Tag: saving

When consumers have incentive to save they will borrow less

incentive

When consumers are incentivized to save, they will save more. When they save more, they use fewer payday loans. This is the conclusion made by the Consumer Financial Protection Bureau (CFPB).

The CFPB, releasing its latest results in the Project Catalyst research project, discovered that when you both ask and offer incentives customers to allocate some of their money into a savings “wallet” then they will do so. As they continued to utilize the savings wallet, they saved more and used far less payday loans.

According to the CFPB, when customers were not asked and incentivized to take advantage of the so-called savings wallet then they did not save more and they continued to use more payday loans.

“This Project Catalyst research shows that encouraging and enabling users of prepaid cards to set aside funds can help people reach their short-term financial goals,” said CFPB Director Richard Cordray in a statement. “Importantly, it also shows that consumers who are encouraged to save can reduce their use of payday loans.”

The CFPB maintained the project for three months and tracked the users for an additional nine months. The researchers found that maximum savings had peaked at $150. After nine months, the savings had steadied at around $100.

CFPB study authors presented the idea that consumers, despite their income levels, want to save more. When they are given the option to save a portion of their income then they will do so, which is positive news.

Researchers noted that this can be a common problem for low-income households. Since impoverished consumers do not have a savings account, they regularly use the funds in their checking account or they borrow funds from short-term, high-interest loan stores. These funds will be tapped to cover common expenses or to pay for an unforeseen event.

The CFPB believes that if consumers have a savings account then they can better attain their pecuniary objectives. Without one, the CFPB notes, they won’t be able to get very far in their monetary aims.

The CFPB’s research is actually required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since its inception, the CFPB has launched an array of initiatives to provide consumers financial education and help individuals meet their ultimate savings goals.

Over the last couple of years, the CFPB has also been active in reining in the payday loan industry. The federal consumer watchdog agency believes that payday loans tend to negatively impact the impecunious households and neighborhoods across the United States.

This past spring, the CFPB unleashed the nation’s very first federal regulatory framework for the payday loan industry. Proponents of the payday loan industry purport that these regulations go too far, while payday loan critics argue that the new rules don’t go far enough. Members of Congress are trying to derail the proposal, while others are trying to get it to the desk of President Obama to sign and enact.

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