A Nonprofit Devises Smarter Ways to Help Poor People Save Money

EARN, a nonprofit group in San Francisco, has helped thousands of low-income residents save money to buy a house, start a business, or go to college.

But the organization realized it didn’t really know why it was successful. So EARN has set out an ambitious research agenda to study its programs, with the goal of improving its own offerings and helping organizations across the country design better programs to help people climb out of poverty.

“There’s so much effort and so much investment in this issue of trying to end poverty and create prosperity,” says Ben Mangan, the organization’s chief executive. “But there’s often a real lack of insight and incisiveness on understanding the root causes of the poverty and the root causes of prosperity.”

The group is also using its research to craft public-policy proposals, including recommendations for the Obama administration’s proposed changes to the Saver’s Tax Credit.

Confidence Is Key

The organization formally started the EARN Research Institute in November. One of the institute’s first projects was a sophisticated statistical analysis of seven years’ worth of survey data from more than 500 participants in EARN’s savings program, in which every dollar participants put aside, up to $2,000, is matched by $2 from EARN. The program also includes financial-management training.

The analysis found that increased financial knowledge did not directly predict a decrease in financial problems among participants but that increases in participants’ confidence in their ability to handle their finances did.

Researchers heard echoes of that finding during in-depth interviews they conducted with people who had finished the matched-savings program and used all of the money they had saved to buy a house, start a business, or continue their education.

Of the 30 people interviewed, 25 continued to save, even though their savings were no longer matched.

In the interviews, the alumni of EARN’s program said that the realization that they could save money, even with a limited income, and that they could purchase a house or pay for college—icons of the American Dream—were powerful motivations for their continued saving.

Mr. Mangan says EARN’s goal is to be able to say that if an organization spends X amount of money on a specific type of wealth-building approach, it will lead to “this percentage increase in household net worth, this percent increase in FICO credit score, and this percent decrease in household debt,” as well as certain changes in financial behavior.

“Over time, we’re going to be able to provide a very robust set of data points that show on a per-cost basis what kind of impact you could have if you did different sorts of things,” he says.

Credit for Savers

Ida Rademacher, vice president for policy and research at the Corporation for Enterprise Development, a nonprofit in Washington that identifies and tests new ideas to help low-income workers improve their financial well-being, says she is excited to see EARN bolster its research activities.

Organizations that fight poverty by helping people build assets have shown that poor people can save, she says, but it is still unclear how best to ensure success.

“There’s a whole research agenda out there waiting to be fleshed out,” she says.

EARN believes that developing and advocating for public policies is a natural outgrowth of research.

Last month the organization received a $300,000 grant from the Rockefeller Foundation to help influence the development of the Obama administration’s proposed changes to the Saver’s Tax Credit.

The $500 tax credit is designed to encourage low-wage workers to save for retirement. In its current form, the credit can lower people’s tax bills but would not help people who earn too little to pay taxes.

Last year the president proposed changing that so that even workers who earn too little to pay taxes would get the incentive to save.

In the president’s budget proposal for the 2011 fiscal year, he called for the credit to be refundable and for the government to provide a match of up to $500, in accounts that people could enroll in automatically, even if their employers do not offer retirement plans.

With the money from Rockefeller, EARN will talk to 1,000 low-income workers to gather information to help design the program in a way that encourages the most people who qualify for the credit to use it.

With budget battles between Congress and the White House and with states facing unprecedented deficits, Mr. Mangan acknowledges it’s a challenging time to advocate for new policies. But he thinks with its work on the Saver’s Tax Credit, EARN has a chance to make a real difference for low-income workers.

If the Saver’s Tax Credit account “was designed poorly, the terms of the account were poorly explained, and they were unattractive to people, people may not participate,” he says. “It’s a policy opportunity that could be wasted.”