The panoramic view from the 57th floor of the Chase Tower in downtown Chicago was a perfect backdrop for the Oct. 15 “Creating Financial Opportunities” symposium on using tax-time programs to increase consumers’ savings. The event brought together leaders from finance, economics, industry, foundations, nonprofit agencies, government and academia to discuss new research and innovative programs for improving the economic security of U.S. households.
The 80 experts attending the event were brought together by a common interest in creating strategies for using the “golden moment” of tax time to help Americans build savings by changing the way consumers make economic decisions.
“The golden moment is that point during the online tax filing process when taxpayers learn the amount of their tax refund, but they don’t yet have the refund in their hand,” said Michal Grinstein-Weiss, Ph.D., of the Center for Social Development (CSD) at Washington University in St. Louis, one of the conveners of the symposium.
“We call it the golden moment,” she said, “because at that moment, people want to save at least part of their refund — they truly intend to put part into savings — but, by the time their refund arrives, their intentions to save get pushed to the side by other spending or debt repayment. What we want to do is find ways to build a savings opportunity into the tax filing process to let people act on their intentions.”
The innovative approach of using behavioral economics to help consumers change their financial decision-making is being tested in much of the research presented during the event. Dan Ariely, Ph.D., professor of behavioral economics at Duke University, shared insights about the ways that consumers’ behavioral biases can be used to encourage saving rather than spending on immediate rewards. Ariely put the question of intention versus action in financial behaviors into an easy-to-understand perspective by asking the audience: “Why is it that we so often fail to act in our own best interest? Why do we promise to skip the chocolate cake, only to find ourselves drooling our way into temptation when the dessert tray rolls around?”
Ariely and Grinstein-Weiss were part of the first expert panel. They presented their “Refund to Savings” project that is testing a tax-time program using behavioral economics to encourage people to save part of their tax refund. Their partner in the research is Intuit Inc., the makers of Quicken and TurboTax software. Intuit’s collaboration on the project created the opportunity for the researchers to test the program using Intuit’s online tax preparation platform with a large sample of taxpayers, making the Refund to Savings (R2S) the largest test of its type ever carried out in the United States. The researchers worked with Intuit to incorporate motivational messages and other behavioral cues into the tax-filing process to encourage consumers to split their refund between multiple accounts and deposit a portion into a savings account or purchase a savings bond.
The results of the trial suggest the program has a positive influence on changing behavior. The behavioral cues appear to have not only increased the number of consumers who decided to save part of their refund at the golden moment, but also they continued to positively affect consumers’ saving behaviors for at least six months after tax filing. The results from 2013, Grinstein-Weiss reported, is an additional 4,800 savers and an increased amount — $5.9 million — deposited to savings accounts. The R2S impact on savings persisted at least six months, helping families feel more financially secure.
Tax time also can be ideal for those qualifying for the Earned Income Tax Credit (EITC) to build emergency savings, as SaveUSA cities across the country have demonstrated, Jonathan Mintz, president and CEO at Cities for Financial Empowerment, in New York City, said in the panel “Promising Strategies for Tax-Time Savings at the Local Level.” The combination of the single biggest check many families receive all year, a risk-free deposit account, the ability to split refunds, and matched dollars upon successful saving has “forever dispelled the myth” that those with low incomes won’t save when given an easy and meaningful opportunity, Mintz said. The primary policy goal of SaveUSA is to scale up the model of providing a match for shorter-term savings through the federal tax code by enacting the Financial Security Credit.
Anne E. Johnson, the financial capability director at Prepare + Prosper (P+P), in St. Paul, Minn., said her group had to find ways to disrupt the norm of “refund mentally spent.” One tool P+P devised was the Got Some, Save Some social marketing campaign to change the norm to one of spending to meet basic needs and saving. The outcome for 2014: More than 1,000 people saved $1.7 million, with $600 the median saved — or, as Johnson pointed out, enough to avoid that first payday loan that can spiral into 10.
“Life Happens. Save for It” is the tax-time savings initiative at the Center for Economic Progress, in Chicago. The ability to engage taxpayers to actually consider savings requires a sales approach that is high-speed but also connects to their emotions and desires, said David Marzahl, CEP’s president and CEO.
“We have a lot to learn in terms of marketing,” Marzahl said. He called on organizations like his and P+P to find better ways to link their year-round services more to tax preparation by building out marketing and communications, developing stronger messaging and helping customers connect tax filing to broader financial capability themes and opportunities.
During the panel “Reaching Scale: From Thousands to Millions,” Ray Boshara, citing R2S evidence, urged the IRS to facilitate debt payments — especially student loans and credit cards — directly from tax refunds. Boshara, director of the Center for Household Financial Services Innovation at Federal Reserve Bank of St. Louis, also suggested a push to get all vendors who offer free tax filing to offer R2S-like interventions and to support other tax-time interventions such as Ready? Set. Save! Also he urged the strengthening of tax credits that lead to larger tax refunds, such as EITC, along with local and state credits. Tax filers are more likely to save at least a portion of their refunds when the process to do that is readily apparent, Boshara said. Federal Form 8888, for example, where tax filers can specify amounts for checking and savings, could be made more prominent to get filers to that screen sooner, with fewer clicks.
The event’s keynote speaker was Melissa Koide, deputy assistant secretary at the U.S. Treasury’s Office of Consumer Policy. Koide spoke about the need to encourage consumers to save for retirement, and she introduced the myRA program developed by the U.S. Treasury. MyRA is designed to help the millions of Americans who work for small business to save for retirement, which is a particular challenge for low-wage workers because most small businesses do not offer their employees programs that support or encourage savings such as automatic payroll deduction savings accounts or retirement accounts.
“The myRA account, intended for lower-income Americans, can help millions of Americans begin to save in a way that is safe, simple and affordable,” Koide said. The myRA program will enable lower-income taxpayers to use their tax refund to purchase a special U.S. savings bond as part of the tax-filing process.
To test the myRA strategy and refine the details, the Treasury is launching a research pilot test allowing tax filers to open and fund myRA accounts at tax time. The “myRA at Tax Time” pilot research will be funded by the Treasury and implemented by the Center for Social Development at Washington University in St. Louis in partnership with Intuit Inc. and behavioral economics experts from Duke University.