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Testing US Savings Bonds at H&R Block Tax Sites

Testing US Savings Bonds at H&R Block Tax Sites

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Published by Sarika Abbi
http://bondsmakeiteasy.org During the 2007 tax season, Professor Peter Tufano, founder of Doorways to Dreams (D2D) Fund, collaborated with H&R Block to study offering U.S. Savings Bonds (Series I) at 27 H&R Block tax preparation offices. 3,729 clients with federal refunds greater than $500 received a scripted offer to purchase US Savings Bonds. 220 (or 5.9%) of these clients chose to purchase bonds spending an average of $228 each which resulted in tax time savings of $50,100.

This memo discusses the details of the 2007 tax season H&R Block US Savings Bond pilot which ran for 14 weeks in two cities: Boston, MA and Schaumberg, IL. The paper reviews preliminary findings related to take-up rate, bond purchasing decisions, and buyer data collected through the tax form. This report concludes with some initial interpretations as well as early policy recommendations.
http://bondsmakeiteasy.org During the 2007 tax season, Professor Peter Tufano, founder of Doorways to Dreams (D2D) Fund, collaborated with H&R Block to study offering U.S. Savings Bonds (Series I) at 27 H&R Block tax preparation offices. 3,729 clients with federal refunds greater than $500 received a scripted offer to purchase US Savings Bonds. 220 (or 5.9%) of these clients chose to purchase bonds spending an average of $228 each which resulted in tax time savings of $50,100.

This memo discusses the details of the 2007 tax season H&R Block US Savings Bond pilot which ran for 14 weeks in two cities: Boston, MA and Schaumberg, IL. The paper reviews preliminary findings related to take-up rate, bond purchasing decisions, and buyer data collected through the tax form. This report concludes with some initial interpretations as well as early policy recommendations.

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Published by: Sarika Abbi on Dec 01, 2010
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* Preliminary *Tax Time Savings:Testing US Savings Bonds at H&R Block Tax Sites
Nick Maynard (nmaynard@d2dfund.org)
Executive Summary
During the 2007 tax season, Professor Peter Tufano, founder of D2D Fund, collaborated with H&RBlock to study offering U.S. Savings Bonds (Series I) at 27 H&R Block tax preparation offices.3,729 clients with federal refunds greater than $500 received a scripted offer to purchase USSavings Bonds. 220 (or 5.9%) of these clients chose to purchase bonds spending an average of $228 each which resulted in tax time savings of $50,100.
1
 Among the key preliminary learnings of this pilot study:
 
This pilot showed that significant demand was exhibited by commercial tax preparationclients for US Savings Bonds at tax time. Low-to-moderate income (LMI) households andclients with little or no savings demonstrated an interest in tax time savings with bonds.
o
 
Compared to H&R Block clients who were not offered bonds, purchasers hadlower adjusted gross income (AGI), higher tax refund amounts, a greater numberof dependents, and were more likely to file as head of household.
o
 
Approximately 40% of bond buyers reported that they had no savings orinvestments when surveyed during the study. Of those who reported savings,approximately 22% reported total savings and investments of $1,000 or less.
 
Unlike many other savings vehicles, it is possible to buy bonds on behalf of others. In ourexperience, this feature was appealing to clients in this study. Almost 70% of purchasersbought savings bonds for others. In focus groups and surveys, H&R Block TaxProfessionals (“Tax Pros”) indicated that clients seemed to respond to bond discussionsfocused on saving for children and grandchildren, and, more specifically, saving for theireducation.
 
In all H&R Block offices, two savings products were available to clients: (1) a 5% APRsavings account, “Easy Savings” and (2) an IRA product, “Easy IRA.” Among clients inour research study, the savings bond take-up rate was higher than for these products.Additionally, bond purchasers exhibited a higher take-up rate of these savings products aswell.
 
Preliminary analyses indicate that the offices that sold bonds (i.e., treatment offices)reported higher total tax time savings among clients than offices not selling bonds (i.e.,control offices). Because both treatment and control offices surveyed research participants,we posit a “bond offer effect” in Block treatment offices that resulted in a higher rate of taxtime savings among clients in offices selling bonds this tax season.This memo discusses the details of the 2007 tax season H&R Block US Savings Bond pilot whichran for 14 weeks in two cities: Boston, MA and Schaumberg, IL. The paper reviews preliminaryfindings related to take-up rate, bond purchasing decisions, and buyer data collected through the
1
“Purchasers” / “Buyers” are clients who placed an order to have bonds purchased on their behalf by H&RBlock.
 
 
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tax form. This report concludes with some initial interpretations as well as early policyrecommendations.
2
 
Introduction
 Peter Tufano and others have argued for the need for a savings tool to assist tax clients.
3
In“Reinventing Savings Bonds,”
4
Tufano and Schneider advance several reasons why savings bondsare particularly well suited for the LMI saver:
 
Low minimum & high return – savings bonds may be purchased for as little as $25, butoffer a rate of return in line with or exceeding that offered by Certificates of Deposit, mostof which require a substantially higher minimum investment.
 
No fees – there are no fees to buy, maintain or redeem savings bonds.
 
Simple purchase – bond buyers need not comply with financial institution Patriot Act orKnow Your Customer requirements, which means bond applications can be accepted bytax preparers, at community based organizations, or at other venues.
 
Universal access – bond buyers are not subject to the industry standard credit and debitscreening for new deposit account holders, ChexSystems, and therefore are open to anycitizen.
5
 Savings bonds also support long term savings. Unlike bank accounts, bonds offer an “out-of-sightand out-of-mind” quality, as holders receive no monthly statements and are not tempted towithdraw funds at ATMs.H&R Block and Professor Tufano conducted a three-week pre-experiment in 14 Block officesduring tax season 2006 for the purposes of testing the operational feasibility of offering bonds toBlock clients. In the summer of 2006, Professor Peter Tufano and D2D began working with H&RBlock to explore offering US Savings Bonds during tax season 2007 at H&R Block tax preparationoffices. Lessons learned from that pre-experiment helped shape the design and implementation othe 2007 bond project.
The H&R Block US Savings Bond Test
During the 14 weeks of tax season 2007, 3,729 H&R Block clients in Boston, MA andSchaumberg, IL with federal refunds greater than $500 were given a scripted offer to purchaseSeries-I US Savings Bonds. In-office and back-office processes were developed by H&R Block tosupport this offer. A research survey was included in the design in order to gather data and ensurea consistent conversation between Tax Pros and clients about savings and bonds. Participating
2
This memo is a companion to D2D’s earlier memo, “A Gateway to Long Term Savings: Testing USSavings Bonds to Help Low-Income Tax Filers Start Saving.” While the aforementioned paper reviewedpreliminary highlights from a savings bond test at Volunteer Income Tax Assistance (VITA) sites, the focusof this paper is the largest commercial tax preparer in the US, H&R Block.
3
See Tufano, et.al. “Leveraging Tax Refunds to Encourage Savings.” (available online athttp://www.people.hbs.edu/ptufano)
4
Peter Tufano with Daniel Schneider, “Reinventing Savings Bonds,”
Tax Notes
, October 31, 2005, 1-20.(available online at http://www.people.hbs.edu/ptufano/.)
5
In one test, 26% of LMI tax clients who applied for a savings account were denied by a bank’sChexSystems policy. See Sondra Beverly, Daniel Schneider, and Peter Tufano, “Splitting Tax Refunds andBuilding Savings: An Empirical Test”, Working Paper, February 2005 pg. 13. (online atwww.d2dfund.org/news/research.php).
 
 
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districts and offices were chosen based upon tax client demographics, geographic location, and thesupportiveness of District management.
The Product: Series-I US Savings Bonds
In all H&R Block offices nationwide, clients had the opportunity to invest in two savings products,each with its own procedures and in-office marketing material. The H&R Block “Easy Savings”account is an H&R Block Bank account requiring a $300 minimum initial contribution whileoffering a 5% APR during the 2007 tax season. For retirement savings, H&R Block offers an EasyIRA product which also requires a $300 minimum contribution, and, depending on a client’ssituation, may reduce the client’s tax burden through a tax deduction for a contribution,qualification for the Saver’s Credit, or both. The offices in this research study were relativelyrepresentative offices in terms of product offering and processes for these options.For this pilot test, tax clients were given the opportunity to invest in an additional savings product,Series-I US Savings Bonds. Series-I US Savings Bonds are sold at face value, pay interest for 30years, and have a rate that is adjusted every six months by the Treasury on the basis of inflationover the prior six months, as measured by the Consumer Price Index. At the time of this study, theSeries-I bond had a rate of 4.52%. Additionally, these bonds are exempt from state and local taxes,have unique tax treatment when proceeds are spent on education, and can be bought for others.While there are fixed rate Series-EE US Savings Bonds available, only one bond option wasoffered in this study in order to simplify the operations.
Pilot Locations: 31 H&R Block Offices
Thirty-one (31) tax preparation offices from two districts were selected to be part of the TS’07 USSavings Bond project—27 treatment (“survey and offer”) offices and 4 control (“survey-only”)offices. Participating districts and offices were chosen based upon tax client demographics,geographic location, and the supportiveness of District management. The two districts werelocated in Boston, MA (20 offices) and Schaumberg, IL (11 offices).
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Each District had a fieldmanagement team, and, combined, encompassed over 400 H&R Block tax professionals—approximately 30% of these Tax Pros were new to H&R Block in TS’07.In determining treatment and control offices, we analyzed Boston District tax season 2006 clientdata. The samples were compared across average percentage (%) of EIC returns, the weightedaverage AGI, the weighted average EIC refund, the Easy Savings take-up rate, and the Easy IRAtake-up rate. The treatment group was assigned a slightly lower weighted average AGI to accountfor the Schaumberg District offices assumed higher AGI demographics for the overall treatmentsample. The table (
Table I 
) below summarizes the key data:
Table I 
. SampleAnalysis (TS’06Data)Weighted Avg.AGIWeighted Avg.Refund for EICRecipientsAvg. % of EIC ReturnsEasy SavingsTake-Up RateEasy IRATake-UpRateControl Offices $ 38,534 $ 2,989 25% 0.009 % 0.25 %Treatment Offices $ 35,732 $ 3,300 27% 0.010 % 0.23 %
Schaumberg, IL is a medium-volume District in a relatively affluent suburb of Chicago. The
6
All eleven (11) of the Schaumberg offices participated in the TS’06 pre-experiment.

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