From Groupon to Saveon: The smart way to boost savings

Saver's Bonus Act

The Saver’s Bonus Act, a bill introduced by Sen. Robert Menendez (D) of New Jersey, takes the Groupon approach to saving and targets the low- and middle-income families for whom this model is most likely to make a difference.

First, the bill leverages the widely utilized platform of the tax-filing process. Second, it offers several appealing savings options: retirement plans, college savings accounts, and shorter-term products like Savings Bonds and Certificates of Deposit are eligible so families can choose the purpose that is most appropriate for them. This flexibility should increase the likelihood that they will make the choice to save. Third, it offers an incentive to save by providing a dollar-for-dollar match up to $500. Since most of these households have incomes too low to benefit from the preferential tax treatment that subsidizes the savings of higher-income households, The Saver’s Bonus will capture the savers most in need of this support and transform the incentives into new savings. Finally, The Saver’s Bonus proposal makes participating easy by allowing tax filers to open an account and make a deposit directly on the tax form. It then automatically sends the bonus straight into the desired account.

Powerful incentives

Over the past three years, a version of The Saver’s Bonus has been tested at the local level in New York City and is now being replicated with federal support in cities across the country as SaveUSA. Many participants in the New York program initially lacked a savings or even checking account. By the conclusion of the third year, 2,200 very low-income people had saved an average of $560, and evidence suggests that savings is becoming a habit, as almost three-quarters of participants continued saving a year after opening their account.

The Saver’s Bonus Act incorporates design elements proven by the marketplace (as my gym membership can attest). It has the potential to overcome a major obstacle to economic stability in the US by introducing new savers into the market. In short, it can help more families “Get their Saveon.”

Rachel Black is a policy analyst in the Asset Building Program at the New America Foundation.

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