Studies Supported by the US Finance Initiative:
Credit-building loan products have begun to proliferate in the U.S. marketplace. However, there is little evidence on how much these products boost credit scores and for whom. IPA and RAND, a nonprofit global policy think tank, are conducting an impact evaluation of a credit-building loan product offered at a credit union in Missouri, both alone and coupled with financial counseling. In addition, this study evaluates a product add-on designed to help these borrowers save.
Researchers conducted a randomized evaluation to investigate the demand for commitment savings products or financial counseling, and the impacts these products and services have on savings, among a sample of low- and moderate-income credit union members in New York City. Analysis of the effect of these financial products on savings, borrowing, and credit scores is ongoing.
Americans who have difficulty formally accessing credit from conventional financial institutions often turn to costly products such as high-interest pawn and payday loans or bank account overdrafts. Researchers in this study have partnered with a community development credit union to evaluate the demand for safe, affordable, and transparent small dollar loans, and the impact of behaviorally-informed product features on the financial capability of credit union members.
Researchers designed and piloted a program called Borrow Less Tomorrow (BoLT) that took a behavioral approach to debt reduction, combining an accelerated loan repayment schedule with peer support and reminders. Results from a sample of free tax-preparation clients in Tulsa, United States suggest a strong demand for debt reduction: 41 percent of those offered BoLT used it to make a plan to accelerate debt repayment.
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.
There are growing concerns that American households tend to borrow too much and save too little, making it hard to meet basic needs, build assets, prepare for retirement, and pay for emergency expenses. Large debt burdens may compromise individuals and families’ ability to create a safety net or make investments for the future.