Many U.S. households do not have enough savings to help them manage temporary losses of income or increased expenditures from unexpected events. Particularly for low- and moderate-income families, increased savings might help them avoid resorting to high-cost (sometimes “payday”) loans or failing to meet monthly rent bills and minimum credit card payments. To support the buildup of savings, some experts have proposed encouraging low- and moderate-income individuals to save part of their annual tax refunds, capitalizing on these large, one-time influxes of cash. Some past research suggests that this approach might be promising; other research indicates that many low- and moderate-income individuals need their refunds to pay bills or reduce debt.
The SaveUSA evaluation, a randomized controlled trial launched by MDRC in 2011, will contribute strong evidence relating to several aspects of this debate. SaveUSA (studied and operated as part of the Mayor’s Fund and Center for Economic Opportunity Social Innovation Fund Project) is a voluntary tax-time savings program. Through a 50 percent matching incentive, SaveUSA aims to make the accumulation of emergency savings more attractive to low- to moderate-income families. When filing their taxes, these households are presented the opportunity to directly deposit some or all of their tax refunds into special savings accounts at participating financial institutions. If they keep the amount that they pledged to save in the savings account for approximately one year, then they receive a 50 percent match.
SaveUSA targets tax-time savings because tax refunds are generally the largest one-time cash infusion for low- to moderate-income individuals. The SaveUSA model also employs lessons of behavioral economics research, such as simplified options, a separate account for savings, electronic deposit into the account, incentives to maintain savings, and disincentives to remove even small amounts of savings. SaveUSA also differs from many other savings programs in that the use of both the initial deposit amount and any savings match are unrestricted, that is, they can be used for any purpose.
Few programs exist that help low- and moderate-income individuals build up unrestricted savings using tax refunds, and rigorous studies of the effects of such programs are rarer still. A final report describing SaveUSA’s implementation and effects (after 42 months) was released in January 2016.