A powerful partnership encourages saving in low-income America
Academia and social enterprise join forces to help low-income Americans save, designing innovative financial products that are grounded in world-class research.
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Financial innovation has helped speed the global economy into ever-increasing wealth, but we know that this wealth has become increasingly unevenly distributed. In the late 1990s, Peter Tufano, now Dean of Saïd Business School, started to question why financial innovation only seemed to be aimed at the wealthy: surely new products and mechanisms could be harnessed to benefit people in poverty? At the same time there was a growth of more socially-minded businesses that put people before profits and aimed to reduce social ills at the same time as running a successful enterprise.
Tufano founded Doorways to Dreams (D2D) to capture this newly emerging space: a sustainable business aimed at improving the lives of low income individuals. Fast forward to today, and the social enterprise has gone from strength to strength, and can now boast that it has changed the savings landscape of the United States of America, and to have impacted on tens of thousands of individuals.
In December 2014, President Obama signed the American Savings Promotion Act (ASPA) into law. In doing so he removed US federal prohibitions on banks offering Prize Linked Savings (PLS) products. These are savings vehicles where the collective interest of savers is redistributed via a raffle-like draw – similar to National Premium Bonds in the UK. The Federal bill grew out of pilot testing and research conducted over the last eight years by Tufano and D2D.
Doorways to Dreams Fund strengthens the financial opportunity and security of low to moderate consumers by innovating, incubating and stimulating new financial products and services
- D2D Fund
Dean Tufano’s research into household finance and prize linked savings in the UK, South Africa, and the US shows that individuals are willing to give up the certainty of a small payoff from traditional savings accounts for a chance at a large, potentially life-changing cash prize. The research shows that low-income consumers find an element of fun in this form of saving. It also has demonstrable impact on developing a long-term savings habit which leads to increased financial security. PLS products have a positive appeal to low- to moderate-income individuals and non-savers; not just motivating them to start to save, but helping them develop a long-term savings habit that will result in increased financial security.
D2D has complemented Tufano’s research with on-the-ground testing, support for related policy change in nine states, and assistance to financial service firms seeking to scale the concept. In 2009, D2D and collaborators launched Save to Win, the first state-wide prize linked savings product in the United States. Save to Win has subsequently grown to four states, with 50,000 accounts opened and $100 million in savings to-date. D2D has expanded the prize linked savings idea into new product lines and markets, and has held lots of national events to build support for this new way of framing saving. Dean Tufano’s research and the practical work conducted by D2D were vital in bringing this successful savings mechanism to a wider audience, and should help generations of low income Americans towards financial security.