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The Ladder

A Blog from New America's Asset Building Program

Refund to Savings: A Savings Nudge at Tax Time

Published:  April 15, 2013
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Tax Time is an Asset Building Opportunity

This post is co-authored by Krista Holub, a program manager for the Center for Social Development at Washington University in St. Louis and works primarily on the Refund to Savings initiative, focusing on development, implementation, and research; and David Rothstein, a research fellow in the Asset Building Program, as well as a researcher at Policy Matters Ohio.

Could you save $55 dollars this week out of your regular spending? Could you do it every week for the next year? That is what a low- to moderate-income worker ($33,600 annual income after taxes) would have to do to save one month’s worth of income. Coincidently, $2,883 (~$55 dollars X 52 weeks) is also the amount of the federal tax refund the average household receives. In effect, most households have already done the hard work of saving money via federal income tax withholding.

Nearly half of those with a tax refund do plan to save the refund, but good intentions don’t always work out. To help households overcome the many barriers to saving, researchers from Washington University in St. Louis and Duke University teamed up with Intuit Inc., maker of TurboTax, to develop and test the Refund to Savings(R2S) initiative. The R2S test is integrated directly into the TurboTax Freedom Edition online service and automatically suggests that tax filers split deposit part of their tax refund into an existing savings account or Series-I U.S. savings bonds. The idea is that offering a hassle-free way to directly deposit the refund will help tax filers overcome structural barriers to acting on their intention to save.  

R2S also incorporates mechanisms grounded in behavioral economics theory to help tax filers break down the psychological and behavioral barriers that limit the accumulation of savings. The initiative tests various motivation prompts – i.e., questions about saving for emergencies or retirement – to learn which messages best nudge people to save. In addition, each tax filer sees a suggested savings-to-spending ratio, ranging from $100 to 50 percent of the refund.  

This tax season, all TurboTax Freedom Edition users receiving a federal tax refund are included in the R2S experience. After the April 15filing deadline, policymakers, researchers and industry experts will look at the aggregated R2S results to determine the types of interventions that increase overall savings – namely, what helps more tax-filers decide to save and, then, to save more. The R2S team is hoping to help the asset building field achieve one of its long-standing goals: transform the tax season into saving season for all Americans.

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