Articles & Special Issues Financial Behaviors Financial Inclusion

Effects of a Tax-Time Savings Intervention on Use of Alternative Financial Services Among Lower-Income Households

Alternative financial services (AFS) such as check cashing and payday loans may help unbanked households meet transaction and credit needs, yet often at a very high price. Saving tax refunds can help low- and moderate-income (LMI) households build emergency savings as a way to reduce dependence on AFS and cope effectively with irregular cash flows and financial shocks. This study examined the impact on AFS use of message-based interventions encouraging LMI households to save their refunds when they electronically filed their federal income tax returns. We found that 3 out of 18 interventions resulted in statistically significant reductions in credit-related AFS use with small effect sizes. None of the interventions resulted in reduced transaction-related AFS use. Other factors—especially prior AFS use and financial shocks—were strong predictors of AFS. Financially vulnerable households may need additional opportunities and protections to reduce dependence on AFS.

Project: Refund to Savings


Despard, M. R., Grinstein-Weiss, M., Ren, C., Guo, S., & Raghavan, R. (2017). Effects of a tax-time savings intervention on use of alternative financial services among lower-income households. Journal of Consumer Affairs, 51(2), 355–379. doi:10.1111/joca.12138