Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block
This paper analyzes the effects of a large randomized field experiment carried out with H&R Block, offering matching incentives for IRA contributions at the time of tax preparation. About 14,000 H&R Block clients, across 60 offices in predominantly low and middle-income neighbourhoods in St. Louis, were randomly offered a 20 percent match on IRA contributions, a 50 percent match, or no match (the control group). The evaluation generates two main findings. First, higher match rates significantly raise IRA participation and contributions. Take-up rates were 3 percent for the control group, 8 percent in the 20 percent match group, and 14 percent in the 50 percent match group. Average IRA contributions (including non-contributors, excluding the match) for the 20 percent and 50 percent match groups were 4 and 7 times higher than in the control group, respectively. Second, several additional findings are inconsistent with the full information, rational-saver model. In particular, we find much more modest effects on take-up and amounts contributed from the existing Saver’s Credit, which provides an effective match for retirement saving contributions through the tax code; we suspect that the differences may reflect the complexity of the Saver's Credit as enacted, and the way in which its effective match is presented. Taken together, our results suggest that the combination of a clear and understandable match for saving, easily accessible savings vehicles, the opportunity to use part of an income tax refund to save, and professional assistance could generate a significant increase in contributions to retirement accounts, including among middle- and low-income households. This strategy would not, however, produce contribution rates anywhere near 100 percent.
|Date of creation:||Oct 2005|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Burman, Leonard E. & Gale, William G. & Hall, Matthew & Orszag, Peter R., 2004. "Distributional Effects of Defined Contribution Plans and Individual Retirement Arrangements," National Tax Journal, National Tax Association, vol. 57(3), pages 671-701, September.
- James J. Choi & David Laibson & Brigitte C. Madrian, 2011.
"$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans,"
The Review of Economics and Statistics,
MIT Press, vol. 93(3), pages 748-763, August.
- James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans," NBER Working Papers 11554, National Bureau of Economic Research, Inc.
- James Choi & David Laibson & Brigitte Madrian, 2008. "$100 Bills on the Sidewalk: Suboptimal Investment in 401(K) Plans," Yale School of Management Working Papers amz2519, Yale School of Management, revised 01 Jul 2009.
- Papke, Leslie E. & Poterba, James M., 1995. "Survey evidence on employer match rates and employee saving behavior in 401(k) plans," Economics Letters, Elsevier, vol. 49(3), pages 313-317, September.
- Engelhardt, Gary V. & Kumar, Anil, 2007. "Employer matching and 401(k) saving: Evidence from the health and retirement study," Journal of Public Economics, Elsevier, vol. 91(10), pages 1920-1943, November.
- Gary V. Engelhardt & Anil Kumar, 2007. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," NBER Chapters,in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 1920-1943 National Bureau of Economic Research, Inc.
- Gary V. Engelhardt & Anil Kumar, 2004. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," Working Papers, Center for Retirement Research at Boston College 2004-18, Center for Retirement Research.
- Gary V. Engelhardt & Anil Kumar, 2006. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," NBER Working Papers 12447, National Bureau of Economic Research, Inc.
- Gary V. Engelhardt & Anil Kumar, 2006. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," DNB Working Papers 079, Netherlands Central Bank, Research Department.
- James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "$100 Bills on the Sidewalk: Suboptimal Saving in 401(k) Plans," Levine's Bibliography 784828000000000649, UCLA Department of Economics.
- James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
- Andrea L. Kusko & James M. Poterba & David W. Wilcox, 1994. "Employee Decisions with Respect to 401(k) Plans: Evidence From Individual-Level Data," NBER Working Papers 4635, National Bureau of Economic Research, Inc.
- Eckel, Catherine C. & Grossman, Philip J., 2003. "Rebate versus matching: does how we subsidize charitable contributions matter?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 681-701, March.
- Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-138, Fall. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5332. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.