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Family and Consumer Sciences

Testing Strategies to Increase Saving and
Retention in IDA Programs
Czilia Loibl
The Ohio State University
Emily Haisley
formerly of Yale University
Lauren Jones
Cornell University
George Loewenstein
Carnegie Mellon University
Preliminary findingsJuly 2012
T
hough saving is important to many families in poverty, it can appear to be an insurmountable task in the
context of a day-to-day struggle to make ends meet. Additionally, there are a host of psychological factors
(which affect all income groups) that impede wealth development and seem almost designed to sabotage the
motivation to save. Hyperbolic time discounting leads to present-biased preferences that weigh the pleasures
of current consumption over the pleasures of deferred consumption. Procrastination and naivety about this
tendency contribute to peoples belief that they will save tomorrow even if they are not saving today. Loss
aversion, first proposed by Kahneman and Tversky (1979), suggests that people weigh the out-of-pocket loss
of consumption more heavily than an equivalent future gain in consumption provided by matching funds.
The IDA program interventions of this research project have been designed with these factors in mind to
help participants overcome these barriers to saving success.
Experiment 1: The importance of timing
Myopic decision making refers to the tendency to make individual decisions without considering the
aggregate consequences of making the same decision multiple times. The peanuts effect describes the
undervaluing of small dollar amountsboth gains and losses (Markowitz 1952; Prelec and Loewenstein 1991;
Weber and Chapman 2005). Taken together, these two behavioral regularities account for the popularity of
rent-to-own agreements, where small payments are made over an extended period of time, even though the
final sum is higher than the one-payment retail price.
A way to implement this insight into the design of IDA programs is to increase the frequency of deposits by
changing the deposit schedule from the typical monthly schedule to a twice-monthly schedule. An additional
benefit of having a twice-monthly deposit schedule is that it imposes more deadlines to save and counters
procrastination. Procrastination can undermine even the best intentions to save. Since procrastination
decreases as deadlines near, we would expect reductions in consumption to be greatest close to the deposit
deadline. Thus, imposing more frequent deadline may help to decrease overall consumption.
H1: Savings deposits will be higher when deposit goals are twice-monthly compared to monthly.
Experiment 2: The importance of accountability
Accountability has been shown to affect numerous psychological phenomena, such as social perception,
behavior attribution, attitude formation and change, and consumer preference (see Lerner and Tetlock 1999
for review).
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Testing Strategies to Increase Saving and Retention in IDA Programspage 2
Typical IDA program structure does little to hold participants accountable for making savings deposits.
Although case managers share IDA bank statements quarterly, feedback is random and frequently delayed
by several weeks. We propose utilizing an automated phone system to provide frequent and timely feedback.
Operating in much the same way as a credit card or bank system, the phone system provides IDA savers with
a short, motivational message before and/or after the deposit deadline. This simple manipulation increases
the salience of accountability on all four of the dimensions outlined by Lerner and Tetlock (1999): (1) the
expectation of being observed; (2) identifiability; (3) the expectation that performance will be assessed by
another; and (4) the expectation that one will have to give reasons for actions.
H2: Savings deposits will be greater when accountability is high.
Experiment 3: The effect of probabilistic incentives
Empirical findings demonstrate that people do not treat probabilities linearly when making decisions under
uncertainty, but rather systematically overweigh small probabilities (Gonzalez and Wu 1999; Kahneman and
Tversky 1979). This bias accounts for the willingness to pay large premiums in state lotteries and insurance,
both of which involve overweighing the small probability of a sudden large increase or decrease in wealth,
respectively. By extension, lottery-linked incentives to save will be overvalued, producing a greater bang for
the buck compared to guaranteed incentives, such as the IDA match, given identical net payouts. Additionally,
lottery-based incentives introduce entertainment and suspense to the routine of savings.
Such incentives have been utilized by commercial banks and microfinance institutions outside of the U.S.
to encourage low-income savings (Guilln and Tschoegl 2002; Ashraf et al. 2003). In a typical arrangement,
monthly drawings are held for cash and prizes, and customers get one lottery ticket for every $X they have
on deposit for the duration of the month. These accounts typically draw customers from the lower end of
the income distribution and frequently have reduced interest rates to offset the costs of prizes. In a sense, the
lottery distributes a portion of the interest.
A similar structure is implemented for the IDA program, where a portion of participant is distributed by
a lottery that is linked to participant deposits. Lottery odds are structured so that net winnings, coupled with
the guaranteed match, equal traditional match rates. The automated phone system is utilized to notify lottery
winners as well as provide motivational encouragement to continue saving.
H3: Savings deposits will be greater when the match rate is partially distributed by a lottery compared to when
the match rate is fixed.
Experiment 4: The effect of increasing sequences
This experiment responds to the finding that people like increasing sequences (Loewenstein and Prelec
1993). Understanding choices between sequences is an important aspect of intertemporal decision making.
We examine whether savers differ in their attitudes about the future with this small change to the savings
program.
H4: Savings deposits will be greater when the match rate is increasing over time in the savings program compared
to when the match rate is fixed.
Our test bed is the Individual Development Account (IDA) program, a matched savings program. The
federal government established this program in 1998 with the Assets for Independence Act. It provided funds
for community-based savings programs to match, most commonly, $2 for every dollar saved (acf.hhs.gov/
programs/ocs/afi).
The Assets for Independence (AFI) program is appropriating $24 million annually, funding the programs
implementation at nearly 2,000 community organizations across the nation. Since program inception in
1998, more than 70,000 matched savings accounts, so called Individual Development Accounts or IDAs,
were opened through AFI program, which is the largest federally funded IDA program. Previous studies
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Testing Strategies to Increase Saving and Retention in IDA Programspage 3
have shown that successful program graduates are more likely to continue saving, accumulate assets, and
establish retirement and investment accounts (Loibl et al. 2010; Loibl and Red Bird 2009; Loibl, Kraybill, and
DeMay 2011).
Taken together, these interventions result in three minor adjustments to current IDA programs:
1. Adjustment of deposit timing to weekly, monthly, or quarterly,
2. Implementation of a phone system through which participants receive notification of upcoming deadlines
and lottery winnings, and
3. Redistribution of match money as the match rate is determined, in part, by a lottery or a changing match
rate.
2. EXPERIMENTAL RESULTS
2.1 Frequency of deposits
Experiment 1 about the importance of timing savings deposits was successful. Savers who were asked to
make two deposits per month, every other week, save about one-third more than those who continued with
the regular monthly deposit schedule ($510 vs. $372). In addition, regression analysis shows that the amount
of each deposit is significantly higher for the twice-monthly savers. They tend to save about $42 per month,
while the monthly savers only save about $24.
At our two research sites for this intervention, the savers were in their mid-thirties, the majority African-
American, full-time working women, many of whom had engaged in post-secondary education. On average,
at least one child was in every household, but many were single-adult headed. The average household income
was in the low $20,000s.
Cumulative, average savings deposits since consent, over 28 months, including trend lines
The graph illustrates the growing divide between those who were asked to deposit twice per month (red
line) vs. the monthly savers (blue line). The average, cumulative savings of the twice-monthly savers were
$510, compared to $372 of the monthly savers. We collected data at our two sites for 22 months.
Note: Treatment: Reminder & accountability call at 15th and 30th of each month; Control: Reminder & accountability call at 30th of each month;
N=101
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Testing Strategies to Increase Saving and Retention in IDA Programspage 4
2.2 Accountability
Our findings from our second experiment document the effectiveness of a simple program intervention:
reminder and accountability calls at deposit deadline. We have several interesting results: Descriptive analysis
shows that reminder calls work best. Savers who receive these short, motivating calls a few days prior to the
deposit deadline save an average of $848 during 24 months of data collection. Counterproductive effects of
the accountability call render the combination reminder & accountability call somewhat ineffective. Savers
in this condition saved about as much as those who received no calls, when adding up savings deposits.
Regression analysis indicates that savers who receive any combination of reminder and accountability calls
are more likely to make a deposit and tend to deposit more on each deposit deadline than those who do not
receive calls. Savers in the treatment groups save about $54 per month, while no-call group participants only
save at a rate of about $32 per month.
At our four research sites for this intervention, the saver demographics were similar to typical IDA programs
and our two increasing frequency research sites. Savers were in their mid-thirties, the majority African-
American, full-time working women, many of whom had engaged in post-secondary education. On average,
at least one child was in every household, but many were single-adult headed. The average household income
was in the low $20,000s.
Cumulative, average savings deposits since consent, over 28 months, including trend lines
The graph illustrates the growing divide between those who received reminder calls (red line) and no calls
(light blue line) or reminder-and-accountability calls (dark blue line). We collected data at our four sites from
16 to 28 months.
Note: Treatment 2: Reminder & accountability call at 30th of each month; Treatment 1: Reminder call at 30th of each month; Control: Standard
savings program, no calls; 86 savers; N = 335
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Testing Strategies to Increase Saving and Retention in IDA Programspage 5
2.3 Lottery
As expected, the lottery intervention was very popular among savers; however, the we cannot yet identify
differences in savings outcomes. The descriptive analysis shows that the lottery group and the control group
deposit similar amounts of savings, $1,902 and $2,072 or about $65 and $70 per month, respectively. We find,
however, that savers in the lottery condition are more likely to deposit regularly, even accounting for their
bi-monthly deposit deadline; an average of 14 deposits compared to 11 deposits during the data collection
period. This finding supports the motivating nature of the lottery intervention.
Our research site for the lottery intervention reflects the characteristics of Hispanic families in Los Angeles.
Savers were in their early forties, the majority Hispanic, full-time and part-time working women, many of
whom had engaged in post-secondary education. On average, at least one child was in every household in
traditional two-parent households. The average household income of $15,000 was below the federal poverty
guidelines, which is $19,090 for a family of three.
Cumulative, average savings deposits since consent, over 39 months, including trend lines:
The graph illustrates that savings deposits between lottery group and control group are very similar. In fact,
the control group (blue line) accumulated slightly higher savings than the lottery group (red line).
Note: Guaranteed match: $1 match for $1 saved; additional 1 in 5 chance to receive $3 match for $1 saved; additional 1 in 100 change to
receive $15 match for $1 saved; twice-monthly deposit deadline on 15th and 30th of month; reminder and accountability call at each deposit
deadline; N=79
2.4 Increasing match
With only 12 months of data collection, the positive effect of an increasing match rate is already becoming
visible. Savings deposit data show that those who will be switched from a 2:1 to a 4:1 match rate halfway to
their savings goal feel already encouraged to save.
After only 12 months of data collection, when only few savers have actually experienced the match increase,
we see a slight effect of the increasing-match intervention on the amount saved in the IDA program. Those
in the treatment group saved an average of $595 since consent, compared to $569 for the control group.
Regression analysis confirms that participants in the increasing-match rate condition tend to deposit more
in any given month, although they are not more likely to make their deposits.
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Testing Strategies to Increase Saving and Retention in IDA Programspage 6
At our research site for this intervention, the saver demographics reflect the characteristics of low-income
families in Oregon. Savers were in their late thirties, the majority white or Hispanic, full-time and part-time
working women, many of whom had engaged in post-secondary education. On average, at least one child
was in every household, but many were single-adult headed. The average household income of the savers
was not shared by this site.
Cumulative, average savings deposits since consent, over 12 months, including trend lines:
The graph illustrates that the prospect of a 4:1 savings match in the future (red line) encourages higher
savings deposits, almost right from the start of the program as compared to the control group who receives
the standard 3:1 savings match.
Note: Treatment group: Reminder call at the end of each month and a match rate that doubles from $2:$1 to $4:$1 when half of the savings goal
is reached, 74 IDA participants; Control group: Reminder calls at the end of each month, 34 IDA participants; N=74
3. INSIGHTS FROM PHONE INTERVIEWS WITH STUDY PARTICIPANTS
We contacted study participants at our four longest-running sites to inquire about their experience with
the new features of the IDA program. This is a practice common in experimental field research because it
informs the data analysis and helps explain the quantitative findings. We were able to conduct the interview
with 133 savers on the phone (42% response rate, N=314).
1) What did you like about participating in the IDA program?
We started the interviews by inquiring about their overall satisfaction with the IDA program. Key responses,
listed in the following paragraph, indicate the many positive experiences of savings program participants that
have been described in the literature extensively (Sherraden 2000; Sherraden et al. 2004): the generous match
rate, the intensive financial education, the welcoming community of fellow savers, the contact to professionals,
and the one-on-one financial management training and credit repair.
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Testing Strategies to Increase Saving and Retention in IDA Programspage 7
It gave me the chance, for the first time, to save money and not go into it if situations came up. It was a
backup. Normally, if you have a savings account, you dip into it when things get tight. IDA doesnt allow
you to do that, so it was good.
The wonderful opportunity it presents to a person in my situation who needs help to make something
out of their lives. Being a single mom and an entrepreneur, it wasnt adding up for me. IDA helped me to
do both. It was hard for me to have funds to be a good provider and pursue my dreams as an entrepreneur.
I couldnt do both. IDA helped me get the money to start a business.
I liked the information about banking and how to get my credit together. It was very useful. I was able
to do research and send letters to repair my credit. I am working on getting some loans and they gave me
some useful information for that.
I liked everything about it. I have it set up so it comes out of payroll directly. It is continuous. Love the
matching, saving to buy a home. They offer workshops and provide information. One of the workshops
guys provided information on insurance and that was very helpful talking about homeowners insurance.
Another workshop lady there talked about banking.
2) What did you not like about participating in the IDA program?
Our second question in the interview inquired about the challenges of savings program participation. The
federal funding of the program imposes a number of rigorous elements, such as the uses of the funds (home
purchase, post-secondary education, small business development), at least 10 hrs. of financial education, or
program termination after three missed deposits. Below are selected responses to this question.
If you miss a month or two months you are out of the program.
It would have been nice if the matching could have been used to pay off credit card debt. I realize that may
go against what the program is about, but I got a jump on savings that I didnt have before.
The class hours are difficult to fit with my work hours.
3) What prevented you from saving as much as you might have liked?
The third question in the interviews was directed toward the actual savings behavior and the challenges
associated with making the recommended monthly deposit. The responses reflected the many demands on
tight budgets of low-income families. Responses include:
There was always a bill to pay; I didnt always think I had an option to save.
My car went out on me and I had to spend money on that.
I was spending money the wrong way. They taught me how to save but I made wrong choices.
4) Did you have other pressing needs that prevented you from saving as much as you would have liked?
The follow-up question addressed the topic of unexpected, unplanned expenses. They are the main reason
for program dropout, which is especially high during Christmas time. About two-third of program families
have children and they need the savings for Christmas gifts, a topic that was addressed many times during
the interviews. Responses include:
Christmas shopping hurt my savings.
I am trying to pay several debts such as mortgage and credit card debt.
Normal bills, groceries, and stuff for school.
Unexpected things that came up, sometimes irresponsibility and overspending.
5) How did family/friends help/made it more difficult?
Many low-income families rely on family and friends for providing financial assistance in emergency
situations, which has been documented regularly in the federal Survey of Consumer Finances analysis and
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Testing Strategies to Increase Saving and Retention in IDA Programspage 8
reports (Fisher and Montalto 2011; Bucks et al. 2009). On the other hand, family and friends may be skeptical
about the savings program and hesitant to use mainstream banking services. Responses to this question include:
My brother provided a good example as far as savings and my mother reminded me how important it is
not to have credit card debt.
I have two sons. If I wasnt able to buy something they wanted, like a game or a bike, they understood.
They understood the goal.
They saw that I needed to save money so if they had extra money they would help me buy things that I
needed.
Skepticism. No one believed the matching; they thought I was participating in a scam.
6) What was good about lottery and/or calls?
After the introductory, warm-up questions about the IDA program and savings behavior, we asked about
our interventions. The first in this series of three questions inquired about the positive experiences with the
calls and/or the lottery. The question was worded to match the particular treatment group at each site. Savers
responded in the following ways:
With the lottery match, there was a possibility of getting extra money. The calls kept me alert.
The lottery match is like a light at the end of the tunnel. It motivates me to stay in the program. I doubt
that I would have been able to keep with it if there wasnt that incentive.
It kept it fresh in my mind, and making small deposits over an amount of time gave me more of a chance
to win the lottery.
They were simple and to the point.
They come a few days before the end of the month, so you have time to make the deposit.
7) What was bad about lottery and/or calls?
The second question in this series of three questions inquired about the features of the interventions that
didnt work for the savers. Complaints addressed the number of calls to be overwhelming and the preference
for other media, such as text message, letters, or a live person making the reminder call. Only two commented
here about the lottery feature. Key responses to this question include:
You guys called a lot. Sometimes I would get two phone calls in a day.
They were only once a month. It would be helpful if it was twice a month. I would get the call at the end
of the month and not be able to make the deposit right away so I would miss the deadline for the month.
It could be overwhelming when you are busy, almost like a bill collector.
Text message might have been better than a phone call.
Additional Comments
Final comments by interviewees were highly positive about the savings program:
I think it is a really great idea. You are not just handing money to people; you are giving them some
financial structure. I love it, it is so helpful.
I think its a great thing that helps people from lower incomes to get a piece of the American dream. The
matching savings are a godsend. That is the reason I dont have any business loans. I was able to save enough
with the help of the matching. Thank the people that provide the program.
The educational component is extremely important. It is valuable to understand the economics, and just
the financial literacy part of it is as important as the money because knowledge is power. It makes you
think and gives you the tools that are needed.
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Testing Strategies to Increase Saving and Retention in IDA Programspage 9
4. CONCLUSIONS
This project addresses the predictors of saving in the lives of low-income families in several novel and
significant ways.
First, this research presents the first controlled, systematic study of how savings program characteristics
affect outcomes for low-income savers. Our approach to collecting data over multiple years, from the date
when people entered the savings program until its completion, provides us with an understanding of how
savings behavior develops over time and how it responds to our interventions. As a result, our data provide
robust predictions of long-term savings behavior, as compared to shorter-term studies that use similar features
in the savings context.
Second, it helps us better assess the strategy of using decision biases or vices that normal undermine
decision quality to, instead, improve it. The twice-monthly deposit feature tests the use of peoples tendencies
to underweight small dollar amounts as a tactic to increase savings. Similarly, the lottery interventions utilizes
the tendency to underweight small probabilities. The reminder and accountability calls shed light on the
importance of accountability as a psychological process that facilitates savings. Further, the design of these
three experiments allows us to parse out the relative contribution of each psychological mechanism.
Finally, it is the first research to develop best practice recommendations for managing and designing IDA
programs based on concepts of behavioral economics. Once data collection is completed in spring 2013,
the analysis will allow us to draw robust, causal inferences regarding the effect of each of our interventions.
Field experimentation is critical here, not only to ensure that an intervention is effective but also to safeguard
against unintended consequences before results are implemented on a wider scale.
OUR PARTNER SITES
The Community Financial Resource Center (CFRC)
This agency in the S. Figueroa corridor of Los Angeles is partnering with the United Way of Greater Los Angeles for offering
the IDA program (www.cfrcla.org). CFRC is a single-agency provider of IDAs, serving a mostly Hispanic neighborhood in
Los Angeles.
Contact: Lindsay Moore, United Way of Greater Los Angeles and Veronica Lopez, CFRC
CASA of Oregon (CASA)
Located in Sherwood, Oregon, at the outskirts of Portland (www.casaoforegon.org), CASA is one of the nations largest,
statewide provider of IDAs. It serves the state of Oregon with its so-called Valley Individual Development Accounts (VIDA)
Program, which is offered through over 40 partner agencies across Oregon.
Contact: Maggie Reilly
Capital Area Asset Builders (CAAB)
This large, single-agency IDA agency is located in the center of Washington, D.C. (www.caab.org). It is serving the working
poor of the D.C. area with its matched savings programs.
Contact: Miriam Savad
Convenant Community Capital Corporation (Convenant)
This large, single-agency IDA program is located in the heart of Houston, Texas (www.covenantcapital.org). It serves the
Houston area with its so-called Smart-Savings Program.
Contact: Heather Daron
Kentucky Domestic Violence Association (KDVA)
A multi-site IDA agency serving Kentucky (www.kdva.org), about 20 of their network agencies participated in the research
project. These agencies provide programs and housing for victims of domestic violence. The IDA program is part of its
Economic Justice Project.
Contact: Michelle Fiore
Beyond Housing
This agency is located in the heart of St. Louis, Missouri (www.beyondhousing.org) and is one of the sites implementing the
IDA program for the United Way of Greater St. Louis.
Contact: Debbie Irwin, United Way of Greater St. Louis and Eric Zegel, Beyond Housing
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Testing Strategies to Increase Saving and Retention in IDA Programspage 10
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Connecticut Department of Labor (CT DOL)
The Connecticut Department of Labor is administering the IDA program for the state of Connecticut. It implements the
Connecticut IDA Initiative and the Housing Trust Fund IDA Initiative in Connecticut. CTE, responsible for the Clearinghouse
function for the Department of Labor, provides technical assistance and training to program operators. Six partner agencies
implemented our research program.
Contact: Lisa Arends, Connecticut Department of Labor and Marie Hawe, CTE
Oakland Livingston Human Service Agency (OLHSA)
Located in Pontiac, Michigan (www.olhsa.org), OLHSA is a network agency provider of IDAs. It is implementing the IDA
program for Oakland and Livingston County communities in Michigan.
Contact: Heidi Henderson
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This research was supported by a grant from the FINRA Investor Education Foundation. All results, interpretations and conclusions
expressed are those of the authors alone, and do not necessarily represent the views of the FINRA Investor Education Foundation
or any of its affiliated companies. No portion of this work may be reproduced, cited, or circulated without the express written
permission of the authors.