Last week’s edition of the faiVLive—co-presented with the Aspen Institute Financial Security Program—brought together researchers and practitioners to look at how low-income households use short-term savings, and what formal and informal financial tools and product features can help them achieve their savings goals.
A short recap of some highlights follows, but if you missed the webinar, you can still watch it HERE.
We kicked off with some historical context from Jonathan Morduch on the difficulty of measuring savings especially among households with low or volatile incomes, and the way financial diaries research has shifted our perspective.
The asset-building movement has historically focused on helping families build up assets and savings accounts, and has measured success by looking at balances at a fixed point in time—the bigger, the better. The financial diaries brought two key innovations: First, a focus on dynamic cash flows rather than a static balance sheet, and second, high frequency observations, as researchers met with families several times a month over an extended period.
We might once have assumed that if people failed at accumulating big balances it meant that they couldn’t save, or didn’t want to save. But now we see that families managing their money—even, and perhaps especially, in the context of income scarcity and volatility—were very active savers. They weren’t saving in the traditional sense of accumulating large balances for big purchases, but they were saving up and spending down small balances, using tools at their disposal to manage the realities of daily life.
A new report from the Aspen Institute’s Financial Security Program brings in fresh evidence from nine leading nonprofits working with low income families to achieve financial goals. The report, as shared by Genevieve Melford in our webinar, validates the importance of short-term savings, and builds on the idea of savings as a dynamic concept—a cycle that families move through to achieve their goals—rather than a specific balance to be accumulated. The authors propose a set of design principles for financial products to help people overcome barriers to saving, and suggest alternative measures for short-term savings success, like showing consistency in the ability to save, no matter the amount, and spending down the short-term savings when they’re needed to avoid worse outcomes, like taking on expensive debt or dipping into long-term savings.
Reviewing the wide array of academic studies from the developing world on interventions to increase savings, synthesized here by panelist Jessica Goldberg, reminds us that to help people save we need to first understand that savings is instrumental—important not in and of itself, but for the different ways that accumulating and then spending down sums of money can help families avoid hardship and obtain life’s needs and wants.
Jessica also noted that when we talk about barriers to saving it’s important to distinguish between what prevents people from saving in a formal financial institution (possibly lack of access, lack of trust, or poor product design) versus what prevents people from saving. Not doing the former tells us nothing about the latter. And on the latter, we need to first understand that people have all kinds of different goals when saving. These goals—socking away funds against unexpected shocks, or smoothing consumption over uneven income, or saving up for a big purchase—might each be advanced by different types of savings products, and are thwarted by different obstacles.
Another question that might come before “why don’t people save more?” is “what is the optimal amount people should save?” For households that earn very little, low levels of savings may indeed be optimal. So the better question, says Jessica, is “what does the household want to save, given its needs, its opportunities, and its preferences?” This framing helps shift the focus away from changing individual behavior, towards seeing individual choices as one small part of a complex system, and to consider opportunities for systemic change.
Jonathan Lee, a financial coach with the Neighborhood Financial Trust Partnership, which contributed to the Aspen report, underscored this point, saying that households often come with certain goals in mind (saving for a trip, or paying down debt) and he doesn’t see his job to change their behavior but to “meet them where they are,” understand what habits have worked and haven’t worked for them in the past, and then suggest a set of tools and a way forward.
Panelists also talked about the profitability and sustainability of commercial savings accounts for the poorest households, new product ideas that could help families rebuild savings more quickly after drawing down, what’s needed next in the savings research agenda, and a lot more.
Again, to watch the recording on demand, click HERE.
To go deeper on the papers and resources cited in the webinar, here’s a reading list:
The Long-Term Effects of Temporary Incentives to Save: Evidence from a Prize-Linked Savings Field Experiment, Paul Gertler, Sean Higgins, Aisling Scott, and Enrique Seira. March, 2018.
Jessica Goldberg on the Books and Papers that Influenced her thinking on Savings, Jessica Goldberg. June, 2012
The Wisdom of the Group: How Lessons from Savings Groups Can Guide Financial Product Innovation, Alicia Brindisi and Julia Siwicki. November, 2014.
When Commitment Fails: Evidence from a Field Experiment, Anett John. June, 2019.
Saving More in Groups: Field Experimental Evidence from Chile, Felipe Kast, Stephan Meier, and Dina Pomeranz. April, 2016
What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka, Michael Callen, Suresh de Mel, Craig McIntosh, and Christopher Woodruff. March, 2019.
Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India, Michal Bauer, Julie Chytilová, and Jonathan Morduch. February, 2011.
CFPB Takes Action to Help Employers Develop Emergency Savings Programs to Boost Worker Financial Resilience. July, 2020
Who Chooses Commitment? Evidence and Welfare Implications, Mariana Carrera, Heather Royer, Mark Stehr, Justin Sydnor, and Dmitry Taubinsky. October, 2020.
This faiVLive is supported by the Mastercard Impact fund, and in collaboration with the Mastercard Center for Inclusive Growth.
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