U.S. Savings Bonds: Future of Offering Paper Savings Bonds at Tax Time Is Uncertain, and Lower-Income Households Continue to Face Savings Challenges
Released: 2015-08-17T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: U.S. savings bonds provide Americans with an affordable way to save. In 2012, Treasury stopped selling paper savings bonds at banks as part of its broader electronic initiative. As a result, savings bonds generally must be purchased through TreasuryDirect®. The one exception is the Tax Time Savings Bond program, established in 2010 to enable taxpayers to use their tax refund to buy paper savings bonds. The program is one way for lower-income families to save.

You requested that GAO examine Treasury's savings bond program, including the accessibility of TreasuryDirect, and other savings programs. This report examines (1) the effect of Treasury's elimination of paper U.S. savings bonds on the program and bond purchases, (2) the extent to which the Tax Time Savings Bond program has promoted savings by lower-income households and Treasury's future plans for the program, and (3) the extent to which lower-income households are saving and programs developed by federal agencies and others. GAO reviewed agency rules and other documents; analyzed Treasury, Internal Revenue Service, and other data, in part using economic models; and interviewed federal, state, and nonprofit entities and experts involved in savings programs.

section_title: What GAO Found
paragraphs: The Department of the Treasury's (Treasury) elimination of paper savings bonds made buying bonds more difficult for some customers, but GAO's analyses generally indicated that the decline in bond purchases after the change was not statistically significant. Treasury eliminated paper savings bonds in January 2012, after a long-term decline in savings bond purchases. It estimated the change would save about $70 million in program costs from 2012 through 2016. Except for the Tax Time Savings Bond program, customers who want to buy savings bonds must use TreasuryDirect—an online system that requires users to have Internet access and a bank account. Customers without both, which likely includes lower-income households, face challenges accessing TreasuryDirect. Treasury is in the early stages of developing a new system, the Treasury Retail Investment Manager (TRIM), to make it easier to buy savings bonds, such as by using a mobile device, which often is the primary means of accessing the Internet for many lower-income households.

A little more than one-third of the users of Treasury's Tax Time Savings Bond program—the only way to purchase paper bonds—were lower-income tax filers (filers with an adjusted gross income of $25,000 or less), but the program's future is uncertain. Since 2010, tax filers have been able to use a tax form to buy paper savings bonds with their tax refund. For tax years 2010 through 2013, about 142,000 tax filers (less than 1 percent of tax filers receiving refunds) used at least part of their tax refund to buy nearly $72.5 million in savings bonds. Of these filers, about 55,000 had incomes of $25,000 or less and bought about $13.7 million in savings bonds, or about $250, on average, per filer each year. Treasury has been extending the program partly because the amount of bonds purchased and participation levels indicate that the program is providing benefits, but it generally has not considered the program's costs. In May 2015, Treasury officials told GAO that they plan to continue to extend the program until TRIM can provide a suitable electronic alternative. Because TRIM will require Internet access by computer or mobile device, Tax Time program users without such access may no longer be able to save by buying bonds with their refunds after TRIM is implemented. In prior work on agency stewardship of public funds, GAO reported that agencies, as a best practice, should consider both benefits and costs in considering alternatives related to program decisions. Without considering both, Treasury cannot make a fully informed decision on whether to discontinue the Tax Time program when an electronic alternative is available.

On the basis of GAO's analysis of data from the most recent Survey of Consumer Finances conducted in 2013, the median value of financial assets held by the bottom fifth of income earners (whose median annual income was $14,200) was $550. Given the limited savings of lower-income households and savings challenges faced by such households, a number of federal agencies have developed programs to promote savings. For example, Treasury's my RA®, which is in a soft-launch phase, promotes retirement savings for individuals without access to employer-sponsored retirement plans. State, local, and nonprofit agencies also have initiated programs that promote savings for retirement, child development, or emergencies and generally target lower-income households. Eligibility requirements and participation vary by program.

section_title: What GAO Recommends
paragraphs: GAO recommends that as Treasury implements the TRIM system, it consider the benefits and costs of the Tax Time program in future decisions on whether to extend the program. Treasury agreed with GAO's recommendation.

section_title: Letter
paragraphs: In 2013, Treasury issued about $686 million in U.S. savings bonds, which  historically have provided Americans with an affordable and safe way to  save and invest. However, fewer than 5 percent of lower-income  households owned savings bonds that same year. Additionally, savings  bond purchases have declined significantly from 2001 to 2013. Savings  bonds are low risk, backed by the full faith and credit of the U.S.  government, and offered in minimum denominations as low as $25.  Beginning in January 2012, the U.S. Department of the Treasury  (Treasury) discontinued the over-the-counter sale of paper savings bonds  at financial institutions as part of its agency-wide, all-electronic effort  announced in 2010. As a result, savings bonds generally can be  purchased only through Treasury’s Internet-based system, called  TreasuryDirect®. Treasury stated that its goal in discontinuing sales of  paper savings bonds was to reduce costs and enhance customer service  by increasing electronic transactions. At the same time, some members  of Congress, nonprofit organizations, and others have raised concerns  that the change has reduced access to an important savings product,  particularly for lower-income households who may not have bank  accounts, access to the Internet, or the knowledge or skills needed to use  TreasuryDirect. In 2010, the Internal Revenue Service (IRS) provided tax  filers with an alternative method for purchasing paper savings bonds by  enabling them to use their income tax refund to buy them through a  program commonly known as the Tax Time Savings Bond program. This  program is intended, in part, to help lower-income households to save. In  addition to this program, federal agencies, state agencies, and nonprofit  organizations have developed an array of savings or asset-building  programs, many of which target lower-income households.

You asked us to review issues related to Treasury’s savings bond  program and study other programs that promote savings by lower-income  households. This report examines (1) the effect of Treasury’s elimination  of paper U.S. savings bonds, including on the savings bond program and  bond purchases; (2) the extent to which Treasury’s Tax Time Savings  Bond program has promoted savings, particularly by lower-income  households, and Treasury’s plans for the program’s future; and (3) the  extent to which lower-income households are saving using financial  products, and some of the government and nonprofit programs that have  been developed to promote savings by lower-income households.

To examine the effect of Treasury’s elimination of paper U.S. savings  bonds, including on the savings bond program and bond purchases, we  analyzed Treasury’s data on savings bond purchases from 2001 through  2013. Specifically, to analyze long-term trends in savings bond purchases  and more recent trends since the end of paper sales in January 2012, we  estimated two econometric models. We also reviewed Treasury  documentation, including estimates of cost savings from eliminating paper  savings bonds, budgets and capital investment plans, and TreasuryDirect  materials. We interviewed Treasury officials to discuss its savings bond  program, including the benefits and costs of eliminating paper savings  bonds, concerns that had been raised about TreasuryDirect, and plans for  replacing TreasuryDirect.

To determine the extent to which Treasury’s Tax Time Savings Bond  program has promoted savings, we used aggregated data provided by  IRS on income tax filers who used at least part of their tax refunds to buy  paper savings bonds from 2010 through 2013. We used the data to  determine the number of tax filers who bought paper savings bonds,  including those with adjusted gross incomes of $25,000 or below, and the  amount of savings bonds they purchased. We also reviewed IRS  documentation, including IRS Form 8888, Allocation of Refund (Including  Savings Bond Purchases. We interviewed Treasury and IRS officials  about the Tax Time program’s operations, benefits, and costs. In addition,  we interviewed nonprofit organizations that had promoted savings bonds  as a savings vehicle or collaborated with Treasury on efforts to improve  access to financial products and services about the benefits of the  program.

To examine the extent to which lower-income households are saving  using financial products, we used data from the Survey of Consumer  Finances (SCF) issued by the Board of Governors of the Federal Reserve  System for survey years 2001, 2004, 2007, 2010, and 2013 to estimate,  among other things, the percentage of U.S. households holding financial  assets, including U.S. savings bonds, and the median value of such  financial assets held by U.S. households. We chose these survey years  because they covered more than 10 years before the discontinuation of  the sale of paper savings bonds at financial institutions but also one year  after the change. To identify and describe the government and nonprofit  programs developed to promote savings by lower-income households, we  conducted research on and reviewed select federal, state, local, and  nonprofit programs targeting either long-term (such as retirement or asset  accumulation) or short-term savings goals for lower-income households.  We also interviewed officials from six federal agencies involved in the  Financial Literacy and Education Commission, state and local  government agencies, and nonprofit organizations and academics  focusing on savings and asset-building programs.

We assessed the reliability of the data we used in each of the three  objectives by reviewing documentation, such as Treasury’s description of  the data in the monthly statement of public debt, SCF codebooks, and  Federal Reserve bulletins on the SCF. We also interviewed  knowledgeable officials, and conducted testing on relevant data fields  where applicable, such as the number of tax filers participating in the Tax  Time program and amounts of savings bonds purchased. We found the  data we reviewed to be sufficiently reliable for the purposes of our  analyses.

We conducted this performance audit from August 2014 to July 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Treasury has issued savings bonds since 1935. Savings bonds offer  investors the ability to purchase securities with lower minimum  denominations than those for marketable Treasury securities. When  individuals purchase savings bonds, they loan the amount they paid for  the bonds to the U.S. government. Over a period of time (up to 30 years),  the savings bonds earn interest and, after 12 months of their original  purchase, can be cashed in for their purchase price, plus the interest they  have earned, subject to a 3-month interest penalty during the first 5 years.  Over the years, Treasury has offered a number of savings bonds with  different terms and interest rates. Currently, Treasury offers Series EE  bonds, which have a fixed interest rate, and Series I bonds, which pay an  interest rate that is tied to inflation. Savings bonds do not represent a  major source of funds for the Treasury.

The Bureau of the Fiscal Service, one of Treasury’s 10 bureaus, helps to  fund the federal government by selling Treasury securities, including  savings bonds. Treasury Securities Services within the bureau operates  Treasury’s Retail Securities program, which allows retail investors to  purchase savings bonds and marketable securities in electronic form  directly from Treasury. The office’s flagship system is TreasuryDirect, an  online proprietary system created in 2002 that allows customers to buy  and hold savings bonds and marketable securities, and to manage their  accounts without assistance from a customer service representative.  TreasuryDirect customers can purchase securities at any time, direct  electronic payments to bank accounts, and convert paper savings bonds  to electronic savings bonds in the same series and with the same issue  date. TreasuryDirect customers also can set up payroll deductions and  automatically recurring purchases. As of March 2015, TreasuryDirect had  around 580,700 accounts that were funded and held nearly $27 billion.

section_title: Treasury Eliminated Paper Savings Bonds to Reduce Costs but Created Challenges for Some Savings Bond Investors
paragraphs: The elimination of paper savings bonds reduced program costs but made  purchasing bonds more difficult for some savers. However, our analysis  of Treasury’s bond data showed that the drop in bond purchases after the  elimination of paper savings bonds was not statistically significant. As  shown in figure 1, annual purchases of U.S. savings bonds declined  significantly from 2001 through 2013, falling from around $14.6 billion to  less than $1 billion, or by more than 90 percent.savings bond purchases declined every year, except from 2002 to 2003.  Likewise, the role of savings bonds in helping to fund the federal debt  also declined over the period, accounting for about 3.2 percent of the  federal debt in 2001 and about 1.0 percent in 2013.
subsections: section_title: Treasury Eliminated Paper Savings Bonds to Reduce Program Costs and Provide Other Benefits
paragraphs: Following the long-term decline in savings bond purchases, Treasury  stopped selling paper savings bonds through over-the-counter channels,  including through financial institutions and mail-in orders, on January 1,  2012, as part of its agency-wide electronic initiative to reduce program  costs and improve customer service. According to Treasury officials, the  agency phased out the issuance of paper savings bonds through  employer-sponsored payroll savings plans in 2010, and the ending of  savings bond sales through over-the-counter channels was the last step  of discontinuing paper savings bonds. Treasury estimated that the  elimination of over-the-counter sales of paper savings bonds would save  nearly $70 million in program costs from 2012 through 2016. Treasury  calculated these savings by estimating how much it would save in costs  associated with issuing new paper bonds and servicing and redeeming  existing paper bonds, which include fees paid to banks, postage, and  printing. For example, Treasury estimated that the change would  eliminate around $14.5 million in fees paid to financial institutions for  issuing and redeeming savings bonds and around $12.7 million in  postage expenses for mailing paper bonds to customers over the 5-year  period. Additionally, Treasury estimated that it would save in personnel  costs because fewer employees would be needed to process customer  service transactions. According to Treasury’s estimates, the change  would save around $4.9 million in compensation and benefit costs for  Treasury staff and $28.5 million in Federal Reserve Bank personnel costs  over the 5-year period. Finally, Treasury estimated $9 million in savings  from reductions in paper stock, overhead, forms, and other costs.

In addition to the cost savings, Treasury expected the change to provide  customer benefits, such as increased security and convenience. Although  paper bonds allowed buyers to purchase savings bonds at financial  institutions, Treasury’s online system for purchasing savings bonds and  other Treasury securities—TreasuryDirect—allows customers to buy,  manage, and redeem savings bonds electronically at any time. Treasury  officials told us that electronic bonds are safer and more secure, because  paper bonds could be lost, stolen, altered, or fraudulently redeemed.  Treasury officials also added that electronic bonds provide the agency  with both operational advantages and enhanced customer experience,  since Treasury can automatically track bond purchases, redemptions, and  values for the customer.

section_title: Eliminating Paper Savings Bonds Has Created Challenges for Some Bond Buyers
paragraphs: When Treasury eliminated paper savings bonds, it created access  challenges for bond buyers who do not have a bank account and Internet  access. Customers now must use TreasuryDirect to purchase electronic  savings bonds, although some can purchase paper savings bonds  through the Tax Time program, which we discuss later in this report. To  open a TreasuryDirect account, a customer generally must have both  Internet access and a bank account. While TreasuryDirect can be  accessed through cellular phones and other mobile devices, the website  is not optimized for such use. According to representatives from a  nonprofit organization that focuses on savings for lower-income  households, mobile access is the primary means of Internet access for  some lower-income consumers. According to 2011 Census Bureau data,  around 50 percent of households with less than $25,000 in income did not  have computer-based Internet access from some location.according to the 2013 Federal Deposit Insurance Corporation’s (FDIC)  National Survey of Unbanked and Underbanked Households, 7.7 percent  of U.S. households, or nearly 9.6 million households, were unbanked—  Further,  that is, they did not have a bank account at an insured institution.result, such households or individuals may not be able to access  TreasuryDirect or complete a transaction if they wanted to buy savings  bonds.

Treasury officials recognized the access challenges related to  TreasuryDirect that some potential users might face, but told us such  challenges could be mitigated. Treasury officials said that they worked  with organizations that provided Internet access to the public, such as  libraries and community centers, and determined that such organizations  provide the level of Internet access required for potential TreasuryDirect  users. The officials also told us that in lieu of a bank account, individuals  could use reloadable debit cards to purchase and redeem savings bonds  through TreasuryDirect. While the use of such cards provides an avenue  for those without a traditional bank account to purchase savings bonds,  Treasury estimated that few savings bonds, approximately 1,426, had  been purchased using prepaid debit cards from mid-April 2005 through  mid-November 2014. Further, Treasury officials told us that unbanked  individuals could use the Tax Time program to purchase paper savings  bonds. Our analysis of IRS data on the Tax Time program indicates that  around 91 percent of tax filers who used part of their tax refund to  purchase paper savings bonds had part of their refund directly deposited  into a bank account. Similarly, based on data from SCF surveys from  2001 through 2010, over 90 percent of households who owned savings  bonds have bank accounts. Additionally, according to FDIC’s survey,  more than 90 percent of all households the agency surveyed had a bank  account.

According to Treasury officials and representatives from several nonprofit  organizations that we interviewed, TreasuryDirect also poses some  usability challenges. For example, Treasury officials and nonprofit  representatives told us that giving savings bonds as a gift through  TreasuryDirect can be a cumbersome process. They explained that  TreasuryDirect requires the individual buying the savings bond to have  the Social Security number and TreasuryDirect account number of the  recipient of the gift bond, information the individual may not know. The  gifting process also requires the recipients or their parents or guardians to  set up a TreasuryDirect account, if they do not have one. Treasury  officials told us that issues associated with the process of buying bonds  as gifts were the source of the most common complaints from customers  about savings bond transactions through TreasuryDirect. In addition,  representatives from nonprofit organizations and an academic we  interviewed told us that TreasuryDirect generally was not a user-friendly  system, even for individuals who were comfortable using the Internet for  their financial transactions. They told us that navigating the system was  not easy and could pose challenges to potential customers who were not  familiar with online financial transactions. Similarly, Treasury officials told  us that customers anecdotally had expressed concerns about difficult  navigation, lengthy application pages, organization of information,  security features, complicated linked accounts processes, and difficulty  locating tax reporting information. When Treasury eliminated paper  savings bonds in January 2012, there were nearly 379,000 total funded  TreasuryDirect accounts.580,000 total funded TreasuryDirect accounts, but the extent to which the  increase resulted from savings bond investors has not been determined.

section_title: Decline in Purchases after the Elimination of Paper Savings Bonds Is Consistent with Long-Term Trends, and Treasury Is Addressing Access and Usability Challenges
paragraphs: Our analyses of Treasury savings bond data indicated that the decline in  savings bond purchases after Treasury discontinued the sale of paper  savings bonds in January 2012 was consistent with the overall long-term  decline in savings bond purchases. In addition, the decline since January  2012 generally was not statistically significant based on models we  estimated. While there was a large decline in purchases in 2012 and  2013 when sales of paper savings bonds were discontinued, there are a  number of factors that could account for this decline. For example,  savings bond purchases declined in 9 out of 10 years from 2002 to 2011,  and some declines were quite large, hence recent declines in purchases  may be reflective of long-term trends. In addition, we found that savings  bond purchases have been sensitive to interest rate changes, with savers  typically purchasing more when interest rates are higher and purchasing  less when they are lower. The low interest rates in recent years may  account for some of the decline in savings bond purchases.

Although lower-income households that do not have bank accounts or  Internet access could face challenges accessing or using TreasuryDirect,  this challenge may only affect a small percentage of such households.  Our analyses indicate that a small percentage of such households buy  savings bonds in general, even when they were available in paper form.  According to data from the 2013 SCF survey, 4.6 percent of lower-income  households held savings bonds in 2013, and this percentage had  declined from 7.7 percent in 2001.

In a July 2014 Federal Register release, and in support of its strategy to  reach new customers, develop new product delivery streams, and  increase the number of available product offerings, Treasury released its  plans to introduce the Treasury Retail Investment Manager (TRIM), which   According to Treasury officials, TRIM will be  will replace TreasuryDirect.more flexible and responsive to changing business and digital investing  needs. Treasury officials told us that they plan to offer mobile phone  access through TRIM, which could improve access for households that do  not have computer-based Internet access at home. Treasury officials also  told us that TRIM would attempt to address a number of TreasuryDirect’s  usability challenges. For example, Treasury officials told us that the TRIM  system should be more user friendly for customers, because it will have  an online interface that is similar to the online interfaces that banks and  stock brokers offer and with which most customers are likely familiar. The  system also is expected to streamline various steps for customers  navigating the system—for example when they open or sign into  accounts—to improve usability and potentially save Treasury money by  reducing calls to customer service.

According to Treasury officials, they also are exploring ways for TRIM to  simplify the process for buying savings bonds as gifts and to allow for  multiple funding options. One option under consideration is for a customer  to buy a savings bond gift certificate that can be given to another  individual, who can go online to open a TRIM account and use the  certificate to buy the savings bond directly. Treasury also is exploring  multiple funding options for customer accounts to provide options to  savers who do not have bank accounts.

As of May 2015, TRIM was under development, and Treasury officials  told us that its release date had not been set. According to Treasury  officials, TRIM is being developed in four phases—initiation, planning,  execution, and closing. Treasury officials told us that TRIM was in the  planning phase and that the system’s design was being developed.  Specifically, Treasury officials are working on defining technical  requirements for the system. Before TRIM can be implemented, Treasury  will need to complete the execution and closing phases, which include  technical design, system coding, various testing, consumer education,  and system documentation. Treasury officials told us that they did not  have a specific release date for TRIM, which will depend on the time  needed to complete the next steps in the project plan. According to a  Treasury estimate issued in 2013, TRIM was expected to cost around $18  million to develop and implement. Treasury officials told us that, as of  May 2015, they did not have any changes to this estimate and that the  costs they had incurred thus far had been consistent with the estimate.  They also told us that Treasury had tentative plans to develop an  implementation plan for TRIM by April 2016.

section_title: Tax Time Program Promotes Savings, but Treasury Has Not Considered Costs Along with Benefits in Its Annual Decisions to Extend the Program
paragraphs: Since 2010, U.S. tax filers have used the Tax Time program to save by  using their tax refund to purchase paper savings bonds. For example,  about 55,000 tax filers with adjusted gross incomes of $25,000 or less  participated in the program for tax years 2010 through 2013 and bought  about $13.7 million in savings bonds. Treasury has been extending the  program annually in consideration of some of the program’s benefits, but  not in consideration of the program’s costs.
subsections: section_title: Tax Time Savings Bond Program Promotes Savings through the Purchase of Paper Savings Bonds, Including by Lower-Income Households
paragraphs: Since 2010, U.S. tax filers have been able to use their tax refund to  purchase paper savings bonds through the Tax Time Savings Bond  program. In 2009, President Obama proposed a package of initiatives to  spur increased savings that included a provision for purchasing savings  bonds with tax returns. Under the Tax Time program, tax filers receiving a  tax refund may use an IRS form to allocate their refund among several  options, such as purchasing paper savings bonds or depositing their  refund directly into their bank account. As shown in table 1, in tax years  2010 through 2013 about 142,000 total tax filers used the Tax Time  program to buy a total of about $72.5 million in paper savings bonds.(According to data provided by Treasury, of the 142,000 total tax filers  that used the Tax Time program, about 20 percent were repeat  participants in the program). These filers purchased, on average,  approximately $500 in paper savings bonds each year. Table 1 also  shows that about 55,000 tax filers with an adjusted gross income of  $25,000 or less collectively bought about $13.7 million in paper savings  bonds. These filers purchased, on average, approximately $250 in paper  savings bonds each year. At the same time, the number of tax filers  participating in the Tax Time program and the amount of savings bonds  purchased under the program were relatively small. The total number of  tax filers receiving a refund for tax years 2010 through 2013 was more  than 100 million in each year, and Tax Time participants made up less  than 1 percent of this group. Similarly, the amount of savings bonds  purchased through the program from 2010 through 2013 accounted for  about 1 percent of the total amount of all savings bonds purchased during  those years.

About 30 percent of Tax Time program participants also were tax filers  who received the Earned Income Tax Credit. Enacted by Congress in  1975, the Earned Income Tax Credit is one of the largest antipoverty  programs. Generally, income and family size determine a taxpayer’s  eligibility, and the credit is a refundable tax credit for low-to-moderate  income working individuals and couples—particularly those with children.  As shown in table 2, about 30 percent of tax filers participating in the  program from 2010 through 2013 received the Earned Income Tax Credit.

According to representatives from three nonprofit organizations and two  academics we interviewed, tax season provides an opportunity for tax  filers receiving a refund to set aside an amount of money specifically for  savings. They told us that tax season was often the one time during the  year that tax filers—particularly those with low incomes—had a relatively  large lump sum of money available to save. However, in some instances,  tax filers receiving a refund may already know what they plan to use their  refunds for, and that may not include any savings.

section_title: Treasury Plans to Extend the Tax Time Program in the Short-Term, but Has Not Considered Program Costs Along with the Benefits
paragraphs: Treasury has been extending the Tax Time program on an annual basis  and plans to continue extending it in the short term. According to  Treasury officials, the program was scheduled to expire after the 2015 tax  season, in which case tax filers would no longer have had the option to  use the IRS form to purchase paper savings bonds. However, Treasury  officials told us that the agency decided in December 2014 to extend the  program through the 2016 tax season. The decision was made by the  Fiscal Assistant Secretary of the Treasury based on an internal  recommendation from the Commissioner of the Bureau of the Fiscal  Service, which oversees the savings bond program. Treasury officials  said that they intended to continue recommending the continuation of  paper tax-time bonds until a suitable electronic alternative is  implemented. However, Treasury officials did not provide us with any  additional information on how an electronic alternative would replace the  option of purchasing paper savings bonds. For participants who do not  have Internet access or want to buy bonds electronically, it is not clear  what a suitable electronic alternative would be.

Although Treasury has been extending the Tax Time program on an  annual basis, it has not assessed the program’s costs along with its  benefits. In deciding to extend the program in the last 2 years, Treasury  officials told us that they considered participation levels and the amount of  savings bonds purchased through the program. Such data indicate some  of the program’s benefits, namely its ability to promote savings by lower- income and other households. While the amount of bonds purchased and  program participation levels can be quantified, other benefits of the  program, such as providing a savings opportunity for lower-income  households that may not be able to access TreasuryDirect to purchase  savings bonds online, are more difficult to quantify. Although Treasury  officials considered some of the Tax Time program’s benefits in deciding  to extend it, they generally did not consider the program’s costs in their  decision-making process. According to Treasury and IRS officials,  Treasury has not conducted an analysis on the current costs of the  program or determined how much Treasury would save if the program  were allowed to expire after the 2016 tax season. IRS officials told us that  IRS’s current costs to administer the program were minimal, because IRS  largely processes the forms electronically. Treasury officials told us that  its current cost of printing and mailing a paper savings bond was  approximately 17 cents, but this estimate did not include the share of the  overhead, system, and other costs attributable to paper savings bonds.  Moreover, the 17 cent estimate also did not include any cost that IRS  incurred for its role in implementing the program.

In prior work on agency stewardship of public funds, we reported that  properly estimating program costs is necessary for several reasons and  that comparing these costs to the program’s benefits to evaluate  alternatives related to program decisions is a best practice. Producing  cost estimates is important for evaluating resources and making decisions  about programs at key decision points. Credible cost estimates also help  support funding decisions for an agency’s programs. Comparing these  costs to the benefits in order to consider all alternatives for a program  ensures linkage between the alternatives.

In deciding to extend the Tax Time program, Treasury has considered  some of the program’s benefits but generally not the program’s costs,  both of which are needed to evaluate program performance and  alternatives. As discussed, Treasury has previously considered levels of  program participation and amounts of savings bonds purchased by  participants in its decisions, and most recently has extended the program  until a suitable electronic alternative is available. Consideration of not only  the Tax Time program’s benefits but also the program’s cost would  provide Treasury with important information in evaluating not only the  resource requirements when deciding whether to allow the program to  expire but also the program’s performance in relation to its benefits and  costs. For example, if the program’s operating costs are minimal, then the  program’s benefits may outweigh its costs, such as providing  opportunities for lower-income households to save. Conversely, if  program costs are significant, those costs might outweigh the program’s  benefits in light of the number of tax filers using the program and the  availability of an electronic alternative. However, by not having full,  reliable, estimates of the cost of the Tax Time program to compare to the  benefits, Treasury’s ability to make a fully informed decision is limited.

section_title: Savings by Lower- Income Households Are Limited but Federal Agencies and Other Entities Have Created Savings Programs
paragraphs: GAO found that lower-income households save relatively small amounts  and face a number of savings challenges that result, in part, from limited  access to financial institutions and products. According to several  academics and nonprofits we interviewed, savings and other asset- building programs are fundamental building blocks for helping lower  income-households achieve economic mobility and security. Savings  provide a buffer against unexpected events and a means to move up the  economic ladder through investments, such as by buying a home, paying  for college, starting a business, or saving for retirement. In addition to the  Tax Time program, discussed above, federal, state, and local agencies as  well as nonprofits have developed a number of programs aimed at  assisting lower-income households to save and build assets. These  programs include providing financial literacy and education services, and  range from promoting short-term financial goals, such as emergency  savings, to long-term financial goals, such as saving for retirement.
subsections: section_title: Lower-income Households Have Limited Financial Assets and May Have Difficulty Saving
paragraphs: According to 2013 SCF data, lower-income households have limited  savings in bank accounts and other financial assets. the lowest income quintile (or bottom fifth) had a median income of  around $14,200 in 2013, and households in the next income quintile had  a median income of around $28,400. As shown in table 3, 82 percent  and 93 percent of the U.S. households in the bottom two income quintiles  had financial assets, but the median value of these financial assets were  $550 and $3,064, respectively. In other words, half of the households in  the lowest income quintile held $550 or less in financial assets. In  comparison, the median value for financial assets for all surveyed  households in 2013 was $17,580. Bank accounts are the mostly widely  held financial asset among lower-income households, according to 2013  SCF data. However, separate from bank accounts, a significant majority  of lower-income households hold few or no other financial assets, such as  stocks, bonds, or mutual funds. For example, 9 percent of U.S.

Financial assets in SCF include bank accounts, certificates of deposit, savings bonds,  bonds, stocks, mutual funds, retirement accounts, and cash value life insurance. households in the bottom income quintile have retirement accounts,  compared with around 28 percent of households in the next lowest  income quintile.

As shown in figure 3, median household financial assets, excluding  retirement accounts, dropped in the wake of the 2001 and 2008  recessions and have not recovered to pre-recession levels. Median  holdings in 2013 were down by 40 percent or more in comparison to  median holdings in 2001 for both the population as a whole and for lower- income households.assets for the two lowest income quintiles was $1,000 in 2013. This total  reflects the relatively low level of short-term savings for these households.

section_title: Federal Agencies Generally Focus on Promoting Financial Literacy, but Some Are Involved in Savings Programs
paragraphs: Since at least 2003, the federal government has played a broad role in  promoting financial literacy, which encompasses financial education—the  process by which individuals improve their knowledge and understanding  of financial products, services, and concepts. Financial literacy plays an  important role in helping to promote the financial health and stability of  individuals and families. In prior work on financial literacy, we reported  that federal agencies have made progress in recent years in coordinating  their financial literacy activities and collaborating with nonfederal entities,  in large part due to the efforts of the federal multiagency Financial  Literacy and Education Commission (FLEC).

In addition to their financial literacy efforts, some federal agencies have  developed savings programs involving financial assets. These programs  are aimed at helping households and individuals that may not have  access to traditional savings vehicles, such as employer-sponsored  retirement plans.

According to a Treasury official, Treasury launched the myRA program,  which is in a soft-launch phase, to promote retirement savings among individuals without access to employer-sponsored retirement plans.According to Treasury, the program offers a retirement savings account  that is a Roth IRA, so it follows the same rules that apply generally to  Roth IRAs and receives the same tax treatment.no minimum-amount requirement, a maximum balance of $15,000, and it  can be funded through payroll direct deposit. The account houses a  savings bond that will never go down in value (except from withdrawals)  and the security in the account, like other Treasury securities, is backed  by the U.S. Treasury. Participating employers make myRA information  available to their employees. Employees are able to enroll in the program,  and then elect to have a portion of each paycheck directly deposited into  their myRA automatically.

A myRA has no fees,  Treasury officials stated that they worked to develop the framework for  this program in 2014, including issuing a new Treasury security to serve  as the investment option for these accounts, and designing easy-to- understand materials for savers. Treasury continued to build on the  development process by making myRA available to a small group of  employers, including federal agencies. Presently, Treasury is working  closely with this small group of participants to get feedback and better  ensure that the user experience is as simple and straightforward as  possible–both for employers and employees–before myRA becomes  more broadly available later this year. Treasury has indicated that it is too  early to begin evaluating the impact of the myRA program. However,  Treasury officials told us that they will continue to monitor the progress of  the program as it moves through its soft-launch phase.
subsections: section_title: Money Smart and Model Safe Account Programs
paragraphs: Given the challenges low-and-moderate income households face in  obtaining financial or banking services, FDIC has created a number of  initiatives to help low and moderate-income individuals improve their  financial skills and use financial institutions according to FDIC officials.  For example, FDIC officials stated that, in 2001, FDIC developed the  Money Smart program, which is a comprehensive financial education  curriculum designed to help consumers, especially low- and- moderate  income consumers and entrepreneurs, enhance their financial skills and  help create positive banking relationships. Officials added that FDIC  provides the curriculum free of charge in formats for consumers to  complete on their own or through instructor-led classes. According to  FDIC, the program has reached over 2.75 million consumers since 2001.  In April 2007, FDIC used a three-part survey to determine the  effectiveness of its Money Smart financial education curriculum and found  that the program positively influenced how course participants managed  their finances and their financial confidence. The study also found that  these positive changes were sustained months after participants had  completed Money Smart training. Specifically, the study found that  participants were more likely to open deposit accounts, save money in a  mainstream deposit product, use and adhere to a budget, and  demonstrate increased confidence in their financial abilities when they  were contacted 6 to 12 months after completing the Money Smart course  compared to before beginning the course.

To further promote low and moderate income consumers’ access to  financial services, FDIC developed the Model Safe Accounts Pilot in  January 2011. The pilot was designed to evaluate the feasibility of having  financial institutions offer safe, low-cost transaction and savings accounts  (Safe Accounts) that are responsive to the needs of underserved  consumers- including those with low and moderate incomes. Nine  financial institutions participated in the pilot by offering Safe Accounts,  which are checkless, card-based electronic accounts that limit acquisition  and maintenance costs. These accounts allow withdrawals only through  automated teller machines, point-of-sale terminals, automated  clearinghouse pre-authorizations, and other automated means. Overdraft  and nonsufficient funds fees are prohibited with the transaction accounts.  According to FDIC, the nine banks opened more than 3,500 Safe  Accounts during the pilot. Retention of these accounts exceeded  expectations—more than 80 percent of transaction accounts and 95  percent of savings accounts remained open at the end of the 1-year pilot  period. According to FDIC, Safe Accounts performed on par with or better than other transaction and savings accounts and several of the  banks plan to continue to offer Safe Accounts—some banks are also  considering the possibility of graduating pilot accountholders to traditional  deposit accounts. Although the Safe Accounts program was only a 1-year  pilot, FDIC officials told us that the agency provides interested FDIC  insured institutions with a Safe Accounts template that includes guidelines  for offering cost-effective transactional and savings accounts to  underserved consumers. This template was based, in part, on lessons  learned during the pilot phase.

section_title: Youth Savings Pilot Program
paragraphs: FDIC announced its Youth Savings Pilot Program on August 4, 2014.  According to FDIC, this pilot program seeks to identify and highlight  promising approaches to offering financial education tied to the opening  of safe, low-cost savings accounts for school-aged children. The pilot has  two phases. According to FDIC officials, Phase I includes FDIC insured  institutions currently working with schools or nonprofit organizations that  help students open savings accounts in conjunction with financial  education programs during the 2014 to 2015 and 2015 to 2016 school  years. Nine banks differing in size, location, and business models were  selected for the first phase. The officials added that Phase II will include  FDIC insured institutions beginning or expanding youth savings account  programs during the 2015 to 2016 school year. FDIC is collecting  summary information—including data on the number of accounts opened  and financial education approaches used—from pilot participants. When  the pilot is complete, FDIC intends to publish a report to provide financial  institutions with promising approaches to working with schools and other  organizations to combine financial education with access to a savings  account.

section_title: Assets for Independence Program
paragraphs: The Office of Community Services at the Department of Health and  Human Services’ Administration for Children and Families administers the  Assets for Independence program. Started in 1998, the Assets for  Independence program awards grants to community-based entities,  nonprofits and state, local, and tribal government agencies that partner  with nonprofits to implement an asset-based approach for assisting low  income families to become economically self-sufficient according to the  Administration for Children and Families. According to agency officials,  entities receiving these grants enroll participants in Assets for  Independence projects to save earned income in special-purpose,  matched savings accounts, also called individual development accounts.  According to agency officials, every dollar that a participant deposits into  an Assets for Independence individual development account is matched  by the Assets for Independence project. Match rates can vary from $1 in  match funds for every $1 the participant deposits in his or her individual  development account, to as much as $8 in match funds for every $1  saved. Participants generally must use their individual development  accounts and matching funds for a qualified expense: the purchase of a  home; the capitalization or expansion of a business; or post-secondary  educational expenses. According to agency officials, under the program,  grantees are required to assist participants in the demonstration project in  obtaining the skills necessary to achieve economic self-sufficiency.  Examples of such activities include providing financial education and  credit counseling.

As illustrated in table 4, from 2010 through 2014, according to agency  officials the Administration for Children and Families awarded 269 Assets  for Independence grants and over $62 million to a number of  organizations including nonprofits, state or local governments, tribal  governments, and community development financial institutions, to name  a few. Table 4 also shows that the program budget for the Administration  for Children and Families since fiscal year 2010.

According to Administration for Children and Families data through fiscal  year 2010, more than 90 percent of Assets for Independence projects  allowed participants to pursue homeownership as an asset goal, while  more than 80 percent allowed participants to pursue postsecondary  education or training and business capitalization as asset goals. Nearly  one-third of projects allowed participants to transfer account savings to  the individual development account of a spouse or dependent.

In 2011, Administration for Children and Families began a random  assignment evaluation of the Assets for Independence program at two  grantee sites. This evaluation will assess the impact of Assets for  Independence program participation on savings, savings patterns, and  asset purchase by lower-income individuals and families. It builds on the  previous quasi-experimental evaluation and studies of other non-Assets  for Independence funded individual development account projects. The  2008 evaluation used data from the early to mid-2000s and found that  Assets for Independence program participants were 35 percent more  likely to become homeowners, 84 percent more likely to become business  owners, and nearly twice as likely to pursue post-secondary education or  training compared with a corresponding national sample of  nonparticipants eligible for the program. According to the Administration  for Children and Families, the random assignment evaluation will further  understanding of the program’s overall impact on early participant  outcomes. The evaluation team completed participant enrollment and  baseline data collection in July 2014 and expects to release its final report  in early 2016.

section_title: Family Self Sufficiency Program
paragraphs: The Department of Housing and Urban Development (HUD) awards  competitive grants to public housing agencies for the administration of  programs that encourage residents of public housing to attain self- sufficiency through programs such as the Family Self Sufficiency  program. The program funds coordinators who help participants achieve  employment goals and accumulate assets. Through the coordination and  linkage to local service providers, program participants receive training  and counseling that enables them to increase their earned income and  decrease or reduce their need for rental assistance. Under the Family  Self Sufficiency program, escrow accounts are used as incentives to  increase work effort and earnings. Specifically, when participants have to  pay a higher rent after their earned income increases, the public housing  agency calculates an escrow credit that is deposited each month into an  interest-bearing account (see fig. 4). Families that successfully complete  their contract for the Family Self Sufficiency program receive their  accrued escrow funds.

According to HUD officials, over 72,000 households participated in the  program in fiscal year 2014, and 4,382 families successfully completed  their Family Self Sufficiency contracts. The 2013, 2014 and 2015  appropriation amounts for the Family Self Sufficiency program was $75  million. HUD is requesting $85 million in 2016.

In September 2004, HUD commissioned a 5-year prospective study of the  Family Self Sufficiency program, focusing on programs serving Housing  Choice Voucher recipients.

The study provided a final assessment of the experiences of a  representative sample of Family Self Sufficiency participants that enrolled  in 2005 and 2006. The study also examined the relationship between  participants’ characteristics, Family Self Sufficiency programmatic  features, and program outcomes. The study found that after 4 years in the  Family Self Sufficiency program, 24 percent of the study participants  completed program requirements and graduated. When the study ended,  37 percent had left the program without graduating and 39 percent were  still enrolled in the Family Self Sufficiency program. Program graduates  were more likely to be employed than participants who did not graduate  or who still were enrolled in the program. Program graduates also had  higher incomes, both when they enrolled in the Family Self Sufficiency  program and when they completed the program, than participants with  other outcomes. Staying employed and increasing their earned incomes  helped graduates to accumulate substantial savings in the Family Self  Sufficiency escrow account. The average escrow account balance was  $5,294 for program graduates, representing about 27 percent of their  average household income at the time of program enrollment.

section_title: State and Local Government Agencies and Nonprofits Have Also Developed an Array of Programs for Lower- Income Households to Promote Savings
paragraphs: Recognizing that financial literacy or education is only part of the solution  to help lower-income households achieve financial security, state and  local government agencies and nonprofits have developed a variety of  programs targeting specific populations or serving a specific savings  purpose. These include retirement savings programs, prize-linked savings  programs, short-term emergency savings programs, and various asset  building (or asset accumulation) programs that promote savings for  specific goals (e.g., post-secondary education, home ownership, or  business ownership).
subsections: section_title: Prize-Linked Savings
paragraphs: Several states have created prize-linked savings programs to offer a new  way to help lower-income and other individuals to save. As of 2015,  Michigan, Nebraska, North Carolina, and Washington have created Save  to Win programs, in which participating credit unions offer their members  the opportunity to open prized-linked savings accounts. A Save to Win  account is designed as a 12-month share certificate that allows for  unlimited deposits throughout the year. Savers are required to deposit  only $25 to open an account and earn raffle tickets for every additional  $25 deposited in the account, with a cap on the number of entries per  month. The cap helps ensure that individuals who cannot save as much  still have opportunities to win. Raffle tickets qualify participants for the  chance to win monthly cash prizes and grand prizes at the end of the  year. According to Doorways to Dreams Fund, since the launch of Save  to Win in 2009, over 50,000 accounts have been opened with over $94  million in savings in Michigan. Moreover, the nonprofit reported that  among surveyed Save to Win accountholders, between 62 percent 81  percent were financially vulnerable. Michigan passed a law in 2003 to  allow for credit unions to offer “savings promotion raffles.” The other four  states also have modified their laws to allow credit unions to offer prize- linked accounts, savings promotion raffles, or other promotional contests  of chance. On the federal level, in 2014, Congress passed the American  Savings Promotion Act to provide for the use of savings promotion raffle  products by financial institutions to encourage savings.

section_title: Short-Term Emergency Savings
paragraphs: According to some nonprofit officials and academics we interviewed,  federal and state savings programs primarily promote and provide tax  incentives for retirement savings, which tend to benefit higher-income  households more than lower-income households. At the same time, they  told us that short-term or emergency saving tends to be more important  for lower-income households, because it helps households meet their  immediate needs—for example, to cover unexpected car repairs, medical  expenses, or temporary unemployment. Some government entities and  nonprofit organizations have developed pilot and other programs to  promote short-term emergency savings.

According to program officials, the AutoSave Pilot was a joint initiative  of two nonprofits—New America and MDRC. Program officials told us  that the pilot tested the feasibility of establishing automatic savings  programs that use direct deposit to divert a small amount of after-tax  wages into savings accounts. Automatic savings programs would be  especially valuable for individuals who have few liquid assets and  limited access to low-cost credit products, because these savings can  be used as a personal safety net in the event of unanticipated  expenses or a sudden decrease in income, according to New America  and MDRC. AutoSave investigated two different program designs.  The first program design, implemented in fall 2009, was the “opt -in  program,” where employees signed up for the AutoSave savings  program through their employer. Employees who did not have a  savings account were able to open one through a bank or credit union  that partnered with the workplace site. With this version of the  program design, only the savings deposits were automatic.

The opt-in AutoSave program design had been offered to employees  at eight workplace sites, ranging in size between 13 and 25,000  employees. The pilot had a special focus on generating participation  among low- to moderate-income workers, although all employees  were eligible to sign up. Overall participation rates ranged between 2  percent and 62 percent of all employees at these targeted  workplaces, with most sites ranging between 9 percent and 25  percent. In sites where wages were tracked, the majority of  participants had wage levels within the lower three-fifths of the wage  distribution in their workplace. These participation results were  consistent with expectations for the opt-in program design. The  second investigated program design was an “opt-out program,” where  all employees would have been automatically enrolled in the  AutoSave savings program unless they elected not to be in the  program. With this design, both enrollment and deposits would have  been automatic. Opt-out enrollment was not actually piloted because  MDRC’s assessment of the legal and operational risks concluded that  while this approach would presumably be legal in some states, a lack  of regulations or case law addressing the model meant that employers  would be taking undue risks to implement the opt-out model. In the  absence of such guidance or precedence, MDRC has determined that  it is not currently feasible to implement the opt-out enrollment program  design (even by using a payroll card with an attached savings  product).

According to an official at the City of San Francisco, the EARN Starter  Account program, developed by the California non-profit EARN, seeks  to increase the supply of starter account products that allow unbanked  lower-income households to begin saving. Program participants must  make at or below 50 percent of their area median income. The  EARN Starter Account is an online program that rewards participants  for consistently saving at least $20 each month for six months, and  participants earn a maximum of $55 in matched funds over the six  month period according to the nonprofit. Participants link their existing  savings accounts to the EARN Starter Account platform to facilitate  savings. If participants make any withdrawals over the 6  months matched funds earned will be forfeited and the account may  be closed. At the end of 6 months, participants can claim the funds.  Participants can continue using the EARN website for another 6  months. Since 2002, 6,000 EARN clients have saved $6.8 million  dollars, and 83 percent of participants have continued to save after  their formal program ended, according to a qualitative study by the  nonprofit. The study found that consistent savers also demonstrated  a shift toward future orientation. More specifically, these program  participants were planning to acquire more assets (such as further  education, the purchase of a home, or founding or developing a small  business). EARN is partnering with the City and County of San  Francisco to bring the Starter Account platform to low-income San  Franciscans, beginning with a pilot program for public housing  residents.

Some government entities and nonprofit organizations have developed  programs to encourage lower-income households to save part of their  income tax refund.

According to officials at the Center for Social Development at  Washington University in St. Louis, Refund to Savings is a pilot  program intended to help lower-income households build savings and  increase financial security. Launched in 2012, the pilot is a  collaboration among Washington University in St. Louis, Duke  University, and Intuit Inc. According to program officials, the program  is implemented through a version of Intuit’s tax preparation software  that is available for free to lower-income taxpayers and reaches  approximately 1.2 million households. The goal of the initiative is to  design and test a low-cost scalable intervention that can lead tax filers  to save part of their tax refund. Under the pilot, Intuit users are  assigned randomly to a treatment or control group. The treatment  group uses a version of the software in which they receive prompts to  motivate them to save part of their tax refund as emergency savings.  In 2013, the pilot tested automatic refund splitting in which the  software automatically put part of the tax filer’s refund in a savings  account or savings bond. According to officials at the Center for Social  Development, tax filers who did not want to split their refund had to  select an “I don’t need to save” button to opt out. In 2013, almost  900,000 low- and moderate-income tax filers participated in the pilot,  depositing approximately $5.9 million more in savings accounts than  they would have without the intervention, according to the Center for  Social Development officials. Data generated by program use and  refund allocation behavior will be evaluated to determine whether the  prompts, saving opportunity, or both increased saving levels  compared with the control group, according to the Center for Social  Development at Washington University.

According to officials at MDRC and New York City’s Office of  Financial Empowerment, the SaveUSA program (formerly $aveNYC)  is administered by the Mayor’s Fund to Advance New York City and  the New York City Center for Economic Opportunity and offers lower- income households an incentive to save a portion of their tax refund.  According to program officials, SaveUSA was launched in 2011 in four  cities (New York City, Tulsa, San Antonio, and Newark). Participants  open a SaveUSA account when they file their taxes. They are  required to save at least $200 of their refund for a year, and earn 50  cents for every dollar saved, with a maximum match of $500.  According to an April 2014 study of the program by MDRC, nearly  two-thirds of SaveUSA participants in 2011 (the program’s first year)  qualified for the savings match and received, on average, $191 in  savings match dollars. In the second program year, 39 percent of  the 2011 SaveUSA sample participated again, and about 27 percent  received a savings match according to the MDRC study. The MDRC  study found that on average, SaveUSA group members received $96  in savings match dollars in the program’s second year. According to  the MDRC study, those who received a savings match in both years  appear to have been in a better position to save—they tended to be  older, were more likely to have more income, and were more likely to  have pledged the maximum amount allowed of $1,000, compared with  other SaveUSA group members. In contrast, SaveUSA group  members who had especially low incomes or who pledged the  minimum amount of $200 were the least likely to ever receive a  savings match.

Asset building is based on strategies that help households build financial  or tangible assets, such as savings, a home, or a business. A number of  nonprofits, states, and municipalities have developed programs to help  lower-income households build assets through the use of individual  development accounts or child development accounts.

As discussed, the Office of Community Services at the Administration for  Children and Families administers the Assets for Independence program,  which awards grants to community-based entities, nonprofits, and  government agencies to implement special-purpose, matched savings  accounts or individual development accounts. The length of the program,  amount of matching dollars provided, allowable uses for savings, and  other rules may be different from one program to the next.

An example of an individual development account is the Assets for All  Alliance program. According to officials at the Opportunity Fund, this  individual development account was launched in 1999 by the Opportunity  Fund (formerly Lenders for Community Development) in collaboration  with the Silicon Valley Community Foundation Center for Venture  Philanthropy and several community partners, including a number of  nonprofit social service agencies. According to a study published by the  Silicon Valley Community Foundation and Lenders for Community  Development, the Assets for All Alliance individual development account  program is intended to help lower-income families “learn financial  management skills and build assets that would help them permanently  improve their economic situation.“ Savings by program participants are  “matched by philanthropic and government dollars on a two-to-one basis”  according to the study. According to the Opportunity Fund, this program  has resulted in 1,028 individual development accounts and $2.77 million  in total savings towards asset goals.

According to officials at the Center for Social Development at Washington  University in St. Louis, child development accounts are savings or  investment accounts opened as early as birth. The goal of child  development accounts is to promote saving and asset building for lifelong  development. Child development accounts assets may be used for  postsecondary education, homeownership, or enterprise development. In  many cases, public and private entities deposit funds into these accounts  to supplement savings for the child. Although the goal of child  development accounts is long-term savings accumulation, programs differ  in design and features. According to the Center for Social Development,  enrollment in some states, including Maine and Nevada, is automatic  unless parents opt out (opt-out programs). Some other child development  accounts are voluntary or opt-in, meaning that parents must enroll their  children, often by opening a 529 or bank savings account. For example,  the Nevada College Kick Start program automatically deposits $50 into a  529 account for every public school kindergartner in the state according  to officials at the Center for Social Development. In 2014, 70,000 students  had been enrolled in Kick Start. Officials told us that Maine’s College  Challenge is the only statewide universal child development account  program in the nation, benefiting all children born in Maine (more than  40,000 children in 2014). The program automatically deposits $500 into a  529 account on the child’s behalf. Both Nevada and Maine’s 529 plans  offer savings matches to state residents according to officials at the  Center for Social Development. Other examples of child development  accounts include those developed by national nonprofits including the  Corporation for Enterprise Development and New America. According to  New America, some municipalities also have launched their own child  development account programs. For example, as New America reports, in  San Francisco the Kindergarten to College program was launched in  2011 and opens accounts for every kindergartner in the city’s public  schools.

section_title: Conclusion
paragraphs: Lower income households face a variety of challenges to saving. U.S.  savings bonds continue to provide Americans, including those with lower- incomes, with an affordable, safe, and convenient way to save and invest.  However, when Treasury ended the over-the-counter sale of paper  savings bonds through financial institutions in January 2012, it created  challenges for some bond buyers who had to rely on accessing  TreasuryDirect to purchase savings bonds online. Treasury has taken  steps to develop a more flexible and responsive Internet-based system  than TreasuryDirect, but the TRIM system is in the early stages of  development. Treasury intends for these changes to address some of the  existing access and other challenges associated with TreasuryDirect.  Currently, the Tax Time Savings Bond program provides the only means  by which individuals can purchase paper savings bonds, but the  program’s future is uncertain, because Treasury may discontinue the  program when TRIM is implemented. However, the TRIM system still will  require Internet access by computer or mobile device, and Tax Time  program users who lack Internet access may not be able to save by  buying savings bonds at tax time if the program is discontinued. How the  benefits and costs of the Tax Time program would compare when  Treasury implements TRIM is not known—in part because Treasury  generally has considered the program’s benefits but not the program’s  costs. Without considering both, Treasury cannot make a fully informed  decision on whether to discontinue the Tax Time program when an  electronic alternative is available.

section_title: Recommendation for Executive Action
paragraphs: To help ensure that Treasury can make a fully informed decision on  whether to discontinue the Tax Time Savings Bond program as it  implements the TRIM system, GAO recommends that the Secretary of  the Treasury consider the benefits and costs of the Tax Time program in  future decisions on whether to extend the program.

section_title: Agency Comments
paragraphs: We provided a draft of this report to Treasury and IRS for review and  comment. In their comment letter, which is reprinted in appendix II,  Treasury agreed with GAO’s recommendation and stated that it would  conduct a cost-benefit analysis of the Tax Time Savings Bonds program.  Treasury also provided technical comments, which we incorporated, as  appropriate. We also provided draft excerpts for technical comment to  federal and other agencies—including the Departments of Health and  Human Services and Housing and Urban Development, FDIC, New York  City’s Office of Financial Empowerment, and San Francisco Office of  Financial Empowerment—and nonprofit organizations, including the  Center for Social Development at Washington University, Doorways to  Dreams Fund, MDRC, and Opportunity Fund. These third parties  provided technical comments, which we have incorporated, as  appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to Treasury, IRS, FDIC,  HUD, and the Department of Health and Human Services, interested  congressional committees, members, and others. In addition, the report  will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact  Cindy Brown Barnes at (202) 512-8678 or brownbarnesc@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  major contributions to this report are listed in appendix III.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our review examines (1) the effect of Treasury’s elimination of paper U.S.  savings bonds, including on the savings bond program and bond  purchases; (2) the extent to which Treasury’s Tax Time Savings Bond  program has promoted savings, particularly by lower-income households,  and Treasury’s plans for the program’s future; and (3) the extent to which  lower-income households are saving using financial products, and some  of the government and nonprofit programs developed to promote savings  by lower-income households.

For all three objectives, we analyzed various data. First, we used data  issued by the Department of the Treasury (Treasury) on the amount of  U.S. savings bonds purchased from 2001 through 2013 to analyze trends  in savings bond purchases over this period, including the effect of the  Treasury’s elimination of paper savings bonds on savings bond  purchases. Second, we used data from the triennial Survey of Consumer  Finances (SCF) issued by the Board of Governors of the Federal Reserve  System for survey years 2001, 2004, 2007, 2010, and 2013 to estimate  the percentage of U.S. households holding financial assets, including  U.S. savings bonds; the median value of such financial assets held by  U.S. households, and the median income of households. The survey data  include information on families’ balance sheets, pensions, income,  investments, and demographic characteristics. We analyzed the U.S.  population data as a whole and also considered the bottom two income  quintiles separately. We chose these survey years because they provide  a period of about 10 years prior to and 1 year after the discontinuation of  the sale of paper savings bonds at financial institutions. We analyzed the  U.S. population data as a whole and also considered the bottom two  income quintiles separately. SCF data are based on probability samples  and estimates are formed using the appropriate estimation weights  provided with the survey’s data. Because each of these samples follows a  probability procedure based on random selections, they represent only  one of a large number of samples that could have been drawn. Since  each sample could have provided different estimates, we express our  confidence in the precision of our particular sample’s results as a 95  percent confidence interval (i.e., plus or minus 2.5 percentage points).  This is the interval that would contain the actual population value for 95  percent of the samples we could have drawn. Unless otherwise noted, all  percentage estimates have 95 percent confidence intervals that are within  5 percentage points of the estimate itself, and all numerical estimates  other than percentages have 95 percent confidence intervals that are  within 5 percent of the estimate itself. We also reviewed documentation  on the SCF, such as codebooks and Federal Reserve bulletins. Third, we  used aggregated data provided by the Internal Revenue Service (IRS) on  income tax filers who used at least part of their tax refunds to buy paper  savings bonds from 2010 through 2013 to analyze the number of tax filers  who bought paper savings bonds, including those with adjusted gross  incomes of $25,000 or below—the lowest income category reported in the  data—and the amount of savings bonds they purchased. We also used  the aggregated data to analyze refund options used by the tax filers (such  as paper check and paper savings bond, direct deposit and paper savings  bond, or paper savings bond only) and demographic information about  the filers, such as their age. We assessed the reliability of the data we  used by interviewing knowledgeable officials, and conducting manual  testing on relevant data fields, such as the number of tax filers who  participated in the program and amounts of savings bonds purchased.  We found the data we reviewed to be sufficiently reliable for the purposes  of our analyses.

To examine the effect of Treasury’s elimination of paper U.S. savings  bond, including on the savings bond program and bond purchases, we  reviewed data on savings bonds purchases from 2001 through 2013, and  analyzed trends in purchases for this time period, including before and  after paper savings bonds were discontinued in January 2012.  Specifically, to analyze long- term trends in savings bond purchases and  more recent trends since the end of paper sales, we estimated two  econometric models. The first model was based on a portfolio choice  model, and modeled purchases as a function of interest rates, inflation,  and economy-wide risk (using the Chicago Board Options Exchange’s  Volatility Index). In other words, consumers may make savings bond  purchase decisions the same way they make other decisions about  financial portfolio allocation, based on risk and return considerations. The  second model was based on linear and quadratic time trends to capture  the long-term reduction in purchases. We included monthly seasonal  effects in both models. The drop in savings bond purchases after the end  of paper sales was consistent with long-term trends and generally not  statistically significant. The drop in purchases after the end of paper sales  also was consistent with the reduction in interest rates at the time (the  coefficient on interest rates was highly statistically significant). As with  any econometric model, our approach is imperfect and is unlikely to  include all factors that influence savings bond purchases. Additional data  over time might provide different or more definitive estimates of the  change in purchases associated with the end of paper sales. We  reviewed Federal Register releases on TreasuryDirect and its  replacement system, the Treasury Retail Investment Manager; Treasury  documentation, including a description of data in the monthly statement of  public debt, estimates of cost savings from eliminating paper savings  bonds, press releases, Bureau of the Fiscal Service’s President’s budgets  and capital investment plans; and TreasuryDirect materials. To assess  the reliability of Treasury’s cost estimates, we interviewed Treasury  officials on how the estimates were determined and reported. We also  interviewed Treasury officials to discuss a range of issues related to its  savings bond program, including the benefits and costs of eliminating  paper savings bonds, concerns raised about TreasuryDirect, and plans  for replacing TreasuryDirect.

To determine the extent to which Treasury’s Tax Time Savings Bond  program has promoted savings, we analyzed IRS data on the use of the  program by tax filers for tax years 2010 through 2013 (as discussed in  detail above). We also reviewed IRS documentation on the program, such  as descriptions on how the program operates and answers to common  questions about the program, and studies on the Tax Time program  published by academics and nonprofit organizations focusing on social or  economic policy. We interviewed Treasury and IRS officials about the Tax  Time program’s operations, benefits, costs, and future in terms of its  expiration. To better understand the extent to which this program can help  lower-income households to save, we interviewed nonprofit organizations  focusing on social or economic policy, including Doorways to Dreams  Fund, New America, Corporation for Enterprise Development, and  MDRC.

To examine the extent to which lower-income households are saving  using financial products, we examined SCF data for survey years 2001,  2004, 2007, 2010, and 2013 (as described in greater detail above). Based  on these data, we defined lower-income households as the lower two  distributions (or quintiles) of households in the United States. To  describe some of the government and nonprofit programs developed to  promote savings by lower-income households, we conducted Internet and  literature searches for research, initiatives, testimonies, and studies on  savings programs targeting lower-income households and reviewed  materials on such programs. We specifically reviewed select federal,  state, local, and nonprofit programs targeting either long-term (such as  retirement or asset accumulation) or short-term savings goals for lower- income households. For the purposes of this report, we focused on  programs designed to promote savings using financial assets, such as  bank accounts, bonds, mutual funds, and retirement accounts. We  generally excluded programs designed to promote savings through home  ownership or other nonfinancial assets. For federal programs, we focused  our review on federal agencies involved in promoting financial literacy that  are members of the multiagency Financial Literacy and Education  Commission (FLEC). We interviewed six FLEC member agencies—the  Departments of the Treasury, Housing and Urban Development, Health  and Human Services, and Education; the Federal Deposit Insurance  Corporation; and the Bureau of Consumer Financial Protection, also  known as the Consumer Financial Protection Bureau—about their  savings programs and reviewed related documentation.

We also reviewed select state, local, and nonprofit programs targeting  lower-income households. We selected these programs based on our  research of savings programs for lower-income households and  interviews with FLEC members and other stakeholders. For the programs  we selected, we interviewed relevant program officials and reviewed  documentation on the programs, including information on participation in  the programs where available. Finally, we interviewed other relevant  stakeholders, including Doorways to Dreams Fund, New America,  Corporation for Enterprise Development, MDRC, Consumers for Paper  Options, and academics.

We conducted this performance audit from August 2014 to July 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Comments from the Department of the Treasury

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Richard Tsuhara (Assistant  Director), Tarek Mahmassani (Analyst-in-Charge), Emily R. Chalmers,  Michael Gitner, Michael Hoffman, Wati Kadzai, Robert Letzler, Marc  Molino, Patricia Moye, and Andrew Stavisky made significant  contributions to this report.


Question-summary annotations: questions: question: What does GAO analysis say about the Treasury's elimination of paper saving bonds?
answer: The Department of the Treasury's (Treasury) elimination of paper savings bonds made buying bonds more difficult for some customers, but GAO's analyses generally indicated that the decline in bond purchases after the change was not statistically significant.
child_questions: question: How much was estimated to be saved by eliminating paper saving bonds?
answer: It estimated the change would save about $70 million in program costs from 2012 through 2016.

question: How can customers buy saving bonds?
answer: Except for the Tax Time Savings Bond program, customers who want to buy savings bonds must use TreasuryDirect—an online system that requires users to have Internet access and a bank account.

question: What is Treasury in the process of doing?
answer: Treasury is in the early stages of developing a new system, the Treasury Retail Investment Manager (TRIM), to make it easier to buy savings bonds, such as by using a mobile device, which often is the primary means of accessing the Internet for many lower-income households.

questions: question: What was the status of over one-third of users of the Treasury's Tax Time Savings Bond Program?
answer: A little more than one-third of the users of Treasury's Tax Time Savings Bond program—the only way to purchase paper bonds—were lower-income tax filers (filers with an adjusted gross income of $25,000 or less), but the program's future is uncertain.
child_questions: question: Why has Treasury been extending the program?
answer: Treasury has been extending the program partly because the amount of bonds purchased and participation levels indicate that the program is providing benefits, but it generally has not considered the program's costs.

question: What did Treasury tell GAO about the program?
answer: In May 2015, Treasury officials told GAO that they plan to continue to extend the program until TRIM can provide a suitable electronic alternative.
child_questions: question: What did GAO suggest to the Treasury?
answer: In prior work on agency stewardship of public funds, GAO reported that agencies, as a best practice, should consider both benefits and costs in considering alternatives related to program decisions.

question: Why might Tax Time users be unable to save by buying bonds with their refunds after TRIM is implemented?
answer: Because TRIM will require Internet access by computer or mobile device, Tax Time program users without such access may no longer be able to save by buying bonds with their refunds after TRIM is implemented.

questions: question: Why have federal agencies developed programs to promote savings?
answer: Given the limited savings of lower-income households and savings challenges faced by such households, a number of federal agencies have developed programs to promote savings.

question: What is the my RA® program?
answer: For example, Treasury's my RA®, which is in a soft-launch phase, promotes retirement savings for individuals without access to employer-sponsored retirement plans.

question: What kind of programs have state, local, and nonprofit agencies initiated?
answer: State, local, and nonprofit agencies also have initiated programs that promote savings for retirement, child development, or emergencies and generally target lower-income households.
child_questions: question: What is the eligibility for these programs?
answer: Eligibility requirements and participation vary by program.

questions: question: What do US savings bonds provide?
answer: U.S. savings bonds provide Americans with an affordable way to save.
child_questions: question: How can savings bonds be purchased?
answer: As a result, savings bonds generally must be purchased through TreasuryDirect®. The one exception is the Tax Time Savings Bond program, established in 2010 to enable taxpayers to use their tax refund to buy paper savings bonds.

question: What did Treasury stop doing in 2012?
answer: In 2012, Treasury stopped selling paper savings bonds at banks as part of its broader electronic initiative.

questions: question: What does this report examine?
answer: This report examines (1) the effect of Treasury's elimination of paper U.S. savings bonds on the program and bond purchases, (2) the extent to which the Tax Time Savings Bond program has promoted savings by lower-income households and Treasury's future plans for the program, and (3) the extent to which lower-income households are saving and programs developed by federal agencies and others.
child_questions: question: How did GAO get information for this review?
answer: GAO reviewed agency rules and other documents; analyzed Treasury, Internal Revenue Service, and other data, in part using economic models; and interviewed federal, state, and nonprofit entities and experts involved in savings programs.

question: What was GAO requested to do?
answer: You requested that GAO examine Treasury's savings bond program, including the accessibility of TreasuryDirect, and other savings programs.