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What does it take to establish the savings habit?

Pam Bailey, NeighborWorks America blogger | 12/4/2017 12:04:31 PM

Everyone knows it’s important to save for a “rainy day.” Emergencies happen: appliances break, cars sputter to a stop, jobs are lost. But when your paychecks are not that much more than what you need to pay your routine bills, that’s a habit most haven’t been able to form.

“We want to buy a better car, but we need a $3,000 down payment and that didn’t seem possible,” says Angela Andrade in Spanish, via translation by her financial coach, Jesse Stevenson, at Community HousingWorks in San Diego. “We’ve had a bank account for 15 years, but we’d pretty much spend our money as soon as we deposited whatever we earned. We just hadn’t developed the habit, the mentality needed to save over the longer term.”

Andrade is a participant in the emergency-matched-savings program sponsored by NeighborWorks America in partnership with the nonprofit EARN. As the nation's leading microsavings provider, EARN designs and launches online tools that help create financial stability for the country's most economically vulnerable people. Funded by a grant from JP Morgan Chase, the six-month program uses a combination of in-person financial coaching, cash incentives, timely "nudges" and tips from EARN to help participants establish a savings habit. Each month, savers receive a 2:1 match for every dollar they save (up to $25 a month each). This allows  participants to build an emergency fund of $450—including $150 of their own funds and $300 in matches.

Seventeen NeighborWorks network members signed up to participate in the program, which launched in February. Each agreed to market the program to residents of their rental properties, assist them in enrolling and coach them as they strive to meet their goals. A total of 252 rental residents now are in the program and to date, they have earned almost $33,000 in matched rewards. 

Andrade, a mother of three, says she hasn’t missed a single deposit since the program started, and she’s discovered “it’s not that difficult. What helped was learning to visualize our goal of purchasing a car, along with action planning with Jesse, so it actually seems realistic. I think saving will be a permanent change for us. When the program ends, I’m going to keep on saving toward that car.”

Stevenson notes: “That was the most common theme we heard across the board:’ I’ve never really saved before. I just need to get in habit, to be motivated’.” Erika Gallardo, director of Achieve programs for Community HousingWorks, adds, “They just haven’t been tracking their spending habits, so they don’t realize how much of it is discretionary.” 

Another one of Community HousingWorks’ 53 savers, Virginia Simiano, stressed the importance of the matched-savings incentive.

“I tried to save in the past, but it was too easy to take money out one or two months later for one reason or another. But when you can’t take it out for six months if you want the incentive, you’re forced to save. Now, when my husband asks if he can have some money, I say ‘No!’” laughs Simiano. “I have $250 saved up so far; it’s awesome!”

Brenda Piccard-Muniz, resident services coordinator for NewVue Communities in Fitchburg, Massachusetts, agrees with the importance of the incentive: “As soon as you mention a match, you have people wanting to join and then get coaching at the same time.” However, she adds, it will be important to check back in a year to see if they are still saving even without the incentive. For some residents, an alternative would be a “holiday account,” with the money released once a year, she suggests.

Janet Raffel, NeighborWorks America’s senior manager for financial capability, lists several significant lessons learned from the pilot to date:

Offer training and coaching, especially for the ‘unbanked’ or digitally illiterate. Many residents of members’ housing developments are unbanked and digitally illiterate, thus requiring a lot of training and hand-holding to help participants open a savings account, create an email address and link the account to the platform. 

Gallardo says this was one of her nonprofit’s initial challenges.

“Many residents, especially the older ones, are used to managing their finances with cash or money orders. We had to work with them just to get them to trust the banking system; they don’t feel as ‘safe’ having their scarce funds in an institution instead of at home,” comments Gallardo, who oversees the program at 38 rental properties. “In other cases, the matched savings offer just seemed ‘too good to be true’: getting a gift for no other reason than they’re saving?! It takes a lot of coaching, and it helps if you enlist peers to reach out to peers too.”

Lawrence says most of her participants are banked; rather, the main problem has been a lack of familiarity with using a computer. Her team relies heavily on the tutorial provided and has these types of participants come into the office at key points.

Build a broad base of participating banks. Initially, EARN was affiliated with a limited number of banks—mostly national—that could be linked to the technology platform. After polling participating network members to see which local banks and credit unions are used by residents, NeighborWorks America funded EARN to add some of these institutions. 

Sahar Lawrence, community engagement officer for Urban Edge in Boston, agrees that was an early challenge. “When we first started, not all of our banks were participating. A little later, a lot more were added. So, in the beginning, we didn’t get some residents who could have benefitted. For example, some folks had a credit union where they worked and they wanted to stick with that. So it’s important to make the options as broad as possible.”

Take into account cultural differences. New immigrants are especially challenged by the technology and the American banking system. While the coaches report the need for a lot of “hand-holding” to make it work for non-English-speaking residents, they say they still feel it has been worth the effort because these residents are so motivated to earn the match.

Raffel says that based on the savings patterns to date, NeighborWorks America projects it will have funds left over to enable network members to recruit additional participants for the program. In addition, the program will be opened to nonrenters to see how they fare.  

Gallardo says Community HousingWorks “most definitely” wants to continue. What her organization would do differently the next time would be to start further out with education, including peer outreach, capitalizing on the success stories. Integrating education into site-specific programming such as after-school sessions would be effective as well.

Although the current program is open only to those at least 18 years old, Piccard-Muniz says she would love to include individuals as young as 14, even before they start working. “They need to start the savings habit from the very beginning. We have to start young to change generational behavior.”

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