Current Projects

Using Behavioral Economics to Help Households Reduce Debt

This project will evaluate the effectiveness of innovative decision-making devices based on lessons from behavioral economics and psychology.  Financial outcomes in retirement are the product of a lifetime of decisions.  For many households, the most important financial decisions involve borrowing, not saving.  Rather than the rational creatures that standard economic models of behavior assume, humans are subject to numerous biases that may impede our abilities to make good choices.  This project will use successes from United States and developing countries to implement behaviorally-motivated interventions for helping U.S. consumers reduce their reliance on credit card debt and increase savings, with an eye towards the importance of early retirement planning.

Financial Education and Commitment Savings Contracts to Reduce Credit Card Reliance and Mobilize Savings among Low-Income U.S. Households

This project will evaluate the effectiveness of financial education and commitment contracts in promoting higher levels of saving, reduced reliance on credit card debt and healthier financial portfolios among low-income individuals in the United States.  U.S. households in the bottom quartile of wealth spend, on average, more than they earn, and many low-income consumers lack formal savings accounts. Consumers tend to have time-inconsistent preferences for savings and consumption; they tend to be more impatient in the near-term than in the long-term and thus have a propensity to make purchases that are later regretted.  This project will evaluate the impact of commitment devices as a mechanism for mitigating time-inconsistent tendencies in spending, borrowing and saving. 

Using Behavioral Economics to Improve Debt Management Outcomes

This project will apply behavioral economics principles to improve financial outcomes for individuals and families enrolled in Debt Management Programs (DMPs) with national credit counseling agencies. IPA’s interventions in this space are designed to reduce DMP attrition and improve payment success.  Research suggests that cognitive biases such as limited attention, hyperbolic discounting and the planning fallacy can lead DMP clients to neglect or abandon their financial goals, even after receiving debt counseling.  IPA proposes interventions that can counter or harness these biases to improve DMP success and overall financial wellbeing. If effective, these interventions offer powerful, low-cost tools that credit counseling agencies and other stakeholders can apply to their core operations to help clients be more successful in reaching their goals.

Responses to Degree of Control over Remittances in El Salvador

How do migrants decide how much money to send home in remittances? Would they like to have some control over how much of the money is spent and how much is saved? This study offered a variety of special bank accounts to migrants from El Salvador living in Washington DC, offering the sender varying degrees of control over an account held in the receivers name. Migrants offered greater control sent significantly more. Those offered some control over bank accounts roughly doubled their total savings in the combined trans-national household (migrant plus remittance recipient).

Increasing Savings and Reducing Reliance on Credit Card Debt for Low-Income Individuals in Washington, DC

This project will evaluate the impact of commitment contracts and reminder messaging on savings behaviors among low- and medium-income credit union members in Washington DC.  Traditional financial products which dominate the consumer finance market tend to operate under the assumption that consumers act in a rational manner and fail to take into account cognitive biases which can impede the realization of financial goals.  Here we test a savings product that includes two features designed to overcome these biases.  A built-in commitment contract attempts to encourage consumers to forego present expenditures in lieu of future payoffs.  Regular messaging attempts to overcome limited attention, which may result in an inability to stick to a budget or savings plan.