January 27, 2010
SAN FRANCISCO--(BUSINESS WIRE)--A new qualitative research study released today by the California-based non-profit EARN has found that the vast majority of low-income workers that participated in the organization's Individual Development Account (IDA) matched savings program continue to save money and practice good personal financial habits.
The study, titled "What Motivates Low Income Workers to Save Money?" and written by Leena Im and EARN Vice President Camille M. Busette, PhD, aimed to answer three main questions: (1) Do workers who complete matched savings programs continue to save beyond the program? (2) What are the mechanisms and circumstances that allow for continued savings? (3) Does participating in a matched savings program correlate with increased civic engagement? The full research brief is posted online.
EARN, an award-winning, nationally recognized non-profit that has supported the savings aspirations of nearly 3,000 clients, conducted a series of in-depth interviews concerning savings behaviors. The interviews specifically focused on the reasons behind starting, continuing and disrupting savings strategies. In this ongoing qualitative study, EARN asked clients who are alumni of its matched savings program to identify those elements of their expectations, preferences, and behaviors that were changed by the matched savings program, and which ones were particularly relevant to their attitudes towards savings.
The study demonstrated that the vast majority of matched savings program participants were motivated to continue a pattern of savings behavior when, after some financial management training, they realized that they could save money within their current income stream:
- After finishing their matched savings program, 83% (twenty-five out of thirty) of those interviewed continued to save money, either regularly or sporadically, with 50% of those saving regularly.
- 86% (twenty-six out of thirty) of interviewees found their financial literacy workshops helpful and are continuing to apply the skills learned.
For most of those interviewed, participation in the matched savings program was their first prolonged engagement with the financial services system, and this interaction increased their confidence in dealing with financial services organizations. The study also found that participation in a matched savings program resulted in specific social capital development, including:
- Two-thirds of interviewees (twenty out of thirty) are more active in their communities since finishing their matched savings program, regularly participating in church, mentoring and tutoring students, and/or volunteering in neighborhood associations.
- 16% (five out of thirty) of those interviewed reported changing social groups and "letting go" certain friends that do not share their spending habits, financial and social lifestyles, and personal goals.
Orientation Toward Future Goals
The overwhelming majority of low-income workers interviewed are continuing to save (83%). Consistent savers also demonstrated a shift toward future orientation. The study found these program participants planning to acquire more assets (such as further education, the purchase of a home, or founding or developing a small business). Savers in general feel that they have more control over their future finances and plans for their financial future. One EARN graduate explained that setting and then reaching a savings objective demonstrated the value of personal and financial goal-setting. "Finishing the IDA was a really big confidence booster. . . to set a goal and reach that goal," reported the interviewee. "Since then, I've been able to use that pattern in other aspects of my life."
"Though our focus group was relatively small, this qualitative study went very deep and illustrates impressive findings," says Ben Mangan, President and CEO of EARN. "The study suggests that enrollment in matched savings programs has any number of positive benefits for individuals and society as a whole. First, matched savings programs can lead to a sustained pattern of savings. These programs also serve as good introductions into the mainstream financial world for many participants. Successful savings also seem to encourage participants toward greater civic engagement. These findings suggest that policymakers should be encouraged to support specific matched savings structures and bank products for low-income workers."
The study also has relevance for savings behavior in the larger population of American workers, and offers clues on encouraging positive financial behaviors across all market segments.
"EARN's research on the behaviors that drive savings among low-wage workers will help all of us in finance as we encourage every American to save and invest for the future," says Mike Fitzhugh, Director of Wealth Management and Principal of Aspiriant. "There are valuable lessons in this research for business as well as for the social sector and government."
EARN identified a group of 218 direct client alumni who have successfully completed its program and used their funds. 126 alumni were contacted for interviews, with thirty of them agreeing to be interviewed by phone or in person. EARN developed an interview script and protocol used for both phone and in-person interviews that explored a wide range of topics about the participant's asset accumulation patterns and perceptions before, during, and after the IDA program. EARN expects to continue these interviews over time to encompass the entire graduate class.
EARN is an award-winning California-based nonprofit that gives low-income workers the power to create economic prosperity for their families for generations to come. Since 2001, EARN has helped tens of thousands of low-wage families through innovative financial products including matched savings accounts, checking accounts for the unbanked, micro-loans, and money management coaching. EARN's powerful combination of lasting assets and financial know-how enables families to build wealth and achieve life-changing goals such as saving for college, purchasing first homes, or starting small businesses. Through its policy and research arm, EARN evaluates its impact and reports on new data regularly, sharing lessons learned and best practices in order to transform the financial services landscape and to champion effective public policies. EARN's ultimate vision is that millions of well-informed, low-income American families will achieve financial success through proven strategies, fair public policy, and their own hard work. Visit www.earn.org or follow us on http://twitter.com/EarnOrg.