Keith Ernst

Reflections on Emergency Savings Salon

By Keith Ernst¹

Associate Director, Consumer Research and Examination Analytics

Division of Depositor and Consumer Protection, Federal Deposit Insurance Corporation

Confidence in the banking system is strengthened when the broadest set of consumers access and experience economic success through responsible, transparent financial products and services from insured depository institutions.  So, when the FDIC released data in September showing that three in ten U.S. households did not have a federally-insured savings account, it helped focus attention on many of the issues discussed at the Salon.

While formal accounts at depositories are not the only mechanism to facilitate savings, they are an important asset that allows consumers to set aside funds in insured, liquid accounts and build relationships with institutions that can provide access to a range of regulated financial products and services.

The rich dialogue at the Salon helped bring a number of challenges into focus. More importantly, perhaps, it raised a number of questions that might help identify solutions. Here, in brief, are three challenges the conference highlighted for me and a sampling of the questions I believe they prompt.

  1. While many consumers across a wide range of incomes can and do save, many do not and others are not saving as much as they would like. What can we do to make it easier for consumers to save? Are consumers uneducated about the benefits of savings?  How much are they constrained by income? Do they find existing account products unattractive? Do asset limits on social services programs (or misperceptions about those limits) discourage savings? How important is it to approach consumers at pivotal times such as at debt restructuring, when they are facing a tax refund or buying a home? How effective are peer-based support systems in encouraging regular savings? Much like regular exercise, the future nature of the benefits of saving can make it a hard habit to start and sustain. Can we find ways to bring those benefits into the present? For example, the Mission Asset Fund, a San Francisco-based organization provides vouchers to consumers for security deposits on apartments.  Consumers then make regular payments and redeem the voucher for an actual security deposit.  Are there similar programmatic opportunities?  Can more be done to link savings habits to present behaviors?
  2. Especially for consumers with low incomes, accumulating savings can be a frustratingly slow process. Yet, real and present demands that exceed available savings are often unavoidable. Is there a way to help savings do more for consumers sooner? We heard about linking savings with a secured credit card, but are there additional options that could leverage even modest amounts of savings to connect consumers with affordable installment credit in amounts that could help meet present needs?  Could such a mechanism be used to reinforce habitual savings habits by linking savings installment amounts and credit payment amounts?  How effectively do consumers manage liquid savings?  Do they draw down savings at optimal times?  Would increased education around when to tap savings and when to use alternate strategies benefit consumers?
  3. It can be difficult to build institutional support for initiatives to bolster household savings.  Can we better identify the business case for various entities? For example, do banks have more rewarding relationships with commercial customers when they are also helping those customers’ employees save? How do employers benefit when their employees are saving? Can we quantify benefits to municipalities or quasi-public entities like utility companies or public housing entities that result from increasing savings among their constituents or customers? Do household savings create economic stability and other benefits that spillover into the communities where they live?

¹ The views expressed here are my own and are not necessarily those of the FDIC or its Board of Directors.