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©2012 D2DFund, Inc.
Innovative Ways to Encourage Savings
National Conference of State Legislatures
Working Families Forum
June 26, 2012
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Mission: strengthen the financial opportunity and security of low and moderate income consumers by innovating, incubating & stimulating new financial products and policies
Non-profit 501(c)3 headquartered in Roxbury, Massachusetts
Founded in 2000 by Harvard Business School Professor Peter Tufano
Focus on innovation, scale & real-world testing
Doorways to Dreams (D2D) Fund
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
D2D Supporters & Collaborators
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Savings Rate: Trend
Source: Federal Reserve Bank of St. Louis
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
State of Financial Preparedness
“How confident are you that you could come up with
$2,000 if an unexpected need arose within the next month?”
58%49% 47% 46% 44%
35% 34%27% 26% 23%
18% 18%10%
2%
7% 7% 7%5%
6% 11%
5% 4%4%
5% 6%
1%
MEX UK GER USA POR FRA ARG CAN NETH SING ITALY HKG LUX
I don’t know Can't or Probably Can't
Source: Lusardi, Schneider & Tufano
(www.tnsglobal.com/news/news-97CC22ABE14E4373B863F0734D99121A.aspx)
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Why Savings Matters
– Children of low-income, high-saving parents
are more likely to experience increased
incomes than their counterparts.
+ Children of low-saving, low-income parents are
significantly less likely to be upwardly mobile than
children of high-saving, low-income parents.
+ 71% of children born to high-saving, low-income
parents move up from the bottom income quartile over
a generation, compared to only 50% of children of low-
saving, low-income parents.
Pew Charitable Trusts Report – A Penny Saved is Mobility Earned Nov 2009
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
But Saving is Hard
Challenges lower-income savers
face:
+ Limited income – a minimum
wage worker makes $15K a year.
+ Consumerism – pressure to buy
is everywhere.
+ Family & friends – are often in
need, creating pressure to share
resources.
+ Few opportunities – most
people save with structured help
(e.g., 401(k) plans), but LMI
people get little or no such help.
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Saving Policy / Product Design Spectrum*
Coerce
saving
Make it
hard not
to
Make it
Easier
Bribe
People
Use
Social
Networks
Make it
Fun
US Social
Security,
UK child
trust fund
Defaults,
bundling
Workplace,
tax time
saving
Incentives ROSCAs,
peer
support
Prize-
linked,
collectible
savings
Source: Tufano and Schneider, Using Financial Innovation to Support Savers:
From Coercion to Excitement (2008)
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Can Saving be Easy?
– Convenient
– Timely
– Painless (relatively)
– Relevant
– Simple
– Someone available to help
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Opportunity: Tax Season
– Huge financial event – $300 billion refunded each year
– $115B to 68MM Low / moderate-income families (< $40k)
– Average refund $1,680
– Up to $7k (25%+ of annual income)
– Also…Universal * Permanent * Recurring
Source: IRS, tax year 2006 data (www.irs.gov/pub/irs-soi/06in33ar.xls)
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
An Easy Saving Strategy – Split Refunds
Tax (refund) Time...
$300,000,000,000+
+ Refund
Splitting...
+ U.S. Savings
Bonds (or
other accts)
“Spend Some” “Save Some”
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc. 12
Form 8888
Direct Deposit Section
• Can select up to 3
accounts
• Can put remainder of
refund not allocated to
savings bond direct into
an account
Savings Bonds
• Can purchase for
taxpayer and two others
• Simply identify amount
and person(s) the bond
should be issued to.
Paper Check
• Remainder of refund
not allocated to bonds
can be received as a
paper check .
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
D2D tests tax refund splitting
Before: Spend / Save choice after $ refunded
Split Refunds: choice before $ refunded
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Easy Helps Even “Non-Savers” Save
Findings from Savings Bond Pilot:
– Substantially increased savings
+ In controlled trials, 6-9% save in bonds
+ Mostly by women (79%), parents (70%)
+ Low income ($21k adjusted gross income)
– Savings by “new” savers (55% < $100 in savings)
+ Most didn‟t plan to save
+ Substantially saving for kids
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Tax Season 2012 data from 4/13 cycle
Impact
Buyers
Registrants
Source: Bureau of Public Debt
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Data Highlights
• 1/3rd of all bond buyers received EITC
• Over 70% under $50,000 AGI
• 44% under $25,000 AGI
• 10% bond returns also received paper
check – potentially unbanked or
underbanked (from tax year 2010)
Serving Working Families and Individuals
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
What Can State Legislators Do?
Tax time is seen as a “spending time”, not “saving time” – but
it can be BOTH
– Increase awareness among constituents
+ Events, constituent newsletters
+ Direct state tax authority to join awareness effort?
+ State-wide tax time savings day, Saving Bond day
– Complementary state policy
– Maryland and Hawaii
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Can Saving be Fun?
DEPOSIT SLIP
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Gaming & Saving?
38% of those with incomes below $25,000 think that winning
the lottery represents the most practical way for them to
accumulate several hundred thousand dollars.
- 2006 Consumer Federation of America study*
+ Consider:
– $60 billion in US lottery sales (2008)
– Average of $515 per household
– 80% of gambling revenue from HH w/
income <$50k
* http://www.commondreams.org/news2006/0109-05.htm
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Prize-linked Savings Features
Motivates building and keeping savings:
More you save, more chances to win
Prize structure can incent certain behaviors
e.g., greater odds of winning if savings held for longer period
Principal Protection:
There are no losers – all deposits are safe
Prize money:
Paid from interest on deposited funds
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
A Test
– First Large-Scale Pilot in the US + 2009 pilot with 8 Michigan credit unions
+ $100,000 grand prize
+ $3.3K / month in smaller prizes
+ Each $25 deposit = chance to win
+ Max of 10 chances / month
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Save to Win Results (2009 – 2011)
Growth - Did the program continue to grow and engage
new participants in the act of saving?
2009 (8 Credit
Unions)
2010 (36 Credit
Unions)
2011 (56 Credit
Unions)
Accounts 11.7k 16.2K 16.2K* Total Saved $8.6MM $27.9MM $34.7MM Average
Balance $734 $1,268 $1,982
Growth in the Save to Win Program
Impact – over 25,000 unique accounts saving over $40 million from
2009-2011
*Preliminary estimates show that over half of 2010 accounts rolled over to 2011
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Save to Win Results (2009 – 2011)
Does the product encourage saving?
– 53% of non-savers, 51% of the asset poor, 53% of LMI and 50% of single parents with dependents
continued from 2009-2010 – close to rates of other savers.
– Financially vulnerable households who continued in 2010 were saving more regularly and able to
save, on average, more in 2009 than financially vulnerable accountholders who did not continue.
“Financially-Vulnerable”
Categories
Definition % in 2009 % in 2011*
Non-Savers Reported not regular
savers before Save To
Win account
56% 45%
Asset Poor $5,000 or less in
financial assets 39% 32%
Low-to-Moderate Income Household income less
than $40,000 44% 39%
Single with Dependents Single parents w/ one or
more children 14% 12%
* The difference from 2009 to 2011 may be the result of a smaller survey sample size that may bias data.
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Save to Win Results – Early 2012
Nebraska (9 credit unions) –
Early findings:
9% of accountholders are new to CU
Features of product important:
53% said grand prize or monthly prize was
“main reason that attracted” saver to the account.
55% said ability to deposit small amounts is main
feature that makes saving easier in account
Half of account holders do not have “rainy day funds” to
cover 3 months worth of household expenses.
56% of account holders earning <$60,000 annually;
33% of account holders earning < $40,000 annually
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
PLS Momentum – State Interest
PLS legislation • Maryland (2010/2011)
• Rhode Island (2010)
• Maine (2010)
• North Carolina (2011)
• Washington (2011)
• Nebraska (2011)
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Future of Prize-Linked Savings (PLS)
State Laws:
+ MD –2011– sponsors: Delegate Olszewski & Senator Klausmeier - HB
786, SB 1053
+ RI – 2010 – sponsor: Senator Pichardo - SB 2399; 2011 - Amended Bill
SB 0797
+ NE - 2011 – sponsors: Senators McGill, Dubas, Hadley, Mello et al –
LB524
+ WA – 2011 – sponsors: Senators Kilmer, Hobbs, Carrell, Keiser et al –
SB 5232
+ NC – 2011- sponsors: Senators Gunn, Clary et al – SB 513
+ ME – 2010 sponsors: Senators Sullivan, Alfond et al – SB 0645
– Interest in AL, FL, IA, MS, NM, MN, OR, NY, HI, AR
©2010 D2DFund, Inc. ©2012 D2DFund, Inc. ©2012 D2DFund, Inc.
Another Approach to Prize-Linked Savings
– Who runs lotteries today?
– States have legal authority
– 200k retailers in 44 states
+ Many in underserved communities
– How about a „no lose‟ lottery game?
– Play game for chance to win
– But player can get funds back
– Exploration underway
– FDIC Committee on Economic Inclusion (COMEIN)
subcommittee meeting in July, 2009
©2012 Goodwin Procter LLP
Prize-Linked Savings (PLS):
Legislative Issues and Considerations
National Conference of State Legislatures
Working Families Forum
June 26, 2012
Daniel B. Preysman
Associate, Goodwin Procter LLP
Goodwin Procter LLP
General Overview
Why isn’t this already legal?
› Every state prohibits private lotteries
› Lotteries involve: (1) chance, (2) a prize, and
(3) consideration
› What is consideration?
▪ Almost any required action (e.g., deposit in a bank
account)
▪ Bank account that pays lower interest
29
Goodwin Procter LLP
Drafting State Legislation
In general, two legal changes are required at
a state level to permit PLS products
› First, in the penal code, carve PLS out from
lottery prohibitions
▪ Define PLS (also commonly referred to as “savings
promotion raffles”)
▪ Exclude PLS from lottery prohibitions
› Second, in the banking laws, explicitly grant
banks and credit unions explicit to offer PLS
products
30
Goodwin Procter LLP
Key Legal Considerations
Defining a “savings promotion raffle”
› “a contest or promotion in which a chance of winning designated
prizes is obtained by the deposit of a specified amount of money
in a savings account, share account, savings association, share
certificate, or other savings program.”
Empowering banks and credit unions
› Federal law governing banks and credit unions participation in
PLS differs (banks are generally subject to greater restrictions)
› But there are advantages to including both credit unions and
banks – if federal law changes (or is applied differently), banks
will automatically be able to participate with no further action at
the state level
31
Goodwin Procter LLP
Key Legal Considerations
Consumer protections
› Start by looking at existing consumer protection laws
(usually found in Unfair Business Practices Acts) relating
to disclosure, prizes, etc. Should these apply to PLS?
› Other protections, e.g., disclosure of prizes and rules, not
required to be present to win, etc.
› But PLS products are not yet established, and differing state
regulations could impede ability to scale
32
Goodwin Procter LLP
Key Legal Considerations
Consumer protections, cont.
› Sample language limiting fees/consideration:
▪ “Participants in a savings promotion raffle shall not be required to
provide any consideration to obtain chances to win other than a
deposit in a qualifying account. Participants shall not be deemed to
have provided such consideration (i) merely because the interest
rate associated with the qualifying account is lower than the interest
rate associated with comparable non-qualifying accounts, or (ii) as a
consequence of paying fees similar in kind and amount to those
charged in connection with non-qualifying accounts.”
33
Goodwin Procter LLP
Other Legal Considerations
Regulatory Oversight
› Bank/credit union regulator will have oversight
› Should gambling regulators also be involved?
Tribal Gaming Compacts
34
State Example:
Maryland Split Refund Option : HB 883/SB 698 (2009)
Prize-Linked Savings Legislation: HB 786/SB 1053 (2012)
State Example:
Maryland
©2010 D2DFund, Inc. ©2011 D2DFund, Inc. ©2011 D2DFund, Inc.
Recap: Action Ideas
– Prize-Linked Savings
– Offers chances to win prizes for depositing money into
a savings account
– A “no-lose” lottery
– Split Refunds
– Makes tax time an opportunity to save by directing tax
refunds into multiple accounts, including savings, or
purchasing U.S. savings bonds
– Federal split refund option is available and can be
replicated on the state level
©2010 D2DFund, Inc. ©2011 D2DFund, Inc. ©2011 D2DFund, Inc.
Questions?
Contact Information:
Joanna Smith-Ramani
Doorways 2 Dreams Fund
857.753.1892
Daniel Preysman
Goodwin Procter LLP
650.752.3306
Delegate John Olszewski Jr.
Maryland General Assembly
410.282.1733