EHE News
Studies shed light on encouraging consumers to save
Caezilia Loibl
4-25-2010
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 Caezilia Loibl, a consumer sciences researcher with OSU Extension and the Ohio Agricultural Research and Development Center (OARDC).
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, which 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 the College of Education and Human Ecology, surveyed central Ohio participants in Columbus Saves about their experience.
Participants were split into two groups. One group was asked specific questions about their saving patterns. The other group just provided 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. 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.
Advisers should be careful about setting goals
Earlier research shows that people who set specific plans toward a goal might stop their positive behaviors once they achieve the goal, or they might realize early on that they are failing 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.
"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.
The other study, "More than a Penny Saved: Long-Term Changes in Behavior Among Savings Program Participants," examined participants in special savings programs that match their deposits into Individual Development Accounts (IDAs).
Such accounts 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.
Savings continue long after completing IDA program
For this study, researchers surveyed participants of IDA savings programs run by Assets Ohio, a group of 17 nonprofit agencies in Ohio. The study examined both successful "graduates" of the programs and those who left the programs prematurely.
The study showed that successful participants continue to save money long after the program is completed, Loibl said. They also 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.
Loibl hopes IDA programs can use the Ohio State 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 long-term program requiring much interaction with participants, 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.
The studies were published in the Journal of Consumer Affairs.
Writer: Martha Filipic, Communications and Technology, College of Food, Agricultural and Environmental Services, The Ohio State University
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