Should we pay people to save money?
“Financial institutions make their money from lending money out, from fees they charge, from other solutions you might sell to the customer,” Thompson says. “A consumer who uses multiple financial products is a more loyal and more profitable customer.”
Matching funds can also bring people into the mainstream and promote savings. Researchers who evaluated Assets for Independence, a federally supported matched-savings program for low-income people, for example, found:
- New savings, not including the matching funds, rose a median $657 in the program’s first year.
- Economic hardships experienced by participants fell 34 percent.
- The use of check-cashing services dropped 39 percent, indicating that the program may have guided participants away from alternative banking services toward the mainstream.
Finding the money
Funding for matched savings programs, also known as individual development accounts, typically comes from U.S. Department of Health and Human Services grants but can also come from financial institutions and charities.
More of them should consider making this investment, since so many Americans could benefit. Nearly half of U.S. adults don’t have the ready cash to cover an unexpected $400 expense, according to the Federal Reserve, and that’s leading to an “epidemic” of financially fragile families, Thompson says.
Increasing incomes would make it easier to set money aside, of course, but CFSI’s research shows that just being in the habit of saving can help people survive financial shocks without dire consequences.
“The way to improve people’s financial health,” Thompson says, “is to help them to save.”
Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: firstname.lastname@example.org. Twitter: @lizweston.