Here are 6 things you must teach your children about money

At an age when children are busy playing with their new Legos or asking for Happy Meals, they’re also forming early and foundational ideas about earning, saving and spending that they may carry with them throughout their lives.

April is Financial Literacy Month, so it’s a good time to discuss why it is important that we teach personal finance and economics to young children.

Children often develop their financial behaviors as early as age 7, according to research by David Whitebread and Sue Bingham of the University of Cambridge in England. So waiting until students are in high school to teach personal finance and economics can mean missing valuable opportunities to help them learn and shape their habits.

And it leaves children, during very impressionable years, more apt to construct their understanding of the economy and personal finance from what they observe around them. This frequently results in misunderstandings.

Also: Braidy Industries lands Russian investor for Kentucky aluminum mill, WSJ says

For example, children who see their parents get money from an ATM may not have the context to understand that a bank account is directly connected to the use of the ATM. Without that context, a child hearing, “We can’t afford that this month,” is likely to think, “Just go get money out of the machine!”

Similarly, children may witness an adult paying for most items with a credit card or a mobile phone payment service without recognizing this as money being spent. And often children don’t connect your work with income; they may not realize that adults work and are paid for that work.

At the St. Louis Fed, we have a team of educators, researchers and specialists who are making economic education more accessible and creating fun and memorable lessons and resources for teachers, parents and consumers around the country.

In the spirit of Financial Literacy Month, that team has compiled six pertinent things we must teach children:

People work to earn income.

Be explicit when explaining to children that you work to earn income to support your family. Give them opportunities to earn as well.

Spend some income, save some and donate some.

Give the children in your life opportunities to do this — spend, save, donate.

Saving is a good habit.

Provide incentives for your children to save, such as offering to match a percentage of what they put in their piggy banks. Encourage them to save a set amount before considering purchasing a new toy.

Adults can’t have everything they want …

… children can’t, either. Teach them to prioritize and make careful choices.

Spending and saving decisions have consequences.

Allow your children to live with — and talk to them about — those consequences. 

Banks and credit unions are safe places to save your money.

Tell children about them, including that those institutions pay interest on savings.

When my children were younger, I tried to share such personal tips with them.

Visit our website at stlouisfed.org/education and browse through more than 400 lessons, articles and other tools for teaching and learning more about personal finance and economics.

Check out: How long it will take to get your 2019 Kentucky tax refund

We believe, based on research, that children who are taught valuable lessons about spending, saving and other personal finance topics at a young age are more likely to become adults who are more financially responsible.

Share the personal finance tips in this article with your children, grandchildren, students and the other young people in your life. Research shows it may help them grow into teenagers and adults with a better grasp on their personal finances.

Nikki Jackson is senior vice president and regional executive of the Louisville Branch of the Federal Reserve Bank of St. Louis.

 

 

 

Taxes 2019: A Look at How Americans Plan to Spend Their Refunds

April 15 is now behind us, and most Americans, at least those who did not file an extension, have filed their taxes. Filing your annual tax return can cause disappointment when you learn you owe taxes, or result in excitement when you score a nice refund.

A tax refund can be a reasonably large sum of money (the average refund was just over $3,000 as of March 15) and it feels like a bonus even though you already earned it. Having your wages delivered this way can make it tempting to waste some, if not all, of your refund, but actually — most Americans plan to use their refund in a much smarter way, according to a survey from market intelligence firm Numerator.

Image source: Numerator.

Where is the money going?

This year, more than half of all Americans who receive a tax refund (55%) plan to save all or most of it. In fact, 29% expect to save all of their refund, while 36% expect to save most of it. Another 14% expect to save half their refund, while only 15% of people plan to spend most of their refund, and 16% expect to spend it all.

Among spenders, the news is better than it sounds, because 40% of those spending at least some of their refund plan to use it for paying down debt. Another 15% will put their money toward home repairs, while 8.8% expect to spend at least some of their refund on car repairs.

“Size of refund appeared to be a slight indicator of spending intentions as those who received a larger refund this year (30%) were more likely to put it into savings (38%) or to buy something for themselves or family (25%). Those with smaller refunds (34%) were likely to use it to pay down debt (43%),” according to Numerator.

A refund is your money. Image source: Getty Images.

What should you do?

Not every American makes the best decisions when it comes to utilizing their tax refund. Some taxpayers buy frivolous items, while others use the money for travel they can’t otherwise afford.

How you use your refund should depend upon your own financial situation. If you have high-interest debt, prioritize paying that off. That will produce the best return on investment and, assuming it’s credit card debt, it will give you added borrowing power and decrease your credit utilization ratio that impacts your credit score.

Saving this money in an emergency fund is a great idea, if you don’t have toxic debt to pay down. Aim for collecting a cash pile equivalent to six months of living expenses. This can protect you from going broke or being forced to use credit if you lose your job unexpectedly or you face a medical emergency that impacts your earning power.

If you’re all set with no debt and you have a robust emergency fund, consider the shape of your retirement savings and whether that area could use a jolt from your tax refund. If you’re in good shape with your retirement savings, perhaps spending your tax refund on a trip or a new television is sensible after all, but don’t buy anything you wouldn’t buy with your hard-earned money delivered via paycheck.

It’s important to remember that a refund isn’t a gift from the government, even if it feels like one. You’re getting a check that’s money you essentially loaned the government for free and it’s important to treat the money well. Ideally, you’ll put your refund to work for you in a way that makes your upcoming year better whether it’s crushing debt, saving more, and maybe (if you’re in a good enough financial position) spending some cash on something fun.

Here’s how long it takes to save up for a home on a normal person’s salary in 10 big US cities







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The Definitive Guide to Buying Your First Home

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Housing prices have been rising faster than inflation in the U.S., which is pricing more and more people out of the market. Still, owning a home remains a top priority for 72% of millennials, according to Bank of America’s 2018 Homebuyer Insights Report.

Personal finance site SmartAsset calculated how many years it would take the typical worker to save up to buy a typical home in the largest cities across the country by identifying the median home value and median salary for workers in each place. From there, the site determined how many years it would take to save up a standard 20% down payment if workers put away 20% of their salary each year.

Note that the site did not take into account closing costs, surprise expenses, taxes, fees or maintenance costs, which experts say can add significantly to the amount required to actually buy a home. Also, SmartAsset used home values; listed prices can be higher.

Here’s how long the site says it would take a person making an ordinary salary to save up enough money for a down payment on a home in 10 big U.S. cities, ordered from the fewest years to the most.

10. Seattle, Washington

Median home value: $673,100
Median income: $86,822
Years: 7.75

9. San Diego, California

Median home value: $600,300
Median income: $76,662
Years: 7.83





8. Miami, Florida

Median home value: $322,100
Median income: $40,327
Years: 7.99

7. Boston, Massachusetts

Median home value: $540,600
Median income: $66,758
Years: 8.10

6. San Jose, California

Median home value: $854,700
Median income: $104,675
Years: 8.17

5. Long Beach, California

Median home value: $557,700
Median income: $60,557
Years: 9.21

4. Oakland, California

Median home value: $686,700
Median income: $70,577
Years: 9.73





3. San Francisco, California

Median home value: $1,104,100
Median income: $110,816
Years: 9.96

2. New York City, New York

Median home value: $609,500
Median income: $60,879
Years: 10.01

1. Los Angeles, California

Median home value: $647,000
Median income: $60,197
Years: 10.75

How to save for a down payment

Once you have an idea of how much you’ll need to save, you can start putting a plan into action.

SmartAsset’s calculation depends on workers saving 20% of their salary each year, which is in line with what experts generally suggest socking away. Still, if you have other savings goals or aren’t able to put away that much of your income, it’s possible to make progress toward your goal.

The most straightforward tip? Rethink where you want to buy. “Inland” cities, like many of those in Texas, typically have cheaper housing options than those on the coasts.





If you’re gearing up to save for a down payment, here are some other tips to get started:

  • Cut back on your spending. Check out these eight things you might want to give up if you’re saving to buy a home.
  • Research FHA loans. First-time home-buyers can take advantage of government-insured FHA loans, which often have a minimum down payment of just 3.5%. However, they do require mortgage insurance payments.
  • See if your state offers tax breaks. Depending on where you live, you might be able to open a tax-advantaged savings account for first-time buyers to accelerate your savings. Colorado, Iowa, Minnesota, Mississippi, Montana and Oregon currently offer them in some form.

Not all of these options are available to everyone, so you’ll need to do your homework to see if you qualify. But they can be a good starting point.

Finally, as Andrew Westlin, a certified financial planner at Betterment, tells CNBC Make It, you may have to reassess your priorities to put saving for a house first. There’s only so much money to go around.

“I don’t like to tell people to put off retirement because the more you save and the earlier you can save, the better off you are,” Westlin says. “But when you’re faced with a goal like retirement … versus near-term goals like wanting to buy a home and paying off debt, sometimes you have to make tough choices and determine what’s a higher priority to you.”

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Don’t miss:

Suze Orman: Here’s exactly how much money you need to afford to buy a home





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I saved over $650 in 3 months without thinking about it—here’s how







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Save and Invest

2 Hours Ago

Saving isn’t always easy. But I recently found myself putting away hundreds of dollars without even having to change my habits.

Some months ago, I toyed with the idea of trying popular money-saving or fin-tech apps and finally decided to test Albert, which I had heard about but never tried. I downloaded it and set up an auto-savings service. Then I promptly forgot all about it.

Last month, while digging through my checking account transactions, I ran across several withdrawals that I didn’t recognize, and I realized that they were automatic transfers from Albert. I had stopped paying attention, but the app hadn’t stopped working.

Turns out I racked up more than $650 in savings over the course of 12 weeks. The app aims to save 5% to 10% of your total monthly income when possible, according to the company. For me, that averaged around $57 per week.

Here’s exactly why it was a great saving strategy for me.

Automating helped me save without budgeting

Experts say automating your savings is the best way to put some money away for emergencies and other spending goals. But what does that really mean?

Most of the time, experts who encourage automating are talking about setting up regular transfers from checking to savings accounts, and apps can help make that happen. Some, like Qapital, round up your spending on each purchase and put that money into savings, so, for example, if you spend $2.50 on coffee, you can set the app to deposit 50 cents. Others, like Chime, will calculate and regularly auto-transfer a set percentage of your paycheck to your rainy-day fund.

Some apps go a step further: They find savings opportunities for you.

Albert works by analyzing your spending and then automatically pulling money from your checking account into a savings account. It’s similar to the strategy used by the popular app Digit.

To start, you link your checking account to the app. Next, you can choose a set amount that it will automatically move into savings or use Albert’s “Smart Savings” algorithm. Smart Savings runs a daily analysis of your spending and income and learns to recognize account fluctuations and bill pay periods each month, the company says.

Once it has a handle on your spending rhythms, it will determine an amount that is safe to put into savings and automatically initiate the transfer on a regular basis.

The saving tool is free and my money is secure

I usually keep way more money than I need in my checking account — it’s a not-great habit I may never break. And even though I already have some savings automatically withdrawn each month, I get nervous about making extra transfers into a savings account. What if I guess wrong about how much I’ll need or forget about a bill? I’m scared that I’ll overdraw.

But Albert removes that stress. It will never initiate a withdrawal if your checking account balance is too low, the app says. So using Albert, I can let that extra money in my checking account be moved into savings without worrying. Plus, if I know I have a big expense coming up, the app lets me pause the withdrawals and restart them when I’m ready.

I’ll also admit that the app initially caught my attention because their Instagram account is funny.

When I actually dug into the details, there were several aspects of this app’s Smart Savings that sold me on downloading it:

  • It’s free: Unlike Digit, which costs $2.99 a month after a 30-day free trial, there’s no extra charge to use Smart Savings.
  • The money is safe: Any money in Albert savings is held in FDIC-insured banks, which offers peace of mind. The company doesn’t specify which banks it uses but each customer is insured up to $250,000.
  • It doesn’t offer interest, but it does make transfers easy: The biggest downside I found is that, because Albert is not a bank, it can’t issue interest. It does offer users monthly “bonuses,” though. If you’re a regular app user, you get 25 cents on every $100 in your savings account.

If you’re like me and would like to earn interest, that’s possible with a workaround: You can pull savings from Albert without any transfer fees and add that money to a high-yield savings account instead. Albert says customers should allow 2-3 business days for the transfer to process.

The app has other money-saving features

Albert also offers budgeting, bill-lowering and financial advice functions. And if you choose to sync up your investment and insurance information, the app will measure your overall financial health and suggest which areas to work on first.

Albert also automatically categorizes your transactions. This is usually where I get frustrated with budgeting apps because I hate manually labeling each expense. But Albert was far more user-friendly than others I’ve tried: It’s able to recognize patterns and figure out what each expense is, then categorize it as a bill, transportation, rent, etc. That way, you can see where you’re spending — or overspending — the most.

For me, the app even correctly identified which expense was my rent, even though I don’t directly pay my landlord. Instead, I give money to my roommate, who sends the rent through a digital payment portal.

Not every transaction went smoothly. The app did make a few mistakes, including on some of my regular bills. Once I manually set it straight, though, the expenses showed up correctly.

I didn’t really explore the other aspects of the app, but they could be useful. For example, Albert partners with Billshark to identify bills you may be able to lower. Billshark says I can lower my current monthly Internet bill by $8 a month. I haven’t tried this yet, but if I did and Billshark were successful, they’d charge a fee that equaled 40% of my savings.

The app also has a “Genius” service, which provides financial advice but costs a minimum of $4 a month for a subscription. Users can ask a team of licensed investment advisors questions via text about a wide range of topics, including how to invest, retirement plans, insurance and budgeting.

Overall, using Albert helped show me where I have extra savings. By moving those dollars out of checking and into savings, I avoided spending on extras I didn’t really need, such as dining out more. Instead, I safety put that money away for a rainy day.

I’d say Albert works best if, like me, you want to cut back on your spending and put some savings aside for a short-term goal, such as a vacation.

Don’t miss:

60 percent of millennials don’t have enough money to cover a $1,000 emergency

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Hints from Heloise: Autism awareness in April – News

Dear Readers: April is Autism Awareness Month. Autism is the term for a group of developmental impairments that can cause people to have difficulty interacting with others. Its symptoms can include avoiding eye contact, having sensitivity to light and sound, and exhibiting repetitive mannerisms and motions, among many others.

Early diagnosis is key; look for these behaviors in your child or grandchild. Visit www.autismspeaks.org for helpful information, resources and support. There’s also a toll-free telephone line, 888-AUTISM2 (888-288-4762), for general questions and hints to help. — Heloise

IT’S A DATE …

Dear Heloise: A question for your readers: When was the last time you checked the “use-by” dates on items in your refrigerator, freezer and pantry, including spices, medicines and even makeup?

I was surprised that even flour, sugar, baking powder and salad dressings have them. When I purchase replacements, I mark their dates on them with a permanent marker and label everything with names and dates. — Elaine H., Port Charlotte, Fla.

ON THE RIGHT TRACK

Dear Heloise: A simple way to clean my sliding glass door track: I pour plain water in the track (a generous amount) and let it sit for 15 minutes. Then I take a roll of paper towels and unfurl a good amount onto the track to absorb the water. An old toothbrush can loosen any grime.

Caveats: My flooring next to the track is vinyl, not carpet, and gloves are a good idea.

Messy? Maybe, but a clean track results, just in time for spring, and no harsh chemicals are used! — Mary R. in Florida

TALLER TOILET

Dear Heloise: We read your column daily and find great hints. When remodeling or building a home, think about a ground-floor bedroom and bathroom with a walk-in shower and taller toilet. Even younger folks may have a need after surgery or illness. In our case, my husband and I wanted the extra conveniences following surgery, and the taller toilet came in handy during visits by senior relatives with mobility issues. — Paula T., Spokane, Wash.

WRAP IT UP

Dear Heloise: I think all of us have problems using plastic wrap to cover food. A simple solution is to keep it in the freezer until needed. No more sticking together. — E. Reid, Clear Spring, Md.

CROSSTOWN TRAFFIC

Dear Readers: When navigating the bus routes in your city, keep this in mind: The direct route usually means fewer stops and a faster trip. Check out the bus system’s website to map out yours. — Heloise

Send a money-saving or timesaving hint to Heloise, P.O. Box 795001, San Antonio, TX 78279-5001, or you can fax it to 1-210-HELOISE or email it to Heloise@Heloise.com. I can’t answer your letter personally but will use the best hints received in my column.

Trump’s immigration rules could prevent our next Elon Musk

Silicon Valley’s highest echelon is filled with examples of successful people who have eschewed degrees in favor of entrepreneurship. It’s also filled with immigrants.

No one illustrates this better than Tesla and SpaceX CEO Elon Musk, who was born in South Africa. Musk did attain two bachelor’s degrees in the 1990s, one in economics and one in physics, but much of his relevant education came from his own experience. Musk taught himself both computer programming and rocketry. He dropped out of a Stanford PhD to found his first company.

Musk was able to continue working in the United States — where he would eventually become a citizen and household name, founding several billion dollar tech companies — thanks to a high-skill immigration visa called an H-1B. These days, Musk would have had a much harder time.

According to new data from US Citizenship and Immigration Services, some 52 percent of those who applied for next year’s 85,000 H-1B slots have a US master’s degree, more than double the rate it was in 2015. That’s been ticking up as immigrants and their US employers try to anticipate the Trump administration’s increasingly strict immigration policies that prioritize immigrants with graduate degrees.

Accordingly, master’s degree candidates are being selected at a higher rate. Some 63 percent of fiscal year 2020’s new H-1B recipients have master’s degrees, up from 56 percent the year before.

“Our efforts to improve the H-1B program are working and increasing the number of US advanced degree holders who are selected for the limited number of visas subject to the annual H-1B cap,” USCIS spokeswoman Jessica Collins told Recode. “Due to the new H-1B cap selection process, preliminary data shows that the number of petitions for US advanced degree holders selected toward the annual numerical allocations increased by more than 11 percent over last year.”

The idea behind the new regulation is that raising the education level will prevent immigrants — and the tech companies looking to employ those immigrants — from replacing American jobs with workers willing to fill them for less money, something that’s already prohibited in the H-1B rules.

However, the data shows there’s not much difference in pay between H-1B holders and US citizens. H-1B holders are usually paid the same or higher, if you account for age and occupation, according to the Government Accountability Office. A more recent study by salary information site Glassdoor backs up those findings.

Furthermore, the H-1B process is in itself expensive and time-consuming, so it’s not likely a money-saving mechanism. When an employer has a highly specialized job candidate, it files an H-1B application on that employee’s behalf. The application includes the employee’s exact duties and wages, which cannot be less than the prevailing wages for that job in that area. The process requires thousands of dollars in fees, can take up to six months, and is ultimately decided by computer-generated random selection.

The companies that have H-1B high approval ratings are some of the biggest, most innovative tech companies in the US. Amazon, Google, and Facebook last year received 99 percent of the H-1B visas they requested. These are companies that can afford to pay for the best talent, no matter where it’s from.

But US companies of all sizes are having a hard time finding enough tech talent to fill open positions, according to data from New American Economy, a bipartisan business research coalition. The organization has also found that an inadequate supply of H-1B workers in the American labor market has resulted in fewer jobs and lower wages for citizens and immigrants alike.

Notably, the number of high-skill immigrants allowed into the US annually hasn’t been updated since 2004, before internet companies dominated the US economy. Trump’s Buy American and Hire American is meant to “promote the proper functioning of the H-1B visa program,” but it has so far only made the process more complicated.

“By favoring individuals with master’s degrees, you risk favoring some industries over others,” said Sarah Pierce, a policy analyst at the Washington, DC-based think tank Migration Policy Institute.

The tech industry is particularly susceptible.

“Tech companies spend a lot of time looking at skill sets which may or may not be tied to a degree,” immigration attorney Dagmar Butte told Recode. “Usually they are experiential as opposed to being part of an advanced degree.”

According to a survey of 700 software engineers on Hired, a tech job platform, more than a third learned to code either on their own or through bootcamps. The rest took some sort of relevant college computer course, though it’s unlikely many of those resulted in grad degrees.

“For technical roles like software engineering, on-the-job experience and a lifetime commitment to learning are often the most important things,” Hired CEO Mehul Patel told Recode. “While having a background in computer science can be incredibly valuable, I think most employers would agree that technical talent will learn more during two years on the job than two years earning their master’s.”

Better Money Habits: How to set achievable financial goals

Setting realistic financial goals is key to achieving success. However, knowing which goals to prioritize and how to reach them can be difficult. In fact, just 9 percent of Americans achieve their New Year’s goals, according to January 2018 data from Statistic Brain. The reason may be that we’re bad at setting reasonable expectations. Whether you decide on a money-related goal because of a life event, such as having a baby or buying a house, or just to improve your financial health, it’s important to consider your priorities and make sure your financial goals are specific and achievable.

We’ve outlined four realistic financial goals that can help improve your financial health, as well as strategies you can use to help achieve these goals. Not all of these goals may apply to you right now, but achieving even one is a great start.

1. Pay down debt

Owing money on credit cards, mortgages, vehicles and student loans is a reality many Americans contend with. While trying to pay off all of your debt is a reasonable idea, it is also a difficult goal to reach. Simplify your goals by breaking them down: Look at your debt and decide on a percentage you’d like to shrink it by. Resolving to eliminate 5, 7 or 10 percent of your debt gives you a more realistic way to approach reducing what you owe.

In addition, be savvy about the way you pay down debt. Not all debt is created equal, so determine the right approach to achieve your goals. For example, you likely want to pay down high-interest debt first and focus on other debt later.

Setting smaller, short-term goals can give you a psychological boost when you reach them.

 

2. Make savings simple

If you set a goal to save a big amount in a certain time period, there’s a chance you’ll fall short. Financial goals that are many months away can be harder to achieve, and if you have a month or two with unexpected expenses, you may have to pause your savings effort. That decision not to save might seem like a setback.

Instead, give yourself specific, smaller, short-term (or seasonal) goals. Maybe you want a new smartphone, would like to take a trip somewhere or have your eye on a holiday gift. Setting smaller, short-term goals can give you a psychological boost when you reach them. If a big-ticket item is the ultimate goal, consider setting certain benchmarks along the way so you can achieve this same effect while still taking longer to save.

Tip: Pay yourself first by setting up automatic transfers from your checking account to your savings account or having some of your paycheck directly deposited into savings.

3. Track your spending

If the idea of setting and maintaining a budget sounds a bit overwhelming, you’re not alone. Just 41 percent of U.S. adults establish and maintain a budget, according to a March 13, 2018 survey conducted by the National Foundation for Credit Counseling. Rather than starting with creating an entire budget, you might choose to track your spending so you have a better sense of where your money is going each month.

If monitoring your spending by tracking monthly expenses and daily receipts seems difficult, technology can help. Apps, along with mobile and online banking, offer solutions for tracking your spending and identifying areas where you can make cuts.

4. Invest in yourself

Many Americans are struggling to save for retirement. In fact, a June 2018 Transamerica report shows the median amount Baby Boomers have set aside is $147,000—an amount that will provide a relatively low standard of living in retirement, even with Social Security and other forms of income. Start saving for retirement as soon as possible, so your money has more time to potentially grow. Think of it as investing in your future self.

Take a look at how you’re planning for retirement to see if you’re maximizing your resources. Can you contribute more to your 401(k) at work? Have you considered an IRA? Remember, retirement plans often offer tax advantages. Taking time to research what options are available, and taking advantage of the ones that make sense for you, can make a big difference in the future. Learn more about retirement planning from Merrill Edge.

Don’t let yourself off the hook

Setting goals is important, but sticking to new behaviors is tough. To help hold yourself accountable, set an alert on your calendar to check in on your goals each month. If you’re struggling, try thinking of another way you might be able to reach your goal. You might start smaller and look for ways to increase your savings amount over time. With the right planning and purpose, you will be able to build lasting habits that guide positive changes in your financial life.

See more stories on our Better Money Habits page.

Susan Tompor: These must-have apps can help you save money online

Earny provides refunds if something drops in price after you purchase it. The service covers items bought at participating retailers, such as Amazon, Best Buy, Target, Walmart, Costco Wholesale, Nordstrom, Nike, Kohl’s, Macy’s, Home Depot and Zappos.

Tax Day 2019: Money-Saving Tips for Everybody (Even If You’ve Already Filed)

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Why a timely nudge might help us save money

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Image caption

The experiment in rural India has inspired a range of products

Anyone struggling to save money might take inspiration from labourers in rural India.

These low-paid construction workers took part in an experiment. When they were paid, some of the cash was put into one envelope, or two, and earmarked as savings.

The stakes were raised for some when a picture of their children was attached to one of the envelopes.

Dipping into those savings for everyday spending – by ripping through the image of their sons and daughters – made them feel guilty. So, as they tried to avoid this guilty feeling, the amount they saved increased.

Can’t save, won’t save

This is more than just a theory. In the UK today, millions of people set money aside in a separate savings account to stop them spending it day-to-day.

Financial technology companies such as Wagestream, which allows workers to extract pay and save directly from their wages before payday, are trying out the use of reward and guilt.

It allows users to load an image of their savings goal onto the app, such as a car or a holiday destination. The more they save, the clearer the image becomes. If they withdraw money, the picture starts to disappear.

“It subtly reinforces the reality of what they are doing and can materially influence their behaviour,” says Peter Briffett, co-founder of Wagestream.

The reality, and the concern for many, is that the UK has lost its savings habit. This graph shows that experts are not expecting it to return any time soon.

The proportion of income left after taxes that we save is known as the savings ratio. For the last couple of years, the UK has saved about 4% of disposable income. In the 1990s, it came close to 15%.

The independent Office for Budget Responsibility (OBR), which makes forecasts for the government, predicts it will stay at or around this 50-year low for the next five years at least.

It is not all bad. The OBR, the Bank of England, and others expect interest rates to stay low too. Many people are deciding to pay off debts when the costs are low, rather than save when the rewards (in interest payments) are low too.

However, the Institute for Fiscal Studies says the increase in consumers’ spending has outstripped any income growth in the last couple of years.

A lack of savings has real consequences for the lives of millions of people – particularly the young and low-paid.

No savings means no financial buffer for the unexpected – no way to pay when a deposit is needed to rent a home, or when the vet’s bill lands after the cat is ill. or when the car breaks down. No car may mean no job.

Data shows the extent of the problem:

  • Official statistics reveal half of 20-somethings have no savings at all
  • Research by the Financial Conduct Authority found one in six people could not cope with a £50 rise in monthly rent or mortgage costs
  • In 2016, the Money Advice Service found that 16 million people in the UK had savings of less than £100
  • In Northern Ireland, the West Midlands, Yorkshire and Humber, North East England and Wales, more than half of the adult population had no more than £100 tucked away

Free money offered by the government has done little to reverse the situation. The Help to Save scheme offers a 50% bonus to certain people on low incomes if they save for two or four years. Take-up has been below half the level expected by the OBR.

So MAS, now called the Money and Pensions Service, wanted to find new ways to encourage people to save. It turned to the Behavioural Insights Team (BIT), commonly known as the “nudge unit”.

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In a tiny meeting room, one wall of which is entirely a whiteboard, sits someone with big ideas. Elisabeth Costa, is a director at BIT and leads a team of five trialling various projects aimed at encouraging those who are in work, but financially squeezed, to save.

A total of 244 ideas about savings, guidance, and managing debts were thought up, before 17 were chosen for trials.

In the end, many boil down to this: using timely reminders and automatic technology can help people manage their finances.

We “underestimate behavioural factors”, she says, which can be as powerful a motivator as, for example, an increase in the interest paid on savings.

“The industry should make [customers’] decisions as easy and as automated as possible,” she says.

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Smartphones offer the opportunity for reminders and automation

We make big changes at important times in our lives, so we might review our finances when we move home, or when children are born.

Yet reminders can work on a more regular basis, if they are well-timed, according to Ms Costa. Research in Mexico showed three-quarters of workers whose wages were paid into their bank account immediately took the money out in cash. They received a message on pay day urging them to keep it in.

One trial being planned in the UK is at supermarket check-outs, both physical and for online shoppers. The idea is that the shopper receives a message at the check-out asking whether they would like the equivalent of money saved from store discounts to be diverted automatically into a savings account.

The team also plans to test the same theory with longer-term savings. This would prompt people to save some of their wages into a “sidecar account” alongside any pension savings. Employees would contribute in the same way as a pension, but the extra would go into a more easily accessible savings account for a rainy day, or to pay emergency bills.

Other trials are planned or already in operation to help people pay off debt quicker, or block spending on gambling sites.

Prizes at the end of the tunnel

Ms Costa explains that when it comes to finances, people often display “tunnelling” behaviour, when their short-term decisions clash with their long-term interests. For example, someone squeezed for cash may borrow a payday loan rather than save the same amount by switching to a cheaper energy deal.

We also tend to value rewards that are offered today rather than in the long-term.

That is why prize-linked savings accounts are popular. One study in South Africa found savings increased by 38% when people were offered the chance to win a cash prize rather than being paid interest.

In the UK, Premium Bonds have been attracting people in much the same way for 60 years. It is the most popular savings product in the country. Yet, Ms Costa argues that for some people on low incomes, the £25 minimum investment may be too expensive.

Many will argue that the financially squeezed need a little more help, as well as a little more luck.