welcome to policies to encourage savings

Welcome to "Policies to Encourage Savings"

Friday, December 9, 2011 2:00pm (Eastern)

For the webinar audio dial: (888) 437-3195

NCSL gratefully acknowledges the Charles Stuart Mott Foundation for supporting this program.

Moderator

Representative Cheri Gerou, Colorado General Assembly

Representative Gerou was elected to the legislature in

2008. She serves as chair of the House Appropriations

Committee and the Joint Budget Committee.

Representative Gerou participated in the NCSL

Opportunities for Working Families meeting in 2011 with

legislative colleagues from Colorado. Together they

developed an action plan to help working families in their

state focusing on workforce development. She earned a

bachelors degree in fine arts for the University of Colorado.

Webinar Agenda

2:00-2:10pm Welcome and Opening Remarks

2:10-2:30pm Overview on Savings and Split Refunds •Joanna Smith-Ramani, Doorways 2 Dreams Fund State Example: Maryland •Delegate John Olszewski, Jr.

2:30-2:50pm Overview on Prize-Linked Savings •Joanna Smith-Ramani, Doorways 2 Dreams Fund State Example: Nebraska and Maryland •Senator Amanda McGill and Delegate Olszewski

2:50-3:00pm Q&A

Joanna Smith-Ramani, Doorways to Dream Fund

Joanna Smith-Ramani is the Director of Strategy for D2D Fund,

working on the expansion of successful savings programs. Prior

to joining the D2D, Joanna was the Director of the Baltimore

CASH (Creating Assets, Savings and Hope) Campaign, an asset

building, tax preparation, and EITC coalition in Baltimore,

Maryland. Joanna has over 12 years working in community

development, personal finance and asset development.

She has worked for Self Help Credit Union, ShoreBank, several

Habitat for Humanity affiliates and the Policy Development and

Research Division of the U.S. Department of Housing and

Urban Development. Joanna holds a master's in Public Policy

from the John F. Kennedy School of Government at Harvard

University.

©2011 D2DFund, Inc.

Policies to Encourage Savings

National Conference of State Legislatures

Webinar

December 9, 2011

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

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

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

Founded in 2000 by Harvard Business School Professor Peter Tufano

Focus on innovation, scale & real-world testing

Doorways to Dreams (D2D) Fund


D2D Supporters & Collaborators

http://walmartstores.com/

http://www.aecf.org/

http://www.cfsinnovation.com/index.php

http://www.hrblock.com/index.html


Savings Rate: Trend

Source: Federal Reserve Bank of St. Louis


State of Financial Preparedness

“How confident are you that you could come up with

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

58%49% 47% 46% 44%

35% 34%27% 26% 23%

18% 18%10%

2%

7% 7% 7%5%

6% 11%

5% 4%4%

5% 6%

1%

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

I don’t know Can't or Probably Can't

Source: Lusardi, Schneider & Tufano

(www.tnsglobal.com/news/news-97CC22ABE14E4373B863F0734D99121A.aspx)


Why Savings Matters

– Children of low-income, high-saving parents

are more likely to experience increased

incomes than their counterparts.

+ Children of low-saving, low-income parents are

significantly less likely to be upwardly mobile than

children of high-saving, low-income parents.

+ 71% of children born to high-saving, low-income

parents move up from the bottom income quartile over

a generation, compared to only 50% of children of low-

saving, low-income parents.

Pew Charitable Trusts Report – A Penny Saved is Mobility Earned Nov 2009


But Saving is Hard

Challenges lower-income savers

face:

+ Limited income – a minimum

wage worker makes $15K a year.

+ Consumerism – pressure to buy

is everywhere.

+ Family & friends – are often in

need, creating pressure to share

resources.

+ Few opportunities – most

people save with structured help

(e.g., 401(k) plans), but LMI

people get little or no such help.


Saving Policy / Product Design Spectrum*

Coerce

saving

Make it

hard not

to

Make it

Easier

Bribe

People

Use

Social

Networks

Make it

Fun

US Social

Security,

UK child

trust fund

Defaults,

bundling

Workplace,

tax time

saving

Incentives ROSCAs,

peer

support

Prize-

linked,

collectible

savings

Source: Tufano and Schneider, Using Financial Innovation to Support Savers:

From Coercion to Excitement (2008)


Can Saving be Easy?

– Convenient

– Timely

– Painless (relatively)

– Relevant

– Simple

– Someone available to help


Opportunity: Tax Season

– Huge financial event – $300 billion refunded each year

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

– Average refund $1,680

– Up to $7k (25%+ of annual income)

– Also…Universal * Permanent * Recurring

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


An Easy Saving Strategy – Split Refunds

Tax (refund) Time...

$300,000,000,000+

+ Refund

Splitting...

+ U.S. Savings

Bonds (or

other accts)

“Spend Some” “Save Some”

©2010 D2DFund, Inc. ©2011 D2DFund, Inc. ©2011 D2DFund, Inc. 16

Form 8888

Direct Deposit Section

• Can select up to 3

accounts

• Can put remainder of

refund not allocated to

savings bond direct into

an account

Savings Bonds

• Can purchase for

taxpayer and two others

• Simply identify amount

and person(s) the bond

should be issued to.

Paper Check

• Remainder of refund

not allocated to bonds

can be received as a

paper check .


D2D tests tax refund splitting

Before: Spend / Save choice after $ refunded

Split Refunds: choice before $ refunded


Easy Helps Even “Non-Savers” Save

Findings from Savings Bond Pilot:

– Substantially increased savings

+ In controlled trials, 6-9% save in bonds

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

+ Low income ($21k adjusted gross income)

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

+ Most didn’t plan to save

+ Substantially saving for kids


From Policy to Results – Savings Bonds

– 2010 National Policy

• 22,181 tax filers purchased Savings Bonds

• $10.9 million saved

• Average purchase - $463 – roughly 15% of average refund

– 2011 National Policy

– (as of May 14, 2011)

• 44,382 taxpayers purchasing

• $10.7 million saved

• 27% repeat buyers

• Early data indicates: increase in LMI savings


What Can State Legislators Do?

Tax time is seen as a “spending time”, not “saving time” – but

it can be BOTH

– Increase awareness among constituents

+ Events, constituent newsletters

+ Direct state tax authority to join awareness effort?

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

– Complementary state policy

– Maryland and Hawaii

State Example: Split Refunds

Delegate John Olszewski Jr. , Maryland

Delegate Olszewski was elected to the Maryland General Assembly

in 2006. He serves on the Economic Matters Committee and

the Public Utility and Property and Casualty Insurance

Subcommittees. He serves as the chairman of the Baltimore

County House Delegation and as a member of the P-20 Leadership

Council of Maryland. Delegate Olszewski is also the House

co-chair for the Maryland Youth Advisory Council, which assists

youth in participating in the legislative process in Maryland.

Delegate Olszewski holds a master’s degree in Political Leadership

from George Washington University and a bachelor’s degree in

political science from Goucher College. A former teacher with the

Baltimore County Public Schools, he is currently pursuing a Ph.D in

public policy at the University of Maryland, Baltimore County.

Maryland Split Refund Option Legislation: HB 883/SB 698 (2009)


Can Saving be Fun?

DEPOSIT SLIP


Gaming & Saving

38% of those with incomes below $25,000 USD think that

winning the lottery represents the most practical way for

them to accumulate several hundred thousand dollars.

- 2006 Consumer Federation of America study*

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

Lottery players may seek:

1) entertainment

2) financial planning / wealth building

Can we strengthen #2 without losing #1?


How about “Prize-Linked Savings”?

Concept:

– Earn chance(s) to win by saving

– Forego part of return to fund prize(s)

Why?

– Make saving fun, exciting, interesting

– Divert gaming dollars to saving

– Exploit our weakness for evaluating odds

Consider:

– $60 billion in US lottery sales

– Average of $515 per US household

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

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


A Test

– First Large-Scale Pilot in the US + 2009 pilot with 8 Michigan credit unions

+ $100,000 grand prize

+ $3.3K / month in smaller prizes

+ Each $25 deposit = chance to win

+ Max of 10 chances / month

http://walmartstores.com/

http://www.savetowin.org/Home_Page_2.html


Save to Win Results (2009 – 2010)

2009 (8 Credit

Unions)

2010 (36 Credit Unions)

Accounts 11.7k 16.2K Total Saved $8.6MM $27.9MM Average Balance $734 $1,268

Results and Growth in the Save to Win Program

• More than 11K new accountholders joined the program in

2010

• 30% of these new account holders came from the pilot

credit unions, 70% came from 29 new credit unions.


Save to Win Results (2009 – 2011)

Does the product encourage saving?

– 53% of non-savers, 51% of the asset poor, 53% of LMI and 50% of single parents with dependents

continued from 2009-2010 – close to rates of other savers.

– Financially vulnerable households who continued in 2010 were saving more regularly and able to

save, on average, more in 2009 than financially vulnerable accountholders who did not continue.

“Financially-Vulnerable”

Categories

Definition % in 2009 % in 2011*

Non-Savers Reported not regular

savers before Save To

Win account

56% 45%

Asset Poor $5,000 or less in

financial assets 39% 32%

Low-to-Moderate Income Household income less

than $40,000 44% 39%

Single with Dependents Single parents w/ one or

more children 14% 12%

* The difference from 2009 to 2011 may be the result of a smaller survey sample size that may bias data.


Future of Prize-Linked Savings (PLS)

State Laws:

+ MD – 2010 – sponsors: Delegate Olszewski & Senator Klausmeier -

HB 990, SB 886

+ RI – 2010 – sponsor: Senator Pichardo - SB 2399; 2011 - Amended Bill

SB 0797

+ NE - 2011 – sponsors: Senators McGill, Dubas, Hadley, Mello et al –

LB524

+ WA – 2011 – sponsors: Senators Kilmer, Hobbs, Carrell, Keiser et al –

SB 5232

+ NC – 2011- sponsors: Senators Gunn, Clary et al – SB 513

+ ME – 2010 sponsors: Senators Sullivan, Alfond et al – SB 0645

– Interest in AL, FL, IA, MS, NM, MN, OR


Considerations

– State law generally prohibits “private lotteries”

+ Requires a tailored inclusive exception to state gambling

prohibitions

– Federal regulation prohibits banks and thrifts from

operating raffles/lotteries

+ Some states have enacted bills that allow all financial institution to

participate pending a change in federal law.

– Regulatory authority will need to be determined

– Cost

+ No government subsidy is required

State Example: Prize-Linked Savings

Senator Amanda McGill, Nebraska

Senator Amanda McGill was elected to the Nebraska

Legislature in 2006. Senator McGill serves on the Senate

Committee on Business and Labor, as well as the Committee

on Judiciary, and acts as chair of the Committee on Urban

Affairs. A former television reporter at KOLN/KGIN in Lincoln

and KCAU in Sioux City, McGill currently works as an account

executive at Clark Creative Group. She has been a member of

the Lincoln YWCA Board since 2007 and currently serves as

executive director of the YWCA Lincoln. Senator McGill earned

a Bachelor of Arts in broadcasting and political science from

the University of Nebraska, Lincoln.

Nebraska Prize-Linked Savings Legislation: LB 524 (2011)

Maryland Prize-Linked Savings Legislation: HB 990/SB 886 (2010)


Recap: Action Ideas

– Prize-Linked Savings

– Offers chances to win prizes for depositing money into

a savings account

– A “no-lose” lottery

– Split Refunds

– Makes tax time an opportunity to save by directing tax

refunds into multiple accounts, including savings, or

purchasing U.S. savings bonds

– Federal split refund option is available and can be

replicated on the state level

Q&A Instructions: If you have a question, please type it in the chat box at the bottom right corner of your screen. *We will answer as many questions as possible. If we don't answer your questions during the webinar, your questions will be distributed to the appropriate person who will respond to you after the webinar.

Speaker Contact Information:

•Joanna Smith-Ramani, Doorways 2 Dreams Fund, [email protected] •Delegate John Olszewski Jr., Maryland, [email protected] •Senator Amanda McGill, Nebraska, [email protected]

mailto:[email protected]



Thank you for attending the Policies to Encourage Savings Webinar

Please check your email for additional resources and to complete a short evaluation.

For more information, please contact Qiana Torres Flores at [email protected] or

visit www.ncsl.org/workingfamilies


http://www.ncsl.org/working

welcome to policies to encourage savings

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