Timothy FlackeDoorways to Dreams (D2D) Fund

New America Foundation, Capitol Hill EventApril 21, 2009

Capturing Refunds as Savings

The Role of US Savings Bonds

Agenda

D2D Fund & the Refunds to Assets Pilot Pilot Test Findings Lessons & Policy Implications

D2D (Doorways to Dreams) Fund, Inc.Mission:

expand access to financial services,especially asset building opportunities,

for lower-income families by creating, testing and deploying innovative financial products and services

Boston (Roxbury) based, not-for-profit Organize national field tests of promising ideas Link private sector capabilities to public ideals Founded in 2000 by Harvard Business School professor

& senior associate dean, Peter Tufano

Essential Saving Ingredients? Money to save

Tax time: $115B (households w/ income < 40k) average ~ $1,680 per family

Saving mechanism IRS “split refunds”: link refunds to savings Universal, permanent, free, recurring

Saving product 40MM+ families un- or under-banked Millions unsure where to save Most have little money to start saving

Where can we find a suitable saving product?

A Built-to-Order Product?

Barrier Small balances Imperfect credit Risk averse Wary of banks Value sensitive No bank account Long-term aspirations,

short-term needs

Bond Feature Low $50 minimum No credit screen Risk free principal Government backing No fees, solid return (5.6%) Bank acct not required Earn interest for 30 years,

access after 1 year

Barriers to saving for lower-income peopleRelevant features of Series I US Savings Bonds

Test of US Savings BondsTax Season “Refunds to Assets” pilots

TS09 – 80 Volunteer Income Tax Assistance (VITA) sites TS08 – 32 VITA sites TS07 – 4 VITA sites, 27 H&R Block offices

Agenda

D2D Fund & the Refunds to Assets Pilot Pilot Test Findings Lessons & Policy Implications

Findings Strong demand (TS07-09)

3,300 buyers / 5,300 registrants $680k saved take up (VITA): 9.0% (vs. 1.2% for CD)

Buyer: lower-income parent (TS08) 74% parents, 15% grandparents 81% female average income: $19.9k / year

Extraordinary awareness (TS08) 74% “familiar” w/ bonds vs. 26% for IRAs, 34% for CDs

More Findings First time savings (TS08 & TS09)

no prior money saved (64%) Less than $1k saved (84%)

bond was first time saving part of refund (50%) “would’ve saved less if hadn’t bought bond” (51%)

Long-term saving bought for children (59%), grandkids (8%) saving for long-term, defined goal (74%)

e.g., education, retirement plan to hold bond 5 yrs+ (58%), 10 yrs+ (40%)

redemptions after 1 year: 11% vs. 10% for general pop

Agenda

D2D Fund & the Refunds to Assets Pilot Pilot Test Findings Lessons & Policy Implications

Observations & Policy Implications Observations

Tax time: huge saving opportunity not fully realized Working families want to, will save if we make it easy

US Savings Bonds fill a hole in saving landscape trusted, appealing, unique, long history but this national asset is withering

Bonds may attract first time savers Parents will save for kids before themselves

Policy Implications Tax time should encourage, facilitate saving

Return option to buy bonds with tax refunds US Savings Bonds must be marketed (again) Policy should allow saving for children, grandchildren

But How?

Proposed Future IRS Form 8888

Timothy FlackeExecutive Director

D2D Fund, Inc.

tflacke@d2dfund.org617.541.9064

www.d2dfund.org