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A Fragile Balance examines strategies to promote emergency savings, especially among underserved households.



Chapter 1. Paying for the Unexpected: Making the Case for a New Generation of Strategies to Boost Emergency Savings, Affording Contingencies, and Liquid Resources for Low-Income Families

Low-income households’ accumulation of liquid savings is an important and growing issue, and one that has not yet attracted significant attention in the United States. Financial advisors commonly recommend that people have three to six months of income as liquid savings, stored as cash, demand deposits, or other funds that can be accessed within a few days. This rule of thumb is based at least in part on the fact that it could take three to six months to find a new job in case of unemployment, and liquid funds can provide an emergency safety net for this period (Chang, Hanna, and Fan 1997). However, for lower-income families, a three-month savings cushion is difficult to accumulate. As these households face lower incomes and higher relative costs for housing, transportation, food, and other essentials, just making ends meet is a challenge.
J. Michael Collins

Chapter 2. Liquid Savings Patterns and Credit Usage among the Poor

People who lack reserve funds are financially vulnerable, one lost paycheck or unexpected expense away from financial hardship. Emergency savings can provide a cushion, so the households facing a financial shock can continue to function in the event of a significant income or expense shock, such as unemployment or a major car repair.
Leah Gjertson

Chapter 3. Upside Down: The Failure of Federal Tax Policies to Support Emergency Savings

Nearly all families experience fluctuations in income, and low- and moderate-income (LMI) families appear increasingly likely to experience significant income interruptions (see Collins, this volume). Almost half of Americans are “liquid asset poor,” meaning they lack even a modest amount of accessible savings to tap into in the case of an emergency (Brooks et al. 2014). Liquid savings and long-term savings or assets are quite different forms of financial resources. Using long-term savings as liquid savings can have serious consequences. For example, withdrawals from retirement or education savings accounts often come with significant financial penalties. Likewise, borrowing against home equity can be difficult, especially in the short term. In the case of an emergency, households without accessible savings must rely on family, friends, high-cost credit, or the high costs of missing payments.
Ezra Levin

Chapter 4. Save at Home: Building Emergency Savings One Mortgage Payment at a Time

This chapter explores the potential of behaviorally motivated “mortgage reserve accounts” as an automated tool to build emergency savings for otherwise vulnerable low- and moderate-income (LMI) households purchasing their first homes. Financial shocks, such as involuntary unemployment or reduction in wages, and unexpected expenses, such as emergency furnace replacement or roof repairs, within the first few years of homeownership can derail the fragile financial foundation of LMI households and put them at risk of losing their homes through foreclosure. Most LMI households enter homeownership with little equity or residual savings—holding on average only $2,000 in liquid assets, including cash on hand and savings and checking accounts (Moulton et al. 2011; Van Zandt and Rohe 2011). Although homeowners are building equity through their monthly mortgage payments, that equity is not accessible for consumption until the loan balance falls below a leverageable threshold (typically, 80 percent of the value of the home). To the extent that extending homeownership to LMI households remains a policy goal, scalable strategies to offset the higher default risk of such mortgages become a critical, yet challenging, objective.
Stephanie Moulton, Anya Samek, Cäzilia Loibl

Chapter 5. The SaveUSA Coalition: Using Behavioral Economics to Build Unrestricted Savings at Tax Time

In most cities, low- to moderate-income (LMI) households are the primary users of municipal social services, including workforce development and homelessness prevention programs, among others. But the progress gained through a social service intervention can be wiped out by the lack of fundamental financial stability. For example, a lack of funds to pay for a car repair could make it impossible to get to work, resulting in the loss of a day’s pay—or of a job. Access to emergency savings could bolster families’ ability to withstand such setbacks. For this reason, improving the financial stability of these families is a high priority for cities.
Jonathan Mintz

Chapter 6. Refund to Savings: Creating Contingency Savings at Tax Time

The Refund to Savings (R2S) initiative aims to help low- and moderateincome (LMI) households build short-term contingency savings by providing motivation and opportunity to save their tax refunds, the largest single sum many households receive all year. Other research on tax-time interventions has yielded promising findings (Key et al. 2012; Tufano 2010; Beverly, Tescher, and Romich 2004), but R2S expands the potential of such interventions by using a scalable delivery system (online tax-preparation software) and incorporating motivational mechanisms grounded in behavioral economics theory. The delivery of the intervention is seamlessly integrated within an existing infrastructure, ensures high fidelity between the intervention’s design and its implementation, and minimizes the cost of the intervention. The intervention mechanisms are designed to help tax filers overcome psychological and behavioral barriers that limit the accumulation of savings.
Michal Grinstein-Weiss, Krista Comer, Blair Russell, Clinton Key, Dana Perantie, Dan Ariely

Chapter 7. Enhancing Financial Capability: TANF Bank Accounts

This chapter proposes interventions to assist Temporary Assistance for Needy Families (TANF) recipients in developing financial capabilities and long-term saving behaviors. The proposed mechanism connects TANF participants, during the intake process and by default, to a low-fee or no-fee TANF bank account. Low- and moderate-income (LMI) families, especially those receiving public assistance benefits, face significant barriers to accessing and sustaining bank accounts at conventional financial institutions. Nationally, 28 percent of households with incomes less than $15,000 are unbanked, as are 12 percent of households with incomes between $15,000 and $30,000. In addition, the percentages of households that are underbanked are 22 and 26 percent in these two income groups, respectively (Burhouse and Osaki 2012). Underbanked households have bank accounts but also use nonbanking financial services such as payday loans. Families need both better access to financial services and concrete opportunities to build their financial knowledge and skills.
Karan Gill, Dana Mills, Margaret McKenna

Chapter 8. Building Emergency Savings through “Impulse Saving”

Into all good saving plans a little impulse spending often falls. A meal out and some new shoes, and the intended savings are gone. But what if impulsivity could be leveraged to help people save money, rather than spend it? This is the idea behind MAGIC Mojo, a recently piloted product that allows people to transfer money to savings instantly via text message. The MAGIC Mojo approach aims to help underbanked consumers build emergency savings and reach their financial goals. The approach is highly scalable, has the potential to reach a broad base of consumers, and incorporates ideas from behavioral economics to increase the likelihood that people save successfully.
Kim Manturuk, Jessica Dorrance, Jayson Halladay

Chapter 9. Prosperity SmartSave Card: An Incentivized Emergency Savings Strategy

The Great Recession affirmed the need for families across all income strata in the United States to build contingency funds, yet saving for future emergencies is most difficult in households that most need help in weathering unexpected expenditures—those with little to no disposable income. Building emergency savings alone will not bring significant improvements in families’ economic security; promoting savings is only one element of a broader effort to move families toward financial security. Building strong credit histories is another pivotal component of improving financial security within the US financial systems. The Prosperity SmartSave card, developed by Prosperity Works, is designed to address both of these critical components of financial security, providing access to emergency savings funds and helping consumers build credit histories, especially for those who are un- or underbanked.
Sharon Henderson

Chapter 10. Accelerating Savings among Low-Income Households

The conversation around low-income savings habits is historically inspired by the developments in the field of asset building, where existence of long-term assets is believed to lead to changed behavior. In this context, saving, while it is generally viewed as an important vehicle that makes accumulation of financial wealth possible, is treated mostly as a transitory component in a household’s asset-building process. In other words, in the asset-building discourse, savings is a repository of financial resources. When savings reach a critical level, they are used to leverage other forms of assets, because such assets usually offer higher long-term returns and contribute to overall financial well-being more effectively than does cash in a bank account. This view characterizes the resource-oriented approach to saving.
Ed Khashadourian

Chapter 11. Start2Save: Helping Working Families Meet Unexpected Expenses and Opportunities

The case for asset building as an approach to poverty alleviation dates back more than 20 years, to Michael Sherraden’s Assets and the Poor (1991). As CFED (2013) and numerous others have recognized, Assets and the Poor demanded a sharper focus on the causes of poverty, as well as potential strategies to alleviate it, and made the case for the importance of household assets, including savings, in the achievement of financial stability and economic progress. Emergency savings are just one component of the asset base needed to support financial stability, but they can serve as the foundation for further asset building. Start2Save, a matched emergenc savings program, is designed to help families develop this important foundation.1 The program has the potential to provide low-income families with an opportunity to gain financial preparedness skills while building and maintaining emergency savings, empowering them to create their own safety net.
Ingrid Holguin

Chapter 12. Incorporating Savings into the Debt Management Plan

This chapter introduces a plan to promote emergency savings among consumers who are struggling to pay off their debts, but have chosen to enroll in a debt management plan (DMP). DMPs are typically focused on the relatively short-term goal of helping clients pay off existing debt and become financially stable; adding a savings component would also promote long-term behavioral change to support enduring financial security. Encouraging consumers to save money even as they pay off their debts would underline the importance of “paying yourself first,” a vital component of long-term financial security.
Karen Heisler, Seth Lutter

Chapter 13. Who Said Pigs Can’t Fly? A Learner- Centered Approach to Emergency Savings

As suggested by a number of authors in this volume, patterns of low saving, including for shorter-term contingencies, is of growing concern. This chapter introduces the concept of micro-saving for relatively small consumption emergencies. Micro-savings are small in scale—saving in terms of coins rather than bills. Micro-savings can be particularly useful for lowerincome populations, who may struggle to save in larger increments, and can enhance their ability to weather unexpected financial storms. It can also begin to transform attitudes about savings and potentially enhance financial capability.
Sonya Caesar

Chapter 14. Epilogue: Emergency Savings as a Central Component of Family Financial Security

This volume initiates an innovation dialogue about strategies to help low-income individuals and households meet immediate, nonrecurring expenses. The chapters identify programs, products, and policies worthy of further development and testing. Collectively, this volume is meant to inspire new ideas for promoting savings.
J. Michael Collins, Thomas Shapiro


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