46 million Americans live in poverty, and another 40 million receive some form of government assistance. For many of that group, government assistance doesn’t keep them from living in poverty, but provides a degree of assistance. Both groups still struggle daily with basic human needs of shelter and food. Almost half of Americans say they could not find $400 for an emergency, and of the bottom 90% of the population, the savings rate is 1%.
Check-cashing stores provide several financial services for this largely unbanked population. They can cash checks, send international money transfers, purchase money orders, pay bills, and most of these stores sell lottery tickets. Fees for all of these services are higher than at banks.
Why do Americans use these check-cashing stores instead of opening bank accounts? Some reasons are personal. Many people have tax liens and the IRS is looking for them. They may be undocumented, lack identification and a social security card. There are also some cultural reasons Americans avoid banks. There is a growing concern about government invasion of privacy and a lack of trust of institutions. Many people choose to remain “under the radar.”
One check-cashing store, along with the research and policy nonprofit Innovation for Poverty Action, attempted an intervention with a local credit union to try to get people to open savings accounts called Cash and Stash. The intervention was a randomized control trial of various incentives and “nudges”- types of reminders from tellers.
Incentives included a lottery-type draw and a points system that could be redeemed for merchandise, such as toasters. Various study groups also got nudges or reminders from the tellers and one control group got no incentives or nudges.
The behavioral psychology behind the planned interventions proved to be rather more complicated than the study planners anticipated. Over time, none of the interventions and incentives encouraged people to save. Those who did save tended to use their savings like checking accounts, drawing money out when needed. When people were under stress, they felt that the process was too complicated. The IPA, in their conclusions, also felt that the poor just did not have to resources to meet basic human needs, and so savings was really out of the question.
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