The New York Times
By: Jennifer Saranow Schultz
December 19, 2010
In May, TIAA-CREF, the asset manager, started a competition for ideas to raise the savings rate to 10 percent in the next two years, with a grand prize worth $50,000.
At the time, TIAA-CREF said a panel of judges would select "Raise the Rate" winners based on factors like the idea's originality, effectiveness and clarity. This past week, TIAA-CREF announced the winning idea selected from more than 1,000 entries. We wondered, however, whether the judges considered how difficult it would be to carry out the idea.
Jonathan Chan, a 2009 graduate of Northwestern University, was awarded the grand prize for his idea to incorporate savings rates into credit scores. Here's the gist: a "Savings Credit Score" that "would factor a person's savings habits into their credit score as a positive indicator of creditworthiness" since "a better saver can make a better borrower." The score would reward savers and thus encourage people to save more.
"Jonathan's Savings Credit Score has the potential to truly make a difference," Roger W. Ferguson , Jr., chief executive of TIAA-CREF and a "Raise the Rate" judge, said in a statement. "Credit scores today are meant to reflect an individual's payment patterns, but what they don't account for is savings, which is effectively a payment to oneself -- an investment in the future you. Including this data in credit scores would reward those who currently save and would encourage others to start."
Still, while the idea may have potential, its practicality over the next two years is another matter.
Craig Watts, a spokesman for FICO, said no one at the credit score company seemed to have been contacted about the winning suggestion.
While he said FICO congratulates the winner, he said the "novel idea to include savings account data in the calculation of consumer credit risk scores is a new riff on the time-honored lender tradition to consider a borrower's capacity, collateral and credit score -- the three C's of credit -- when making lending decisions." He added: "Today, many major financial institutions take their customers' savings account and checking account history into consideration when making certain kinds of marketing and credit account decisions. So in some ways, Mr. Chan's idea is already in effect at many lending institutions."
In addition, he noted: "There are practical barriers to implementing his idea in today's credit scoring models. Credit scores such as the industry-standard FICO score are calculated exclusively from the data on Consumer Credit Bureau reports. Today lenders do not report information about consumer savings accounts to credit bureaus, so that information is not available for the calculation of FICO scores."
But, according to Mr. Watts, that doesn't discount the potential of the idea if such information were available for the calculations. "FICO will be pleased to consider incorporating that information into predictive scoring models in order to help lenders make better consumer decisions," he said.
When asked if TIAA-CREF contacted FICO to find out about the idea's feasibility, Chad Peterson, a spokesman, said TIAA-CREF "as an organization did not select the winner." Instead, he said a panel of celebrity judges chose the winner and voted based on "their view of the merits of each idea from a pool of 10 finalists." He said he did not know whether anyone on the panel had checked with FICO.
Besides the grand prize, online voters selected Tara Tongco Rojas of Denver for the $15,000 People's Choice award for her idea for a Women's Savings Club, "an online community for women who commit to support, inspire and hold each other accountable for saving and managing money prudently."
What do you think about the winning idea? What ideas did you submit to the competition or would you have submitted?