Many U.S. households do not have enough savings to help manage temporary losses of income or increased expenditures from unexpected events. Increased savings might particularly help low- and moderate-income families 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, contributed 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) was a voluntary tax-time savings program. Through a 50 percent matching incentive, SaveUSA aimed to make the accumulation of emergency savings more attractive to low- to moderate-income families. When filing their taxes, these households were presented with the opportunity to directly deposit some or all of their tax refunds into special savings accounts at participating financial institutions. If they kept the amount that they pledged to save in the savings account for approximately one year, then they would receive a 50 percent match.
SaveUSA targeted tax-time savings because tax refunds are generally the largest one-time cash infusion for low- to moderate-income individuals. The SaveUSA model also employed lessons from 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 differed from many other savings programs in that the use of both the initial deposit amount and any savings match were unrestricted, that is, they could have been 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 even rarer. A report describing SaveUSA’s implementation and early effects (after 18 months) was released in early April 2014. A final report, which examined SaveUSA’s effects over a 42-month follow-up period, was released in December 2015.