Could You Access Two Thousand Dollars in a Month?

If you answered yes to the title question, then you are better off than approximately one quarter of American families, according to a Brookings study that examines the financial fragility of U.S. households. Beg, borrow, or sell, a quarter of U.S. families do not have access to two thousand dollars within a month! They could not tap savings, ask friends or family, take out a loan, hawk jewelry, or pick up more hours at work.

Without savings, American families are incredibly vulnerable to life shocks. A lost job, hospital bills, or even car repairs, can have severe consequences – even as severe as hunger or homelessness. Another study by Commonwealth of families with $20-60K in annual income found that 62 percent of households experienced at least one financial shock in the last 12 months and 51 percent of households lacked any emergency savings to help them cope.

Despite being one of the wealthiest countries in the world, Americans just aren’t saving. Americans save an average of 4.4 percent of their disposable income, while Chinese households save between 25 to 50 percent of their total income, according to Forbes.

So what would encourage Americans to save more? That is a nut that Commonwealth is trying to crack – and their answer involves video games and prizes. Commonwealth looks for creative and scalable solutions to address America’s lack of savings. Their Financial Entertainment project is a fun, innovative way to learn about personal finances through game play. The financial literacy games range from “saving for retirement while running a vampire nightclub” to “managing farm resources to build savings and survive financial emergencies.” Think of Facebook’s FarmVille (which has 40 million likes) but as an opportunity to educate Americans about savings and managing finances. In terms of Commonwealth’s prize-linked savings efforts, their Save to Win (STW) program, which enters participants into raffles for cash prizes each time they make a savings deposit of $25 or more, is being rolled out in credit unions nationally. A true example of behavioral economics in play.

Most Americans know that they should be putting the money they spend for that daily venti no foam latte toward their children’s college fund, but few actually do. This problem with savings speaks to the deeper issue of “behavioral change” that we have been examining lately at the Center for Financial Inclusion. I’d be curious to hear from our blog readership: what would motivate you to save more?

Editor’s Note: Commonwealth was known as the D2D Fund at the date of posting.

Image Credit: Ken Teegardin

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