How Social Support Can Help Lower-Income People Save Money

How Social Support Can Help Lower-Income People Save Money

Tuesday, April 6, 2021

As part of BlackRock’s Emergency Savings Initiative, Commonwealth completed a one- year pilot on group savings with our partner Esusu that resulted in participants saving a total of $6,440. We found that 93% of participants saved regularly as a group, demonstrating the power social support has in helping lower-income households build emergency savings. 

Prior to the COVID-19 pandemic, 37% of households did not have access to $400 in liquid savings. For households making less than $60,000 a year, 58% do not have access to emergency funds, and the challenge is more severe for female-headed households and Black households (61% and 71% respectfully). Through BlackRock’s Emergency Savings Initiative, Commonwealth has been exploring new and novel ways to address this by helping people access high-quality liquid savings solutions. Without a financial cushion for emergencies, paying for an unexpected expense—like a car repair or medical bill—means financially insecure households often must turn to costly financing methods such as payday loans or high-interest credit cards. 

Commonwealth’s Collective Emergency Savings is an innovative approach to building an emergency savings fund that builds on a tested groups savings tool, Rotating Savings and Credit Associations (ROSCAs). These savings groups have been proven to protect savings against immediate household consumption, create accountability, and provide access to a greater pool of funds than one is able to save on their own in the same amount of time through social pressure that contributes to motivation to make periodic, automatic saving deposits. 

From December 2019 to January 2021, eight groups participated in our experiment. Each group was composed of three to four participants who saved between $5 and $75 a month. We recruited people who did not feel prepared for a financial emergency, oversampling for women of color. We worked with groups of friends, families, acquaintances, and strangers. At the start of the pilot, groups determined the amount that each of its members would save every period (once a month).

Here’s what we found: 

  1. When saving as a group, users save more, and save more regularly.
  2. A larger pool of capital helps users feel more prepared for emergencies.
  3. Users believe they will be more financially secure in the future.

In our Collective Emergency Savings model, a group saves together to build an emergency fund. In contrast to the traditional ROCSA model, in Collective Emergency Savings the savings is not paid out at the end of each savings cycle, but instead is held in a joint account. When a member experiences an emergency, they may request funds from the pooled savings and the group votes to release the funds.

The hypothesis guiding our approach is built on two components: 

  1. Social support: The social contract of saving with a group will motivate users to start saving and to keep saving.
  2. Access: The pooled account will help savers feel more prepared for unexpected emergencies and, when an emergency arises, users will have access to a larger reserve to manage the emergency. 

When designing future products that incorporate Collective Emergency Savings, innovators should consider the following: Liquidity (access to one’s funds quickly), expectations (establishing a shared group understanding such as a contract), and trust (developing a strong bond to help build a shared habit). 

Reflecting on the experiment, one participant said, “I see [my financial future] getting better and I see five years looking a lot better. I’m very optimistic about it. I’m more aware of spending and saving now.” 

To learn more about Commonwealth’s Collective Emergency Savings, download the report. 

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. Partners including UPS, Mastercard, MX, and Self Financial have joined BlackRock’s Emergency Savings Initiative to help their employees and customers take the essential first step toward long-term financial well-being.