Using Financial Tips to Guide Debt Repayment: Experimental Evidence from Low- and Moderate-Income Tax Filers

Abstract

A large majority of U.S. households have debt, and lower-income households tend to have heavier debt burdens than the general population. These households commonly report using tax refunds to pay existing debts. Building on the limited evidence about the efficacy of providing rules of thumb around debt management generally, we administered a field experiment that delivered low-touch financial tips to lower-income tax filers after they prepared their taxes. The experiment tested whether providing debt management tips can impact how households manage their debts in the months following tax filing. We find that the delivery of financial tips can impact the incidence of owing unsecured debt, especially for tax filers who received a tax refund and for those who had debt prior to the intervention. There is also suggestive evidence that tax filers saw some reduction in the amount of unsecured debt as a result of their exposure to certain financial tips. As financial education moves away from traditional classes and toward well-timed, low-touch interventions, this research presents important evidence about the effectiveness of such interventions.

Keywords: debt management; unsecured debt; field experiment; financial tips; behavioral economics

JEL Classification: D10; D14; D18