Helping Cash-Strapped Families Save for the Future

Last Updated Jun 25, 2008 4:23 PM EDT

Will you be spending or saving your US stimulus check? Uncle Sam, of course, is betting that you will spend it and improve the economy.

But Harvard Business School professor Peter Tufano has devoted many years exploring ways that society can encourage non-affluent citizens to save for the future rather than spend in the present, to better the lot of their families.

"Low- and moderate-income individuals, by and large, want to take care of their families. Government policy, the private sector, and nonprofits can do more to support these sets of well-meaning folks who are trying to do the right thing," says Tufano in a new HBS Working Knowledge interview.

Here are some ideas explored by Tufano and colleagues.

Prizes and Lotteries. Encourage people to open a savings account by offering them the chance to exchange the interest they earn on their account for a chance in a big payout lottery. Even if they lose, their principal is protected. "Savers give up a large chance of a small return for a small chance of a large, life-changing return," says Tufano.

Savings Bonds. In an experiment in Oklahoma, savers were allowed to invest part of their IRS refund into savings bonds with a simple check mark on the tax form. Fifteen percent participated, saving $606 on average.

Consumer Education. Tufano is conducting a field experiment to provide credit card information to consumers in a more enlightening way. Statements currently minimize the amount of debt burden that families are building, he says.

"A variety of levers can be used to support people who want to save (not to force someone to save who doesn't want to)," Tufano says. "Some of these levers are simple changes in what I call the plumbing, making the process of savings easier. Others involve providing various incentives, be they financial or sociological. The most interesting ideas--indeed the oldest--try to make savings a fun or satisfying experience. Taken together, these approaches run the gamut. There is no one solution, but different solutions will appeal to different people."

Read the article for more details. Do you think government, non-profits, and the private sector should be doing more to promote private savings? What ideas can you offer?

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.