Can behavioral nudges and incentives help lower‐income households build emergency savings with tax refunds? Evidence from field and survey experiments

Abstract

Tax refunds are an opportunity for lower-income households to accumulate emergency savings so they have cash on hand to cover expenses when income is insufficient. Our field experiments testing different behavioral interventions to encourage refund saving via online tax filing show small effect sizes (0.12-0.14) and a low aggregate savings rate (12%) that might be increased were filers to receive financial incentives. We test a key provision of the Refund to Rainy Day Saving and Financial Security Credit Acts using a survey experiment, finding that hypothetical refund saving jumps from 16% with no financial incentive, to 71% and 80% with 25% and 50% matches, respectively, findings which are mostly insensitive to refund size. Our results suggest that public policies to provide greater financial supportincluding stronger income supports-will better prepare lower-income households for financial emergencies than behavioral interventions to nudge refund saving.

The i-frame and the s-frame: How focusing on individual-level solutions has led behavioral public policy astray

“…To address this last-mile problem, i-frame interventions such as making composting easier by moving the bins closer to people's doors (DiGiacomo et al, 2018) or making the signage easier to read (Wu et al, 2018) can substantially increase composting rates. i-Frame interventions such as personalized information, messaging, and reminders have increased participation rates of low-income individuals in social policy programs, helping these policies realize their intended benefits (Despard, Roll, Grinstein-Weiss, Hardy, & Oliphant, 2022;Hotard, Lawrence, Laitin, & Hainmueller, 2019;Manoli & Turner, 2016;Page, Castleman, & Meyer, 2020;Umaña, Olaniyan, Magnelia, & Coca, 2022). i-Frame interventions can even mitigate reactance from people who are reluctant to comply with s-frame changes, using ideologically consistent frames (Bain, Hornsey, Bongiorno, & Jeffries, 2012) or messaging from in-group authority figures .…”

The Effects of Tax-Time Interventions on Savings Rate and Amount: A Systematic Review and Meta-Analysis

“…These infusions of income are often the largest sum of money that households have access to within a year because they come as a lump sum (Black & Schreur, 2014). Given that the sums are outside of typical income, the refunds have the potential to be used for a variety of purposes that are atypical for the household (Beverly et al, 2000; Despard et al, 2015; Grinstein-Weiss, Comer et al, 2015; Mendenhall et al, 2012). Households often have plans for these funds, such as saving money, catching up on past due bills, paying down short- and long-term debt, pre-paying for some expenses, and/or making major purchases that were not possible with their regular flow of income (Beverly et al, 2000; Despard et al, 2015; Mendenhall et al, 2012; Sykes et al, 2015).…”

“…Given that the sums are outside of typical income, the refunds have the potential to be used for a variety of purposes that are atypical for the household (Beverly et al, 2000; Despard et al, 2015; Grinstein-Weiss, Comer et al, 2015; Mendenhall et al, 2012). Households often have plans for these funds, such as saving money, catching up on past due bills, paying down short- and long-term debt, pre-paying for some expenses, and/or making major purchases that were not possible with their regular flow of income (Beverly et al, 2000; Despard et al, 2015; Mendenhall et al, 2012; Sykes et al, 2015). Most households receiving the Earned Income Tax Credit (EITC), a tax credit for lower-income households based on their earned income, use their refund to pay bills and debt (Mendenhall et al, 2012).…”

“…Some households spend their refunds to avoid material hardship, such as purchasing basic necessities (e.g., food) (Kondratjeva et al, 2022). Households with children often spend a portion of their refunds on their children's well-being, such as for school supplies, clothing, and vacations (Despard et al, 2015). Few EITC recipients save refund funds for long-term purposes, such as for retirement or education (Beverly et al, 2000; Despard et al, 2015; Mendenhall et al, 2012).…”

i-Frame interventions enhance s-frame interventions

“…To address this last-mile problem, i-frame interventions such as making composting easier by moving the bins closer to people's doors (DiGiacomo et al, 2018) or making the signage easier to read (Wu et al, 2018) can substantially increase composting rates. i-Frame interventions such as personalized information, messaging, and reminders have increased participation rates of low-income individuals in social policy programs, helping these policies realize their intended benefits (Despard, Roll, Grinstein-Weiss, Hardy, & Oliphant, 2022; Hotard, Lawrence, Laitin, & Hainmueller, 2019; Manoli & Turner, 2016; Page, Castleman, & Meyer, 2020; Umaña, Olaniyan, Magnelia, & Coca, 2022). i-Frame interventions can even mitigate reactance from people who are reluctant to comply with s-frame changes, using ideologically consistent frames (Bain, Hornsey, Bongiorno, & Jeffries, 2012) or messaging from in-group authority figures (Goldberg, Gustafson, Rosenthal, & Leiserowitz, 2021).…”