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Innovation Must-Read: $aveNYC and Matched Savings
By Sean Luechtefeld on 05/25/2010 @ 10:49 AM
On Friday, CFED Innovator-in-Residence Mindy Hernandez posted an entry at her Applying Behavioral Sciences in the Real World blog from guest columnist Caitlyn Brazill. Caitlyn is the Director of Research and Policy for the New York City Department of Consumer Affairs’ Office of Financial Empowerment. The post focuses on an innovative savings program called $aveNYC.
To read the full text of the article, visit Nudging People to Save: The $aveNYC Account.
In the article, Caitlyn highlights some of the difficulties facing low- and moderate-income New Yorkers. There, many families would save if they had the capacity to do so, but often lack the means of facilitating savings. The Office of Financial Empowerment found that in many instances, low-income New Yorkers lack retirement accounts or direct deposit, tools that would allow them to save automatically, and that many of the banks and financial institutions charge their accountholders more money in maintenance fees than the accountholders earn from interest on savings. These factors are just a few that complicate the larger problem – according to Community Services Society, more than half of families in New York had less than $500 in savings.
In an effort to meet these challenges, Mayor Bloomberg launched the Office of Financial Empowerment, an initiative of his Center for Economic Opportunity. The Office was created to identify creative approaches to meeting some of the biggest challenges facing many New York families. Coupling what we know about behavioral economics with practical solutions led the Office to develop the $aveNYC program. I’ll leave it to you to learn the intricate details of the program by visiting the article, but $aveNYC matches savings to a certain amount for low- and moderate-income individuals and families who establish their savings accounts at tax time. The logic is simple and innovative – if you encourage people to save when they get a lump sum of money that they direct deposit and then supplement that amount with a match, that money will last much longer.
So far, $aveNYC has been wildly successful. In the first year of the program, 2,500 accounts were opened and the accountholders saved a combined total of over a half-million dollars. This is remarkable given that the average income for many of these accountholders was a mere $17,000; yet 80% of these individuals saved for the requisite 12-month period and were able to receive their match. Another interesting statistic: $aveNYC savers were four times more likely to still have some of their tax return six months after filing than were savers who filed at other VITA (Volunteer Income Tax Assistance) sites.
There are a number of other really interesting bits of information in Caitlyn’s post, so be sure to check it out by visiting Applying Behavioral Sciences in the Real World. I share some of this information with you because it is a perfect example of the innovation process – in NYC, the challenge was understanding how to incent earners to become savers. Realizing that tax filing was an important gateway to encouraging saving, Caitlyn and her colleagues identified an innovative approach that helped expand economic opportunity for thousands of New Yorkers!
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