2008 Small Grants Competition: Financial Risk, Assets, and Poverty
Funded research
Cäzilia Loibl, The Ohio State University; Emily Haisley, Carnegie Mellon University; and George Loewenstein, Carnegie Mellon University
Testing Strategies to Increase Saving and Retention in Individual Development Account Programs
Description
This research tests whether the savings and retention rates in Individual Development Accounts (IDA) programs can be enhanced though the introduction of strategies derived from behavioral economics. Our goal is to determine whether participant retention and savings will respond to a program structure that stresses short-term deposits, immediate feedback, and a lottery-based reward system. We expect our results to provide substantial insight into savings behavior and to produce best practices that can be implemented in IDA programs nationwide.
Through field experiments, we expect to better understand the optimal design of IDA programs aimed at increasing program saving and retention. We have developed our experimental conditions so that no additional match funds will be required, administrative costs are kept low, and only minor alterations to existing program protocols are necessary. We propose three field experiments to test the impact of changing key features of the structure of existing programs: a) the frequency with which deposits are made, b) the accountability associated with deposits, and c) a lottery-based incentive (match rate will be determined in part by a lottery at the time of each deposit).
Through surveys, we expect to determine whether IDA participation carries the unintended consequence of creating a cash constraint sufficient to increase the use of financial services such as payday lenders, rent-to-own establishments, pawn shops, or other forms of high-cost lending in the fringe economy. This survey will offer a better understanding of the value of saving in IDA programs to low-income families.
The research project offers the first controlled, systematic study to evaluate the impact of change in the characteristics on IDA programs inspired by ideas from behavioral economics. The analyses will also shed light on the interaction between policies designed to encourage greater savings and increased access to mainstream financial services for the poor as well as produce data on their use of formal/informal financial services. Results will be used to develop best practices for the design and management of IDA programs.
