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Campaign for Working Families Test

In Part 2 of a CFED blog post, read how Campaign for Working Families in Philadelphia carefully designed an orientation session and a series of reminders and tools to help self-employed tax filers to gather and organize their tax information before they came to the site. In their test (sample size = 41), the refunds achieved by the group who participated in the orientation and reminder system had refunds that were over seven times larger than the refunds of the control group.

Addressing Biases

The post also talks about how behavioral economics principles were incorporated to improve filers’ follow-through by:

• asking filers to commit to the behavior (specifically, writing it down)
• asking filers to plan the specific steps of the implementation (see my post on if-then planning)
• making it easy for them (what the Heath brothers call shaping the path)

Are you interested in incorporating a system like this at your VITA site next year?

Flickr Photo by $PHPhoto

Like many VITA sites, SparkPoint Marin Center is looking for new ways to incorporate asset-building activities into its free tax preparation services.

In addition to offering CFR’s  U.S. Bank Prepaid Debit Card to filers who opt for direct deposit, we are also encouraging individuals and families to attend an orientation session to learn how the SparkPoint Marin Center can help them take control of their financial future.

We’ve been tossing around the idea of creating workshops that focus on some of the common issues that our tax filers struggle with. Today I saw a CFED blog post about how a VITA site in Philadelphia sees many self-employed people with the same problem we do here at SparkPoint Marin Center: they do not bring their business receipts or an itemized list of business expenses with them. As a result, it can take many hours and multiple return visits to complete and submit their Schedule C.

Profit from Preparation

The post’s author asserts that when filers are unprepared to itemize their business expenses, they lose more than just time — they also lose money:

“In a study with Foundation Communities in Austin Texas, tax preparers rated clients preparedness on a scale of 0 to 3 where 0 was not at all prepared and 3 was extremely prepared. We then analyzed the data to see if there was a correlation between refund amount and level of preparedness.

We found a very clear (and statistically significant) correlation: the more prepared a client was, the higher her refund. And we found this to be true when all other variables available (business type, business income) were accounted for.”

The bar graph below goes on to show that those who were “extremeley well prepared” got an average refund that was $1,158 higher than those who were “not prepared at all.”

Tax Workshop Development

SparkPoint Marin Center is looking for one or more volunteers to help us develop a workshop on this very topic. We would like to offer this workshop to the self-employed individuals who recently came to SPMC for free tax preparation services — especially those who did not receive refunds this year — to help them start the documentation process NOW, in preparation for next year’s tax season.

If you or someone you know is an expert in this area and would like to help, we want to hear from you!

Flickr Photo by bfishadow

Knowledge is power, as the saying goes. But is it powerful enough to help people decrease their financial problems? That was the question asked by the EARN Research Institute last November:

“Popular wisdom suggests that if you want to succeed financially, you need two things: financial knowledge and access to appropriate financial products. This combination is commonly referred to as financial capability. But a groundbreaking paper from the EARN Research Institute points out that these two factors only lead to financial success when paired with a third component: financial self-efficacy.”

This third component is more abstract than knowledge or access to resources. Financial self-efficacy is a person’s confidence in their ability to handle their finances — their actual and perceived ability to combine their financial knowledge with the use of high-quality products.

The EARN researchers found that knowledge alone was not enough. People have to operationalize their financial knowledge by using it, building both confidence and ability along the way.

“…according to Dr. William Lapp, the EARN Research Institute’s Chief Investigator and author of this latest study, ‘even though financial knowledge grew’ among participants in EARN’s direct service programs, ‘it did not directly predict a decrease in financial problems.’ Rather, the pivotal predictor of fewer financial problems was financial self-efficacy…In other words, to achieve financial success, you must operationalize your financial knowledge by using it, building both confidence and ability along the way.”

What I love most about this powerful trinity of financial capability (knowledge), financial self-efficacy (confidence) and access to high-quality products (resources) is that it mirrors the factors identified by Chip and Dan Heath in Switch: How to Change When Change Is Hard.

They argue that lasting change is elusive because we have an inherent conflict in the way our brains operate, and that our rational mind and our emotional mind compete for control. The image they use to describe this tension is a rider on an elephant. The rider is your rational mind, pointing the direction and cracking the whip; the elephant is your emotional mind, and if the elephant doesn’t want to go, it won’t go. And even if the elephant and the rider are in perfect alignment, they can be stopped by obstacles on their path.

In the EARN context, the rider is financial education, pointing you in the right direction. The path is access to financial products and resources. And the elephant is the confidence you have in your ability to handle your finances.

Real and lasting financial improvements come only when all three of these areas are in alignment.

At SparkPoint Marin Center, we are addressing all three areas by providing educational workshops, individual coaching, and access to a prepaid debit card and other financial products.

Are your asset building efforts hitting all three of these areas?

In an article in the January/February issue of Psychology Today, Social Psychologist Heidi Grant Halvorson, Ph.D., describes the difference between intentions and plans, and how “if-then planning” speaks the language of your brain.

Flickr photo by alancleaver_2000

We’ve all made sweeping resolutions, such as “I’m going to lose weight,” that fail despite our best intentions. According to Dr. Halvorson, the problem lies in the lack of specificity of these resolutions.

Promising yourself that you will “eat less” or “exercise more” doesn’t give your brain very much to go on. The trick is to convert it to a more specific plan: if X happens, then I will do Y.

“‘Eat less’ becomes something like ‘When the dessert menu comes, I will ignore it and order coffee.’…’Work out more’ turns into ‘I will work out for an hour at the gym on Mondays, Wednesdays and Fridays before work.'”

She cites studies that show that if-then planning makes it two to three times more likely that you will succeed. Basically, the if-then approach sets up “cues”  for your brain, a link between the situation (the if) and the behavior (the then.)

And here’s the best part:

“by detecting situations and directing behavior without conscious effort, if-then plans  are far less taxing and require less willpower than mere resolutions. They enable us to conserve our self-control strength for when it’s really needed, and compensate for it when we don’t have enough.”

Do you have any great examples of how you or someone you coached successfully used if-then planning?

“Currently, the existing federal Saver’s Tax Credit provides a non-refundable credit for lower-income people who contribute to qualified retirement savings plans; but the fact that it is “non-refundable” means that it can’t reduce a family’s tax to less than zero, which would result in a refund. So, for families whose incomes are so low that they already pay low taxes, this makes the STC unavailable to them.”

The Rockefeller grant will enable EARN to assess the needs of low-income workers across California and identify retirement savings options to address these needs.

Read the full press release here.

Flickr photo by whiteafrican

I call it the “last-mover advantage.”

Third-world countries who are unencumbered by legacy systems and old habits are often the place where new technologies can really take hold.

The New York Times’ Freakonomics blog  talks about a  mobile-money transfer service called M-PESA (M is for mobile, pesa is Swahili for money). In what the BBC is calling a “wallet revolution,” M-PESA has reached nearly 40% of the Kenyan population in only two years of operation, across a wide range of economic segments.

But this section of the post caught my eye, as it delves into one aspect of human behavior that may be driving the service’s popularity:

“M-PESA may offer significant benefits to disadvantaged demographic groups, particularly women…Especially among poorer segments of the population, remittances and transfers received (and sent) via M‐PESA are less visible than those transmitted by other means, such as delivery by a friend or relative…Granted this information advantage, recipients could be in a position to keep more of the funds they receive.”

What an innovative way to empower women!

Do you think mobile banking could be this successful in the United States?

“The need for policies that promote wealth building is clear: thirty percent of Californians lack enough savings to get by for three months in the event of a job loss or medical emergency. Asset poverty is twice as pervasive as the income poverty rate and arguably more consequential.”

Assembly member Ricardo Lara (D-Bell Gardens) is Chair of the Committee, which will formally institutionalize within the State Legislature the work to develop an agenda devoted to building savings for education, retirement, entrepreneurship, homeownership, and security against economic crises.

“During these times of economic uncertainty, a person’s ability to go from mere subsistence to obtaining financial stability, prosperity and success relies on their ability to build and protect assets,” said Assemblyman Lara. “It is imperative that policymakers re-examine traditional strategies for helping people out of poverty. Low-income working families may need essential services and resources in the short-term; however, policies that promote and reinforce long-term financial stability and independence should be our priority.”

Read the full press release here.

Flickr photo by ahisgett

We have all heard of the dreaded downward spiral, where one bad event triggers a cascade of trouble. Isn’t it nice to know that this effect works in the positive direction as well?

One of my favorite bloggers, Leo Babuta of Zen Habits, often talks about how to transform bad habits into new, healthy ones. And in his post The Spiral of Successful Habits, he hits on what I think are the two most important elements to getting started: 1) choose one — and only one — habit to start with, and 2) start with one that’s relatively easy.

Leo describes how he got started with a major life overhaul back in 2005:

“I chose just one habit. The other habits would come later. Starting with just one habit accomplished four important things:

1. It became much more manageable. One habit is doable — 15 habits are too hard.
2. It gave me focus. I could pour all my energies into one thing. When you have too many habits you’re trying to change it diffuses your energies and you most often fail.
3. It taught me how to change habits — and then I could apply that knowledge to the next habit change.
4. It allowed me to succeed and then use that energy and enthusiasm to succeed at the next thing.

I started with quitting smoking because it seemed the most urgent to me. Looking back it was also the hardest habit to quit. I might recommend an easier habit to get started with. But the truth is it doesn’t matter much. If you have 15 habits you want to change and they all seem important then just pick one randomly.”

As Dr. Martin Luther King, Jr. said, “Take the first step in faith. You don’t have to see the whole staircase, just take the first step.”