Behaviorally Informed Anti-poverty Programs Part 1
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May 18, 2012 TYING ODYSSEUS TO THE MAST: EVIDENCE FROMA COMMITMENT SAVINGS PRODUCT IN THE PHILIPPINES AND NEW YORK CITY
Transcript of Behaviorally Informed Anti-poverty Programs Part 1
May 18, 2012
TYING ODYSSEUS TO THE MAST: EVIDENCE FROMA COMMITMENT SAVINGS PRODUCT
IN THE PHILIPPINES AND NEW YORK CITY
“…but you must bind me hard and fast, so that I cannot s6r from the spot
where you will stand me… and if I beg you to release me, you must 6ghten
and add to my bonds.”
-‐-‐-‐ The Odyssey
Outline
1. Mo;va;ons
2. The SEED Savings Product
3. The Super Saver CD Product
4. “Net PorJolio” Accounts
Mo6va6ons
o People tend to make bad decisions (mistakes) in par6cular, predictable direc6ons o A “Nudge” helps guide people to decisions they themselves would say they want
Common Cogni6ve Biases
Limited ARen6on Planning Fallacy
Present Bias (Self Control) Exponen6al Growth Bias
Why does it maRer?
• SeXng goals, mee6ng goals and s6cking to plans is hard, psychologically and cogni6vely
o Staying out of debt o DraYing and s6cking to a budget o Get started and con6nue saving
• Leads to… o … low household savings rates, low net worth, low financial resiliency o … high debt loads and debt reliance in emergencies
• Biases are not limited to low and middle income consumers
o But LMI consumers have less room for mistakes
Commitment Contracts
• Make your vices more expensive • Make your virtues cheaper • The obvious:
o Savings o Weight loss o Smoking o Exercise
s6ckK.com The less than obvious (actual contracts!)
Smoke less weed.
No emailing or talking to him un6l at least the morning of Jan 7
Speak more slowly to
foreigners in NYC
No More Da6ng Losers… and Susie is my Referee
Monday through Friday.
Outline
1. Mo6va6ons
2. The SEED Savings Product
3. The Super Saver CD Product
4. “Net PorJolio” Accounts
SEED: A Commitment Savings Product in the Philippines
• “SEED” for the Green Bank of Caraga in Mindanao • Simplest “commitment:” no withdrawals un6l goal reached
• 28% opened an account • 300% increase in savings for those who opened an account
• Similar to “Christmas Clubs” in the USA, popular in the past
SEED: A Commitment Savings Product in the Philippines
Freq Percent of SEED Clients Offered SEED Account Opened SEED Account
710 202
AMOUNT GOAL 62 31% $10 -‐ $200 39 19% $200 -‐ $400 15 7% $400 -‐ $600 5 2% >$600 3 1% DATE GOAL 140 2 -‐ 6 months 51 7 -‐ 12 months 62 13 -‐ 24 months 16
11
69% 25% 31% 8% 5%
> 24 months
BOX 167 83% WITHOUT BOX 35 17%
SEED Take-‐up Op6ons
The Commitment Contract
Impact
• All results rela6ve to a control group. – Why? – Defini;on of Impact
• 80% increase in savings aYer one year for all offered
• ~300% increase for those who take-‐up • Improve power in household
– Compare to credit
Magnitude in Real Dollars
• Doctor’s visit: 150 pesos • Public school fees are 150 pesos/year, plus ~200 pesos/month for special projects
• 1 month supply of rice for a family of 5: 1000 pesos
Outline
1. Mo6va6ons
2. The SEED Savings Product
3. The Super Saver CD Product
4. “Net PorJolio” Accounts
5. Next Steps
Super Saver CD Commitment: Savings Goal
o Iden6fy savings goal o Select maturity date (by when do you want to save this amount) o Frequency of deposits (weekly, monthly)
Balance-‐building o Minimum ini6al deposit o Members then make contribu6ons in order to build savings balance and reach savings goal to which s/he
commiRed o Does not require full lump sum in order to open the CD
Compe;;ve dividend rate o Varied during course of study
Minimum ini;al deposit o $15
Maximum account balance per member
o $10,000
Fixed maturity term o 3 months, 6 months, 12 months, 18 months o Maturity term is chosen by the member o CD closes on maturity date (or next business day) and all funds are transferred to the member’s main
account
Contribu;ons o Automa6c or manual contribu6ons o Automa6c transfers from another NTFCU account or external account (switches to manual if specified
account has insufficient funds) o Manual if member makes them in person or by mail o NTFCU recommends contribu6on amount so member can reach goal
Withdrawals and Penal;es
o Penalty for withdrawal before reaching commiRed goal is forfeited dividends and forfeited $15 of ini6al deposit
o If member reaches maturity date but does not meet savings goal, the member only forfeits dividends upon withdrawal
o If savings goal has been met, there is no penalty upon withdrawal
Sample crea6on
o All par6cipants are members of Neighborhood Trust Federal Credit Union o Par6cipants were enrolled in the study via a request to complete a baseline survey in the credit union o Upon survey comple6on, the electronic survey tool created a random treatment assignment:
• 1/3 -‐ Super Saver CD • 1/3 -‐ Financial Counseling • 1/3 -‐ Control Group (survey only)
o Enrolled 1167 credit union members between March 2010 and May 2011 (staff turnover resulted in 12 months of enrollment during this period)
Full Sample Control Super Saver CD Offer
Counseling Offer
1167 389 381 397
Treatment Assignments
Sample characteris6cs
Demographics
o Annual Income: 55% less than $20,000 , 86% less than $40,000 o Educa6on: 51% high school or less, 43% some college, 7% bachelors degree o Gender: 67% female o Mean Age: 49 o Spanish Language Surveys: 74%
Sample characteris6cs, cont’d
Financial Situa;on o Household Financial Situa6on: 24% “good or beRer”, 40% “ok”, 36% “not
very good" or “bad“ o Financial Distress: 19% unable to make rent, u6li6es, or mortgage; 14%
skipped meals; 24% turned down for credit; 40% discouraged from applying
o Sketchy credit: 18% have refund an6cipa6on loan, payday loan, auto 6tle
loan, pawn loan, loan-‐shark loan, or rent-‐to-‐own arrangement
Sample characteris6cs, cont’d
Behavioral Biases
o Self-‐control: regrets spending lacks financial discipline 48% “strongly agree”; 80% agree at least somewhat
o Exponen6al Growth Bias (savings compounding): 48% underes;mate,
27% linear approxima6on, 7% missing/don’t know, 13% overes6mate, 5% correct
o Pa6ence over different 6me horizons: 9% “standard” reversal (impa6ent
now, more-‐pa6ent in future), 3% nonstandard reversal, 15% always impa6ent, 69% always pa6ent
Take-‐up Stats
o Takeup: 21.3% of individuals take-‐up Super Saver CD product (N=381) o Maturity Term: mean = 13.6 months, median = 18 months, N= 81
o Goal: mean = $1701 (sd = 2046), median = $ 1000, N = 81 o Counseling takeup: 15.9% showed up to appointment, while 48.9% signed
up (room to improve on this gap)
CD Take-‐up Analysis: Demand Model
o Women were 11% more likely to take up than men o Lower-‐income respondents were WAY more likely to take up.
o Basically, take-‐up very low amongst >$60k, and much higher among everyone else
• So (certain) demographics may be useful for direct marke6ng/messaging o Demand for the CD is correlated with individual-‐level proxies for being
“behavioral”. o Surprisingly, strongest results here is that guys who understand compounding are much
less likely to take-‐up. Are these guys… o Yield-‐chasers? o Rela6vely sophis6cated, or ra6onal?
CD usage stats
o Percent of goal reached at closing: mean = 70.3%, median = 57% N=70
o Balances at closing: mean = $910, median = $417 o About 30% of members reached goal…
o Middle of pack compared to other IPA studies on commitment savings
Descrip6ve Results for CD (not using randomiza6on)
Measuring impacts of CD: On what? How?
On what? 1. Credit union balances o Using various defini6ons of balances
o What’s counted (checking, net assets, etc.) o How (maximum or average; dealing with outliers, etc.)
o Measured at quarter-‐end in each of four quarters aYer someone enters sample o So snapshots only: no flows
2. 1-‐year-‐a\er credit report outcomes: score, card balances, u6liza6on, delinquencies
How? o Use treatment offer (inten6on-‐to-‐treat) to iden6fy causal effect of CD or
counseling treatment. o I.e., compare outcomes across the 3 different arms (control, CD offer,
counseling offer), where a member’s arm is defined based on the ini6al assignment, not based on what she actually got
Results: Treatment Effects of Super Saver CD
• On balances, measured various ways: Imprecisely es6mated zeros
• On credit report variables: Imprecisely es6mated zeros, except: – Can rule out large effects on credit scores in either direc6on: not much ac6on here
Treatment effects on savings balances
Table 3: Treatment Effects on Savings Balances (Super Saver CD Account Balances + Savings Account Balances)(1) (2) (3) (4) (5) (6) (7) (8)
Dependent Variable:Maximum End of Quarter Balance
Maximum End of Quarter Balance
Log (Max End of Quarter Balance + 1)
Mean End of Quarter Balance
Mean End of Quarter Balance
Log (Mean End of Quarter Balance + 1)
Level Balance at End of Quarter
Log (Level Balance at End of Quarter + 1)
Estimator: OLS Median OLS OLS Median OLS OLS OLS
Savings Treatment -‐146.4 48.71 0.0821 -‐131.7 29.73* 0.0790 -‐21.73 0.197(242.0) (34.03) (0.165) (161.5) (16.67) (0.157) (190.4) (0.222)
Counseling Treatment 339.4 38.35 -‐0.134 159.8 16.68 -‐0.166 247.2 0.0515(408.9) (34.32) (0.176) (283.6) (16.34) (0.169) (343.4) (0.220)
Number of Observations 1167 1167 1165 1167 1167 1161 5767 5747R-‐Squared 0.178 0.132 0.255 0.141 0.003 0.069
Dependent Variable Baseline Mean 819.02 819.02 819.02 819.02 819.02 819.02 819.02 819.02[Median] [46.34] [46.34] [46.34] [46.34] [46.34] [46.34] [46.34] [46.34]
Control variables included:Timing of Entry into Study Yes Yes Yes Yes Yes Yes No No
Timing of Observation No No No No No No Yes YesBaseline Dependent Variable Yes Yes Yes Yes Yes Yes No No
Individual FEs No No No No No No Yes Yes
NotesStandard errors in parentheses, Huber-‐White for intent-‐to-‐treat specifications, clustered on individual for fixed effect specifications. Sample sizes differ for regressions with logged dependent variables because of some negative values for the level dependent variables. Maximum or mean savings balance is the dependent variable in cross-‐sectional regressions, and is defined over 4 observations taken at treatment-‐quarter end dates; level balance is the dependent variable in panel regressions, and is simply the observed balance levels at treatment-‐quarter end dates. All regressions also control for baseline balances, and for month-‐year of entry (and hence treatment assignment) into our sample, except in the individual fixed effects specifications, where instead we control for the month-‐year of each observation. *p<0.10 ** p<0.05 *** p<0.01.
Treatment effects on credit scores
Table 4: Treatment Effects on Credit Scores(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Dependent Variable:
Has Report and Credit Score
(dummy)Credit Score
(level)
Active Trade Lines
(count)
Credit Card Balance (level)
Credit Card Balance (level)
Credit Card Balance (log
level)
Credit Utilization (level)
Negative Trades (count)
Has Delinquent or 90 Days Past Due Account (dummy)
Delinquent or 90 Days Past Due Account (count)
Estimator: OLS OLS OLS OLS Median OLS OLS OLS OLS OLS
Savings Treatment 0.054 -‐3.183 -‐0.100 -‐656.047* -‐94.000 -‐0.315 0.015 0.055 0.004 0.657(0.034) (7.675) (0.430) (368.444) (133.029) (0.309) (0.034) (0.212) (0.040) (0.586)
Counseling Treatment 0.026 -‐7.996 0.670 92.626 -‐94.000 -‐0.289 -‐0.014 0.117 0.040 1.044*(0.034) (7.513) (0.460) (474.450) (139.580) (0.313) (0.033) (0.216) (0.040) (0.596)
Number of Observations 1,167 780 921 921 921 921 669 921 921 921R-‐Squared 0.015 0.009 0.018 0.029 0.009 0.018 0.004 0.014 0.023 0.018
Dependent Variable Baseline Mean 0.64 652.5 4.62 2696.2 2696.2 4.68 0.44 1.45 0.48 3.55[Median] [1.00] [656.50] [3.00] [523.00] [523.00] [6.26] [0.41] [0.00] [0.00] [0.00]
Control variables included:Timing Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Huber-‐White standard errors in parentheses. Median regression reports bootstrapped standard errors with 1000 repititions. All regressions control for month of entry into sample. Sample size differs because credit reports, credit scores, and utilization rates are unavailable for some individuals. *p<0.10 ** p<0.05 *** p<0.01.
Notes:
Next steps: Future Studies?
Improving commitment features? • Offer op6on of stronger commitment • Decision aids: (are people failing because they overshoot?) • How important is goal-‐seXng per se? (test a pure goal-‐seXng treatment, no
commitment) • Some exit interviews with members who held to maturity but didn’t reach goal would
help generate ideas Improving counseling sign-‐up -‐> take-‐up? o Offer commitment? (e.g., performance bond for showing up) o Change throughput process? (E.g., way to offer intake session on-‐demand?) o Follow-‐up messaging?
o Why does month-‐of-‐entry maRer so much?
Counseling content (and reinforcing it)? • Should credit scores be moving? • Failure to complete follow-‐up tasks?
o Treat these? o Delegate to counselor?
Outline
1. Mo6va6ons
2. The SEED Savings Product
3. The Super Saver CD Product
4. “Net Por]olio” Accounts
The Money Pump • Common prac6ce:
– Someone in debt. Teach them to save. Huge long term benefits. Is this right?
• What is the “right” financial answer? – Borrow high and save low? No. – So why hold both?
• Liquidity • Limited liability (op6on for default/bankruptcy) • Transac6on costs • Behavioral
– Mental accoun6ng – Lack of knowledge/awareness, ie, simply put “mistakes” – Social norms – What else?
The PorJolio Account
• Banks serve two roles: – Intermedia6on of capital
• Intermedia6on of capital within a person at one point in 6me is not wriRen down as a model of why banks exist in ANY textbook.
– Facilitate payments
• Net porJolio account: – Home equity example, one account – Add on mental accoun6ng features necessary (?)
Escalator: Funtheory.com
