Studies Shed Light on Encouraging Consumers to Save

COLUMBUS, Ohio -- Two new Ohio State University studies provide valuable insight into what might -- and might not -- encourage people to build up their savings.

Findings from one of the studies could change the way financial educators talk to clients about putting money into savings accounts. The other study is one of the first to reveal the long-term benefits of matched savings programs for low-income consumers.

Both studies were led by Cäzilia Loibl, a consumer sciences researcher with Ohio State University Extension and the Ohio Agricultural Research and Development Center (OARDC), and are published in the current issue of the Journal of Consumer Affairs.

Loibl said she was surprised at the results of the first study, "Examining the Effect of Expressing a Quantitative Goal on Consumer Savings." In it, she and colleague Robert Scharff, also a researcher with OARDC, surveyed participants in Columbus Saves (http://www.columbussaves.org). Columbus Saves is part of the national America Saves campaign that encourages consumers to build their savings and reduce debt, no matter what their income level.

The researchers, both of whom are also assistant professors of consumer sciences in Ohio State's College of Education and Human Ecology, asked central Ohio participants in Columbus Saves to participate in a survey about their experience. Participants were split into two groups; one group was asked specific questions regarding when they planned to deposit money in their savings accounts in the next month; how much they planned to deposit; how they would make the deposit; and what income source the money would come from. The other group was asked just to provide comments about savings in general or Columbus Saves in particular. In follow-up surveys, both groups were asked how much money they had saved during the month in question.

"Most of the literature tells us that setting up a specific plan to achieve a goal is helpful," Loibl said. "There aren't many studies that talk about potential negative effects." However, the researchers found that in this case, the group who was asked only for general comments actually saved more money than the group who was asked for a detailed plan.

Researchers explained the findings with earlier research showing that people who set specific plans toward a goal might stop their positive behaviors once they achieve the goal, thereby limiting potential success; or, they might realize early on that they are failing in taking the steps they originally outlined, become discouraged and drop the whole matter. On the other hand, people who make general pledges to "do better" or who take a more graded, step-by-step approach might tend to be encouraged by even small successes and repeat the behaviors that help them eventually achieve their goal.

"I think this shows that professionals who work with people to try to help them build savings or reduce debt need to be careful about goal setting," Loibl said. "According to the results of our study, it would be better to encourage people simply to save 'more,' or save some money when they can, and not press people into setting specific targets."

Even better, Loibl said, would be to encourage people to enroll in automatic savings plans or direct deposits into savings accounts.

"Doing so would take the matter out of the decision-making process," Loibl said. "The money would be there if you need it, but you don't have to continually determine when and how much money to put into savings." People with limited resources are usually hesitant to enroll in such programs, she said, because they want to retain financial flexibility. However, those who directly deposit even a small amount into savings are usually better off financially in the long run.

The other study, "More than a Penny Saved: Long-Term Changes in Behavior Among Savings Program Participants," examined the long-term effects of participating in special savings programs that match participants' deposits into Individual Development Accounts (IDAs).

Such accounts, which grew in popularity after the federal Assets for Independence program was established in 1998, offer federal and local funding for low-income residents who make regular deposits into savings accounts, keep their money in the accounts for a specified period of time, and participate in financial education programs.

Although such programs have won widespread acclaim, they are relatively new; only now have researchers been able to examine long-term effects of participating in the programs.

For this study, researchers surveyed participants of IDA savings programs run by 17 nonprofit agencies in Ohio. The nonprofit agencies work under the umbrella of "Assets Ohio," which is managed by the Ohio Community Development Corporations (CDC) Association. The study examined both successful "graduates" of the programs and those who left the programs prematurely.

The study showed that participants who successfully complete the IDA programs continue to save money long after the program is completed, Loibl said. Compared to participants who dropped out, those who successfully completed the IDA programs reported higher household savings and were more likely to hold checking, investment and credit card accounts and to have a mortgage.

"Successful program completion has a long-term effect on asset accumulation -- one that extends beyond participation in the program," Loibl said.

As a result of these encouraging findings, Loibl hopes IDA programs can use the research results to work with their community stakeholders. Maintaining funding for IDA programs has been difficult in today's challenging economic climate, especially for this kind of high-touch, long-term program, Loibl said.

Loibl's co-authors on the second study were Michal Grinstein-Weiss of the University of North Carolina at Chapel Hill; Min Zhan of the University of Illinois at Urbana-Champaign; and Beth Red Bird, a former graduate research assistant in Ohio State's Department of Consumer Sciences.

Ohio State University Extension supported both of the studies, with additional support from Columbus Saves for the first study and from the Ohio CDC Association for the second study.

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