We provide new large‐scale experimental evidence on policies that aim to boost household saving out of income tax refunds. Households that filed income tax returns with an online tax preparer and chose to receive their refund electronically were randomized into eight treatment groups, which received different combinations of motivational saving prompts and suggested shares of the refund to save—25% and 75%—and a control group, which received neither. In treatment conditions where they were presented, motivational prompts focused on various savings goals: general, retirement, or emergency. Analysis reveals that higher suggested that allocations generated increased allocations of the refund to savings but that prompts for different reasons to save did not. These interventions, which draw on lessons from behavioral economics, represent potentially low‐cost, scalable tools for policy makers interested in helping low‐ and moderate‐income households build savings.

This study considers the impact of financial education dosage on savings outcomes of participants in Individual Development Account (IDA) programs. It analyzes data from a sample of approximately 2,000 participants in the American Dream Policy Demonstration, disaggregates outcomes by age, and uses propensity score modeling to control for endogeneity and selection bias. We find that, relative to counterparts who did not complete educational requirements, IDA participants who completed program requirements for financial education had higher average monthly savings, saved a higher portion of their income, and deposited savings more frequently. Notably, we find that participants aged 36 or older experienced increasing returns on investment in financial education, and the best outcomes are found among those with more than 200% of the required dose of financial education. However, younger participants with more than 100% of the required dose are found to experience a diminishing return on their investment in financial education.Recent developments in the global economy have made financial management increasingly complex

Low‐ and moderate‐income households often struggle to save, but the annual tax refund represents a prime opportunity for these households to save toward their financial goals or build their emergency savings. This paper presents the results of a randomized, controlled experiment embedded in a free tax‐preparation product offered in 2013 to low‐ and moderate‐income households. The experiment involved approximately 470,000 filers and assessed the impact of behavioral interventions on their savings behaviors. The results show that filers exposed to the treatments, which involved the established behavioral‐economics techniques of anchoring, choice architecture, and persuasive messaging, were more likely than a control group to save their tax refund and, on average, saved more of the refund. A follow‐up survey of these tax filers found that the treatments were associated with saving more of the tax refund six months after filing. The findings also show that anchors encouraging filers to deposit certain amounts are more effective than persuasive messaging emphasizing savings.

Low-and moderate-income (LMI) households need financial assets to help cope with income and expenditure shocks. Prior research identifies racial differences in wealth and wealth effects. We examined whether these gaps and effects exist for liquid financial assets. Using group invariance tests in structural equation modeling, we assessed the relationship between financial shocks and material hardship, as mediated by liquid financial assets and moderated by race/ethnicity among a sample of LMI tax filers (N = 7544). Though most study participants were employed (71%), average income was only $18,055 and average liquid financial assets was $4701. Black households had $2774 less in liquid financial assets compared to white households (p < .001) after controlling for income and other factors. Model fit for the final moderated mediation model was excellent (RMSEA = 0.026, 90% C. I. [0.020, 0.033], CFI = 0.977). The mediating effect of liquid financial assets was 10.4% for white, but only 3.6 and 4.4% for black and Latino households, respectively. That is, the proportion of the relationship between shocks and hardship mediated by liquid financial assets varied by race/ethnicity. Policies aimed at helping LMI households build emergency savings such as tax refund savings matches may be less likely to benefit black and Latino households than white households, suggesting the need for other policies to address this form of the racial wealth gap.

No abstract