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Factors affecting completion of a matched savings program: Impacts of time preference, discount rate, and financial hardship

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  • Manturuk, Kim
  • Dorrance, Jessica
  • Riley, Sarah

Abstract

There is a general consensus among researchers and policymakers that matched savings programs can significantly increase the propensity to save among low-income households. This study offers a unique contribution to the field by testing whether principals and theories from behavioral economics affect the decisions that participants make in these savings programs. Using a sample of people participating in the $aveNYC program, a matched savings program for very low-income households, we test whether information failure, time preference, and financial hardship affected people's ability to complete the program and receive the match money. We find that future orientation does not significantly impact program completion, but both information failure and financial hardship increase the hazard of early account closure. Although the pool of participants who did not receive the match was small, both information failure and financial hardship had large impacts on the risk of withdrawing the account before receiving a match. We discuss how these findings can inform program design and suggest future research.

Suggested Citation

  • Manturuk, Kim & Dorrance, Jessica & Riley, Sarah, 2012. "Factors affecting completion of a matched savings program: Impacts of time preference, discount rate, and financial hardship," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(6), pages 836-842.
  • Handle: RePEc:eee:soceco:v:41:y:2012:i:6:p:836-842
    DOI: 10.1016/j.socec.2012.08.006
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    References listed on IDEAS

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    1. Timothy M. Smeeding & Katherin Ross Phillips & Michael O'Connor, 2000. "The EITC: Expectation, Knowledge, Use and Economic and Social Mobility," JCPR Working Papers 139, Northwestern University/University of Chicago Joint Center for Poverty Research.
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    3. Smeeding, Timothy M. & Phillips, Katherin Ross & O’Connor, Michael, 2000. "The EITC: Expectation, Knowledge, Use, and Economic and Social Mobility," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1187-210, December.
    4. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
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    8. Smeeding, Timothy M. & Phillips, Katherin Ross & O’Connor, Michael, 2000. "The EITC: Expectation, Knowledge, Use, and Economic and Social Mobility," National Tax Journal, National Tax Association, vol. 53(4), pages 1187-1210, December.
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    More about this item

    Keywords

    Time preference; Discount rate; Savings; Tax refund; Survival analysis;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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