From Groupon to Saveon: The smart way to boost savings
Groupon makes it cheap and easy to get a good deal. We can apply those same incentives to building personal savings, helping lower-income Americans establish economic security.
In most things, I adhere to the principle that free trumps fee. Accordingly, I happily opt to run through my neighborhood, braving variable weather conditions and swarms of families with dogs and strollers, to avoid paying a gym for what I can accomplish for free.Skip to next paragraph
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So, how did Groupon get me to join a gym?
Simply put: Groupon made it cheap and easy. At its core, the Groupon approach engages people through a widely utilized platform (e-mail), presents them a few appealing options (“Deal of the Day” and “Side Deals”), offers an incentive to participate (discounted products and services), and makes participating easy (just click “Buy” to “Get Your Groupon”). Participants try something they wouldn’t have otherwise and retailers have customers they wouldn’t have had otherwise. It’s a win-win.
So, could we apply that model to more consequential activities than trying a new restaurant or body waxing, like increasing personal saving?
As the experiencee of the recent recession has shown, having access to a pool of resources is an essential yet often-overlooked feature of economic security. Income alone usually isn’t enough to pay for day-to-day inconveniences, like a car breaking down, or finance aspirations, like moving to a neighborhood with a better school district or helping a child pay for college. Savings provide families the resources to cover life’s expected and unexpected events and improve their circumstances. While these roles are critical, according to researchers at the Urban Institute, almost one-third of all families and over two-thirds of the poorest families couldn’t subsist for three months on their savings at the official poverty line without income.
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The Groupon approach to saving isn’t unprecedented; it’s already applied to retirement savings. Employees enroll in a sponsored plan at the workplace (a widely utilized platform), often with match from the employer (incentive to participate), with contributions automatically deducted from their paycheck (participating is easy).
But there are important ways that this application is limited. First, only half of all workers and less than one-third of workers in the lowest-income quartile are offered an employer-sponsored, 401(k) style retirement plan. You can’t buy a Groupon if you don’t have e-mail. Second, retirement savings are important in the long run, but families have a variety of needs that may make saving for another purpose a higher priority. Half-off car detailing, while a good deal, doesn’t help someone who rides a bike. Finally, the $140 billion the government currently spends to encourage saving for retirement mostly accrue to higher income earners who would have saved anyway. Retailers participate in Groupon to bring in new business, not subsidize existing customers. We can’t afford to confuse spending with investment, especially when the “retailer” is the government.