The Inclusive Economy
New Working Paper by New America Foundation
By Stephanie Halligan on 12/01/2011 @ 11:00 AM
Beyond Barriers: Designing Attractive Savings Accounts for Lower-Income Consumers
In the midst of the current economic recession, we have witnessed the emergence of many lower-cost savings products geared toward the low-income consumers. These "small-dollar savings accounts" help eliminate some of the many barriers to saving for these consumers, as seen in pilot programs across the country in recent years. Models include FDIC’s Model Safe Accounts – a template of account terms for banks across the country to follow, and SaveUSA – a program started through the NYC Office of Financial Empowerment offering low-income tax filers savings accounts and incentives to save a portion of their refund at tax time. Yet while accounts in these and other programs have helped remove economic barriers to account ownership, they do not necessarily make for an attractive consumer product.
In November, the Asset Building Program at New America Foundation released a working paper, "Beyond Barriers: Designing Attractive Savings Accounts for Lower-Income Consumers." This paper explores several promising ways to go beyond removing barriers to savings account ownership for lower-income consumers and investigates how small-dollar savings accounts can become more attractive for this targeted market to both acquire and maintain. Among the recommendations to increase uptake and use of low-income consumer products are:
- “Must-have” account basics, such as reduced costs, convenience and security
- Varying savings incentives that are tailored to a specific population’s needs and preferences
- Withdrawal restrictions and automatic deposit opportunities
- Financial counseling to support a consumer savings plan
Individual development accounts represent a subset of these recommendations, including reduced cost, protections, savings incentives, and financial education and support. Yet while IDAs helps support the longer-term savings aspirations of needy individuals and families, traditional IDA programs do not support a low-income consumer’s more immediate savings needs – like emergency savings. Unlike an industry-wide small-dollar savings account, IDA programs cannot yet serve lower-income populations at scale. The recommendations presented in this paper represent both a challenge and an opportunity to create a savings product that will meet the needs of target consumers across the country without over-burdening financial institutions. While further market research is needed to test the true impact these recommendations would have on account enrollment and participation, it is clear that consumer insight and preferences are key elements to designing a savings product for low-income consumers that is both effective and useful.
(Beyond Barriers: Designing Attractive Savings Accounts for Lower-Income Consumers page 10)