Over the past three years the Bureau has launched a series of initiatives focused on empowering consumers with resources and tools to help increase their financial capability and to build savings. These efforts include "Your Money, Your Goals," a nationwide effort to provide financial education and tools to those working in low-income communities. It also includes CFPB’s Ready? Set. Save! Initiative to promote tax-time savings among low-to-moderate income consumers and raise awareness about their options for saving a portion of their tax refund.
Building on this work, last week we released a research note, “Tools for Saving: Using Prepaid Cards to Set Aside Funds,” which describes the findings of a Project Catalyst research project analyzing the effectiveness of certain practices designed to encourage positive saving habits. This study explores two key questions:
- Can certain strategies encourage consumer saving behavior?
- Is saving behavior associated with better outcomes for consumers,
particularly for low-income and underserved consumers?
The study relied on insights from American Express which employed a sample of approximately 540,000 prepaid card users and tested various strategies to encourage saving on prepaid cards.
The CFPB’s Project Catalyst initiative, which is designed to encourage consumer-friendly developments in markets for consumer financial products and services, launched a research pilot in collaboration with American Express to support the Bureau’s efforts to better understand how to promote savings among consumers, especially those who may be low-income and economically vulnerable. Building savings may be particularly challenging for consumers who are living paycheck to paycheck, or who have irregular income flows that may not be timed with expenses.
The Bureau has been exploring whether providing opportunities to save outside of traditional savings accounts, such as on prepaid cards consumers may already be using, could help consumers build savings habits. We also wanted to identify ways to encourage consumers to build savings habits and improve financial outcomes. To this end, American Express shared insights with the Bureau from a randomized controlled trial to study consumers’ use of a savings feature on the company’s Serve prepaid card and tested four strategies to promote savings:
- encouragement to save via email
- encouragement to save via direct mail
- promotional incentives
to enroll in automatic transfers to the savings feature
Results from the study showed that offering customers a $10 incentive for using the savings feature was highly effective at encouraging enrollment in the savings feature. For consumers who continued to save using the savings feature, balances generally did not decrease even after they stopped receiving emails about saving.
As part of this effort, American Express also surveyed a random sample of study participants nine months after the study to learn more about a broad range of personal finance topics. Results showed that, based on survey respondents, pilot participants offered an incentive were 20 percent less likely to use a payday loan or paycheck advance service in the past year compared to the control group.
These findings suggest that providing a small incentive for prepaid card customers to save, and providing an opportunity for them to do so using a savings feature that keeps funds dedicated for saving separate from funds used for spending, could result in improved consumer savings. Consumers in this pilot not only demonstrated a willingness to take up the savings feature, but some customers also reported changes in their financial behavior.