239P
Exploring Impact of Material Hardships and Financial Shocks on Low-Income Households Using Data from a Large-Scale National Longitudinal Randomized Controlled Trial

Schedule:
Friday, January 16, 2015
Bissonet, Third Floor (New Orleans Marriott)
* noted as presenting author
Michal Grinstein-Weiss, PhD, Associate Professor; Associate Director, Washington University in Saint Louis, St. Louis, MO
Krista Comer, MA, Project Director, Washington University in Saint Louis, St. Louis, MO
Blair D. Russell, PhD, Data Analyst, Washington University in Saint Louis, St. Louis, MO
Dan Ariely, PhD, James B. Duke Professor of Behavioral Economics, Duke University, Durham, NC
Background: Clients’ principal issues are often compounded by the stress of managing tightly constrained resources, increasing the difficulty of making financial trade-offs and adding the challenge of coping with material hardship and unforeseen financial shocks. With the aim of increasing the financial security of low-income households, the Refund to Savings (R2S) initiative seeks to gain a deep understanding of the factors influencing the financial well-being, behavior, and decision making of vulnerable households. R2S translates research findings into low-touch, behaviorally informed interventions that enable families to strengthen their own safety net by building savings. The initiative is a unique partnership between academia (Center for Social Development at Washington University in St. Louis, and Duke University) and industry (Intuit, makers of TurboTax).

Methods: This paper presents findings from a large-scale longitudinal randomized controlled trial of R2S experimental interventions using the online TurboTax Freedom Edition software and 2 waves of the Household Financial Survey (HFS; baseline and 6-month follow-up). The HFS sample was drawn from a national pool of individuals who used the TurboTax Freedom Edition during the 2013 tax season, and who were eligible for a federal tax refund. The baseline HFS collected data on 20,761 users immediately after they filed their taxes electronically. Approximately 6 months later, all respondents were invited to complete a follow-up survey; the second HFS was completed by 8,324 respondents. These survey data were matched to and merged with administrative individual-level tax data provided by TurboTax, yielding a rich and reliable dataset on a large sample of U.S. low-income households.

Results: The data reveal many low-income households face ongoing, pervasive financial hardships. In the 6-month period following tax filing, 81% of the sample reported experiencing at least one instance of a substantial material hardship such as skipping needed medications or missing rental payments. During the same period, 66% of the sample reported experiencing at least one financial shock such as unexpected hospital costs or a job layoff. Despite such hardships, many low-income households were able to save some part of their tax refund for at least 6 months. Moreover, statistical analyses demonstrate the most effective R2S interventions are associated with increases in both the likelihood of households saving and the amount of the refund saved for 6 months.

Implications: The economic health of families is at the core of social policy and social work practice, yet many families are still experiencing high-levels of financial insecurity while too few interventions have offered effective, sustainable approaches to creating financial health among low-income families. Understanding the factors affecting the financial decisions and behaviors of these households can inform the design and delivery of social services. Findings from the R2S study suggest the most effective approaches are low-touch, behaviorally informed interventions that nudge vulnerable households to build a personal safety net to protect against potentially devastating financial shocks. The study findings offer timely insight into the implications of proposed policy changes affecting the Earned Income Tax Credit and other initiatives aimed toward promoting savings and financial security of U.S. low-income households.