Nearly all consumers make occasional impulse purchases and, generally speaking, enjoy doing so. While saving money may also be enjoyable, that enjoyment may be delayed, often far into the future, when savings are needed or used.
Developers of a pilot savings program, called Piggymojo, sought to capitalize on impulsivity to promote saving among low-income consumers, for whom unpredictable fluctuations in income and expenses leave little room in their budgets to include anything more than small savings deposits.
Piggymojo partnered with the MAGIC Card, a prepaid, celebrity-endorsed MasterCard, to launch MAGIC Mojo, an optional savings feature that could be added to the card.
The UNC Center for Community Capital evaluated the program with funding from the Center for Financial Services Innovation (CFSI) as part of its Financial Capability Innovation Fund.
Researchers found that MAGIC Mojo effectively encouraged cardholders to save more often. Importantly, the high degree of liquidity offered by the card encouraged, rather than discouraged, saving among consumers who might otherwise be reluctant to put funds aside.
“This research shows the need consumers have for flexible savings opportunities – in terms of how they save, what they save for and how, when and why they access their funds,” says senior project manager Jessica Dorrance, co-author with research associate Robert Donnelly and executive director Lucy Gorham of the study, Impulse Savings: Evaluating the Impacts of MAGIC Mojo. “In an environment of increased income volatility, that flexibility may actually promote saving rather than discourage it.”
The MAGIC Mojo pilot ran from December 2012-June 2014, offering consumers who purchased pre-paid MAGIC Cards the option to enroll in a special savings feature. The feature allowed them to set savings goals, set aside savings by moving money from the spending to savings side of the card or creating recurring payments, and access their savings by moving money back to the spending side of the card.
Although the MAGIC Mojo tool no longer exists, the concept behind MAGIC Mojo – leveraging an impulsive moment – could potentially be attached to a wide range of transaction products. The results from this pilot program shed light on strategies that could be adapted to shape products that encourage saving and asset-building among low-income consumers.
Among the study’s findings:
- “Saving for emergencies” was the most common saving goal (36 percent) followed by “saving for vacation” (17 percent), “saving to buy something” (12 percent) and “saving for family” (11 percent).
- Approximately half (51 percent) of cardholders who removed funds from their savings accounts during the pilot said it was for an “unexpected emergency expense” or “to pay household expenses or bills,” regardless of their reason for saving.
- MAGIC Mojo cardholders who used both the recurring and impulse savings methods saved the most.
- The MAGIC Mojo feature significantly increased the activation and funding rate of the MAGIC Card as well as the lifespan of the card, with 80 percent of MAGIC Mojo users activating their cards. compared to just over one-quarter of non-MAGIC Mojo users and users averaging twice as many days for keeping their cards open compared to non-users.
“With prepaid cards becoming an increasingly common financial tool used by consumers, and lower-income consumers in particular, this finding has important implications for increasing the attractiveness and effectiveness of prepaid cards as a secure and longer-term financial tool,” says Dorrance. “This finding also has implications for prepaid card providers by demonstrating that a savings tool on a prepaid card may help build profitability and sustainability of safe, affordable prepaid cards.”
The complete report is available at online.
The UNC Center for Community Capital is the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. The center’s in-depth analyses help policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people, more effectively. For more information, visit www.ccc.unc.edu.