings Flat, Debit Up." ATM & Debit News. January 26, 2006, p. 1. 

Engen, Eric M., Wiliam G. Gale, and John Karl Scholz. 1996. "The Illusory Effects of Saving 

Incentives on Saving." Journal of Economic Perspectives 10:113 - 138. 

Enrich, David. 2005. "Credit-Card Savings Accounts Reward Spending." The Wall Street Journal, 

October 11, 2005, p. D2. 

Feldstein, Martin. 1995. "College Scholarship Rules and Private Saving." The American Economic Review

85:552 - 566. 

Fellowes, Matt and Terry I Brooks. 2007. "The High Price of Being Poor in Kentucky." The 

Brookings Institution Metropolitan Policy Program, Washington, D.C. 

Florentsen, Bjarne and Kristian Rydqvist. 2002. "Ex-Day Behavior When Investors and Professional 

Traders Assume Reverse Roles: The Case of Danish Lottery Bonds." Journal of Financial 

Intermediation 11:152-175. 

Fondation, Larry, Peter Tufano, and Walker. 1999. "Collaborating with Congregations: 

Opportunities for Financial Services in Inner Cities." Harvard Business Review 57-68. 

Fox, Jonathan, Suzanne Bartholomae, and Jinkook Lee. 2005. "Building the Case for Financial 

Education." Journal of Consumer Affairs 39:195 - 214. 

Freeman, Lisa. 2005. "CUs Slow to Match Rival Cards' Savings Feature." The Credit Union Journal. 

November 26, 2005. 

Gale, Wiliam G., Mark Iwry, and Peter Orszag. 2004. "The Saver's Credit: Issues and Options." Tax 

Notes 597 - 612. 

—. 2005. "The Saver's Credit: Expanding Retirement Savings for Middle- and Lower-Income 

Americans." The Retirement Security Project, Washington, D.C. 

Geertz, Clifford. 1962. "The Rotating Credit Association: A "Middle Rung" In Development." 

Economic Development and Cultural Change 10:241 - 263. 
52

Gilens, Marty. 1999. Why Americans Hate Welfare: Race, Media, and the Politics of Anti-Poverty Policy. 

Chicago: University of Chicago Press. 

Grinstein-Weiss, Michal and Katie Irish. 2007. "Individual Development Accounts: Frequently 

Asked Questions." Center for Social Development, George Warren Brown School of Social 

Work, Washington University, St. Louis. 

Grinstein-Weiss, Michal, Kristen Wagner, and Fred M. Ssewamala. 2006. "Saving and Asset 

Accumulation Among Low-Income Families with Children in IDAs." Children and Youth 

Services Review 28:193-211. 

Gruber, Jonathan and Aaron Yelowitz. 1999. "Public Health Insurance and Private Savings." Journal 

of Political Economy 107:1249 - 1274. 

Gugerty, Mary Kay. 2003. "You Can't Save Alone: Testing Theories of Rotating Savings and Credit 

Associations in Kenya." Working Paper. 

Guillen, Mauro and Adrian Tschoegl. 2002. "Banking on Gambling: Bank and Lottery-Linked 

Deposit Accounts." Journal of Financial Services Research 21:219-231. 

H&R Block. 2007a. "H&R Block Annual Report." 

—. 2007b. "H&R Block Serves Record Total U.S. Clients in 2007 Tax Season." H&R Block Media 

Relations, St. Louis. 

—. 2006. "H&R Block Defends Its Express IRA Product and Delivers Strong Rebuttal to New 

York AG's Attack." H&R Block Media Relations, St. Louis. 

Hacker, Jacob. 2002. The Divided Welfare State: The Battle Over Public and Private Social Benefits in the 

United States. Cambridge: Cambridge University Press. 

Hacker, Jacob. 2006. The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and 

Retirement. Oxford: Oxford University Press.

Holden, Sarah and Jack VanDerhei. 2001. "Contribution Behavior of 401k Plan Participants." ICI 

Perspective 7. 

Holton, Lisa. 2000. "Redefining the Rainy Day." American Demographics 22:6. 

HM Treasury. 2003. "Detailed Proposals for the Child Trust Fund." London: HM Treasury & 

Inland Revenue. 

—. 2006. "Child Trust Fund Statistical Report " HM Revenue & Customs. 

—. 2007. "The Child Trust Fund: Total Number of Vouchers Issued and Accounts Opened by 

Parents." HM Treasury. 

Hubbard, Glenn R. and Jonathan Skinner. 1996. "Assessing the Effectiveness of Saving Incentives." 

Journal of Economic Perspectives 10:73-90. 

Hurst, Eric and James P. Ziliak. 2006. "Do Welfare Asset Limits Affect Household Saving? 

Evidence from Welfare Reform." Journal of Human Resources 41:46-71. 

Internal Revenue Service. 2005a. "All Returns: Tax Liability, Tax Credits, and Tax Payments, Table 

3.3." Internal Revenue Service, Statistics of Income. 

—. 2005b. "Individual Income Tax Returns with Earned Income Credit, Table 2.5." Internal 

Revenue Service, Statistics of Income. 

Iwry, J. Mark and David C. John. 2007. “Pursuing Universal Retirement Security through 

Automatic IRAs.” Retirement Security Project, Washington D.C. 

Karlan, Dean S. 2007. "Social Connections and Group Banking." The Economic Journal 117:F52 - F84. 

Kearney, Melissa S. 2005. "The Economic Winners and Losers of Legalized Gambling." National 

Tax Journal 58:281-302. 

Kempson, Elaine, Adele Atkinson, and Sharon Collard. 2006. "Saving for Children: A Baseline 

Survey at the Inception of the Child Trust Fund." Personal Finance Research Centre, 

University of Bristol. 
53

Kim, Jane J. 2006. "'Loyalty' and College Savings - Buying at Some Retailers Helps a 529 Plan, But It 

Takes Work." The Wall Street Journal, February 11, 2006, p. B4. 

Kneebone, Elizabeth. 2007. "A Local Ladder for Low-Income Workers: Recent Trends in the 

Earned Income Tax Credit." The Brookings Institution Metropolitan Policy Program, 

Washington, D.C. 

Koenig, Gary and Robert Harvey. 2005. "Utilization of the Saver's Credit: An Analysis of the First 

Year." National Tax Journal 53:787 - 806. 

Korpi, Walter and Joakim Palme. 1998. “The Paradox of Redistribution and Strategies of Equality: 

Welfare State Institutions, Inequality, and Poverty in the Western Countries.” American 

Sociological Review 63(5): 661 – 687. 

Kuehner-Hebert, Katie. 2007. "Weighing the Pros and Cons of Short-Term Military Loans." 

American Banker, May 1, 2007, p. 8a. 

Levy-Ullmann, Henri. 1896. “Lottery Bonds in France and in the Principal Countries of Europe.” 

Harvard Law Review 9(6): 386-405. 

Light, Ivan, Im Jung Kwuon, and Deng Zhong. 1990. "Korean Rotating Credit Associations in Los 

Angeles." Amerasia 16:34-54. 

Long, Mark. 2003. "The Impact of Asset-Tested College Financial Aid on Household Saving." 

Journal of Public Economics 88:63 - 88. 

Lubasi, Victor. 2005. "Debit Card Competition: Signature versus PIN." Chicago Fed Letter 221. 

Mabuza, Ernest. 2007. "FNB 'Lottery' Still On Pending New Appeal." Business Day (Johannesburg). 

April 18, 2007. 

Madrian, Brigitte C. and Dennis F. Shea. 2001. "The Power of Suggestion: Inertia in 401(k) 

Participation and Savings Behavior." Quarterly Journal of Economics 116:1149 - 1187. 

Mahon, Cathie, Kristen Moy, and Melissa Koide. 2005. "Individual Development Accounts: A 

Report to the Field." Aspen Institute Economic Opportunities Program, New York. 

Maynard, Nick. 2007. "Tax Time Savings: Testing U.S. Savings Bonds at H&R Block Tax Sites." 

D2D Fund, Boston, MA. 

Maynard, Nick and Jeff Zinsmeyer. 2007. “The Mind of Low and Moderate Income Savers” Filene 

Research Institute, Madison WI. 

McDonald, Gordon, Peter Orszag, and Gina Russell. 2005. "The Effect of Asset Tests on Saving." 

The Retirement Security Project, Washington, D.C. 

McKernan, Signe-Mary and William Margrabe. 2007. "How Have Asset Policies for Cash Welfare 

and Food Stamps Changed Since the 1990s?" The Urban Institute, Washington, D.C. 

Mensah, Lisa, Rachel Schneider, and Magda Aboulfadi. 2004. "The Child Trust Fund: A Universal 

Long-Term Saving Policy." The Aspen Institute, Initiative on Financial Security, New York. 

Merton, Robert C. 1992. "Financial Innovation and Economic Performance " Journal of Applied 

Corporate Finance 4. 

Mierzwa, Erin. 2007. "Bank of America Wants Customers to Keep Their Change." Cascade 64. 

Mills, Gregory, Wiliam G. Gale, Rhiannon Patterson, and Emil Apostolov. 2006. "What Do 

Individual Development Accounts Do? Evidence from a Controlled Experiment." Working 

Paper. 

Mitchell, Olivia S., Stephen P. Utkus, and Tongxuan Yang. 2005. "Turning Workers into Savers? 

Incentives, Liquidity, and Choice in 401k Plan Design." Pension Research Council, 

Philadelphia. 

Monks, James. 2004. "An Empirical Examination of the Impact of College Financial Aid on Family 

Savings." National Tax Journal 57:189 - 207. 

Moore, Amanda, Sondra Beverly, Mark Schreiner, Michael Sherraden, Esther Y.N. Cho, Lissa 

Johnson, and Rebecca Vonderlack. 2001. "Saving, IDA Programs, and Effects of IDAs: A 
54

Survey of Participants." Center for Social Development, George Warren Brown School of 

Social Work, Washington University, St. Louis. 

Mullainathan, Sendhil. forthcoming. "Psychology and Development Economics." in Yrjo Jahnsson 

Foundation 50th Anniversary Conference on Economic Institutions and Behavioral Economics, edited by 

P. Diamond and H. Vartianinen. Princeton: Princeton University Press. 

Munnell, Alicia H., Annika Sunden, and Catherine Taylor. 2001/2002. "What Determines 401k 

Participation and Contributions?" Social Security Bulletin 64:64 - 75. 

Neumark, David and Elizabeth Powers. 1998. "The Effect of Means-Tested Income Support for the 

Elderly on Pre-Retirement Saving: Evidence from the SSI Program in the U.S." Journal of 

Public Economics 68:181-206. 

North Carolina State Employees Credit Union. 2004. "Annual Report." North Carolina State 

Employees Credit Union, Raleigh. 

—. 2005. "Annual Report." North Carolina State Employees Credit Union, Raleigh. 

—. 2006. "Annual Report." North Carolina State Employees Credit Union, Raleigh. 

Nyamakanga, Regis. 2007. "FNB Fights to Keep its Competition." Business Day, April 21, 2007, p. 2. 

O'Brien, Rourke. 2006. "Ineligible to Save? Asset Limits and the Savings Behavior of Welfare 

Recipients." The New America Foundation, Washington, D.C. 

Parcel, Toby L. 1982. "Wealth Accumulation of Black and White Men: The Case of Housing 

Equity." Social Problems 30:199 - 211. 

Paxton, Will and Stuart White. 2006. "Universal Capital Grants: The Issue of Responsible Use." In 

The Citizen's Stake: Exploring the Future of Universal Asset Policies, edited by W. Paxton, S. White, 

and D. Maxwell. Bristol: The Policy Press. 

Powers, Elizabeth. 1998. "Does Means-Testing Welfare Discourage Saving? Evidence from a 

Change in AFDC Policy in the United States." Journal of Public Economics 68:5-21. 

Prabhakar, Rajiv. 2006. "Attitudes Towards the Child Trust Fund: What do Parents Think?" Center 

for Social Development, George Warren Brown School of Social Work, Washington 

University, St. Louis. 

Reyes, Jessica Wolpaw. 2007. "College Financial Aid Rules and the Allocation of Savings." Education 

Economics 1-25. 

Rhine, Sherrie, Sabrina Su, Yazmin Osaki, and Steven Lee. 2005. ""Householder Response to the 

Earned Income Tax Credit: Path of Sustenance or Road to Asset Building?"" Federal 

Reserve Bank, New York. 

Robles, Barbara. 2005. "Latino Family and Community Wealth Building: Linking the Earned Income 

Tax Credit to Asset Building." Paper presented at the Association for Public Policy Analysis and 

Management Fall Research Conference. Washington, D.C. 

Romich, Jennifer and Thomas Weisner. 2000. "How Families View and Use the EITC: Advance 

Payment versus Lump Sum Delivery." National Tax Journal 53:1245 - 1266. 

Sahlman, William A. 2003. "Upromise 2002." Harvard Business School Press, Boston, MA. 

Sallie Mae. 2006. "Sallie Mae 10-K." 

Schneider, Daniel and Peter Tufano. 2006. "The San Francisco Working Families Credit: Analysis of 

Program Applicants." Report to SFWorks and the City of San Francisco. 

—. 2007. "New Savings From Old Innovations: Asset Building for the Less Affluent." in Financing 

Low-Income Communities, edited by J. S. Rubin. New York: Russell Sage. 

Schreiner, Mark, Margaret Clancy, and Michael Sherraden. 2002. "Final Report: Saving Performance 

in the American Dream Demonstration." Center for Social Development, George Warren 

Brown School of Social Work, Washington University, St. Louis. 

Schreiner, Mark and Michael Sherraden. 2007. Can the Poor Save? Saving & Asset Building in Individual 

Development Accounts. New Brunswick: Transaction Publishers. 
55

Segel, Arthur I., Michael Chu, and Gustavo Herrero. 2006. "Patrimonio Hoy." Harvard Business 

School Press Case, Boston, MA. 

Shefrin, Hersh M. and Richard H. Thaler. 1988. "The Behavioral Life-Cycle Hypothesis." Economic 

Inquiry 26:609 - 643. 

Singletary, Michelle. 15 April, 2001. "Spend to Save? Why Not Just Save?" Pp. H01 in The Washington 

Post. 

—. 30 October 2005. "Spend and Save Don't Go Together." Pp. F01 in The Washington Post. 

Smeeding, Timothy, Katherine Ross, and Michael O'Conner. 2000. "The EITC: Expectation, 

Knowledge, Use, and Economic and Social Mobility." National Tax Journal 53:1187-1209. 

Sodha, Sonia. 2006. "Lessons from Across the Atlantic: Asset-Building in the UK." in 2006 Assets 

Learning Conference - A Lifetime of Assets. Phoenix. 

Stegman, Michael A. 2007. "Payday Lending." Journal of Economic Perspectives 21:169 - 190. 

Sunstein, Cass R. and Richard H. Thaler. 2003. "Libertarian Paternalism Is Not an Oxymoron." The 

University of Chicago Law Review 70:1159 - 1202. 

Tescher, Jennifer. 2006. "Viewpoint: Behavioral Studies: Raising the Savings Rate." American Banker, 

December 1, 2006, p. 10. 

Thaler, Richard H. 1994. "Pyschology and Savings Policies." The American Economic Review 84:186 - 

192. 

Thaler, Richard H. and Shlomo Benartzi. 2004. "Save More tomorrow (TM): Using Behavioral 

Economics to Increase Employee Saving." Journal of Political Economy 112:164 - 187. 

Thaler, Richard H. and Cass R. Sunstein. 2003. "Libertarian Paternalism." The American Economic 

Review 93:175 - 179. 

TISA. 2007. "TISA CTF Statistics Project: Subscription Profiles." 

Tufano, Peter. 2007. "Saving Whilst Gambling: An Empirical Analysis of U.K. Premium Bonds." 

Working Paper, Harvard Business School, Boston, MA. 

Tufano, Peter and Daniel Schneider. 2004. "H&R Block and Everyday Financial Services." Harvard 

Business School Press, Boston, MA. 

—. 2005. "Eduction." Harvard Business School Press, Boston, MA. 

—. 2005. "Reinventing Savings Bonds." Tax Notes October 31, 2005, 1-20. 

University of North Carolina. 2003. "Financial Institutions and Individual Development Accounts: 

Results of a National Survey." Center for Community Capitalism, Frank Hawkins Kenan 

Institute of Private Enterprise, University of North Carolina, Chapel Hill. 

U.K. Parliament. 2007. "Hansard Written Answers, Child Trust Funds." British House of Commons, 

January 16, 2007. 

Ukhov, Andrey. 2002. "Time Varying Risk Aversion: Evidence From Russian Lottery Bonds." Yale 

School of Management, Working Paper, New Haven. 

Upromise. 2007. "UPromise Reaches Record 8 Million Members." UPromise, July 18, 2007. 

Utkus, S. 2002. "A Recent Successful Test of the SMarT Program." The Vanguard Center for 

Retirement Research, Valley Forge. 

Utkus, S. and Jean A. Young. 2004. "Lessons from Behavioral Finance and the Autopilot 401(k) 

Plan." Vanguard Center for Retirement Research, Valley Forge. 

White, David. 2006. "Missing out on Child's Play." Financial Times. 

White, Stuart. 2004. "The Citizen's Stake and Paternalism." Politics & Society 32:61 - 78. 

Woo, Lillian F., William Schweke, and David E. Bucholz. 2004. "Hidden in Plain Sight: A Look at 

the $335 Billion Federal Asset-Building Budget." Corporation for Enterprise Development, 

Washington, D.C. 

Wyatt, Edward. 2001. "Buy Stuff, Pay for College." The New York Times, November 11, 2001, p. 15. 

Zelizer, Viviana A. 2005. The Purchase of Intimacy. Princeton: Princeton University Press. 
56

Ziliak, James P. 2003. "Income Transfers and Assets of the Poor." Review of Economics and Statistics

85:63 - 76. 

Zinsmeyer, Jeffrey and Tim Flacke. 2007. "A Gateway to Longer Term Savings: Testing U.S. Savings 

Bonds to Help Low-Income Tax filers Start Saving." D2D Fund, Boston, MA.
57 

Exhibit 1: Summary of Savings Continuum Alternatives 

Force to Save Hard Not to Save Easier to Save Bribe to Save Social Support Fun or Excitin

Savings

Current 

barrier All (ability and will)

Saver's Role No choice Must refuse to 

save

Given more 

convenience, but 

must decide

Intervention

Change the time 

and place for 

savings

Likely 

partner Government

Workplace, 

Govt, Vendors 

of produts and 

services

Retail sector, 

workplace, tax 

sites, schools

Government, 

Foundations 

Communities 

and social 

networks

Financial 

service firms

possibly 

government

Cost or 

Profit 

Potential

High cost (grants); 

medium cost 

(mandate)

Generally low 

cost

Medium cost (new 

channels); low cost 

(tax channel)

High $ cost 

(matches, 

bonuses)

Low $ cost; high 

effort by 

community

Potential for 

profits in long

run

Example

Mandate (Social 

Security); Grant (Child 

Trust)

Opt ins; 

bundling; 

commitment 

products

New distribution 

channels; SMarT; 

buying savings

401k, IDAs, 

Savers Credit

ROSCAs and 

gifting savings

Prize linked 

saving, 

collectible 

savings

Institutional impediments, inertia Savings not "worth it"; would rather consume

Given different savings opportunities, but mus

decide

Change the savings decision makingprocess Change the cost-benefit of savings itself