Just Keep My Money! Supporting Tax-Time Savings with US Savings Bonds

Abstract:     
This paper reports the results of a 2007 experiment testing if specific process simplification can enhance savings by low-to-moderate income (LMI) households. Tax refund recipients at certain H&R Block (Block) tax preparation offices were given the option to purchase U.S. Savings Bonds in addition to existing Block savings products. The fraction of filers who did any savings at the tax-site was 8.5 times higher at these treatment sites offering bonds (7.05%) than at control sites where bonds were not available (0.74%). Even after controlling for filers' demographic factors and self-revealed savings intent, the likelihood of tax-site savings was 5.5 percentage points higher at treatment sites as compared with control sites. In contrast to the take up of many financial products, the rate of bond purchases by less well-to-do families was no lower, and in some cases was higher than for more well-to-do filers. Also, more than 63% of the treatment group savers were individuals who could be deemed to be "asset poor". Bond buyers were more likely than other tax-site savers to have "family-centered" savings goals (i.e., saving for education and/or children/family), were more likely to be married or heads of household, and were more likely to have more dependents. A large majority (69%) of all bond purchasers also bought bonds for others, in effect, "gifting" savings. These results demonstrate that simplification can have an impact on savings rates, that there is substantial additional potential for intra-family gifting, and that simple changes in tax "plumbing" may enhance savings.

Working Paper Series