Imagine if all recipients of federal rental assistance had access to a savings account that grew as their earnings grew. This shift could potentially lead to a range of benefits, including increased earnings; investments in education, homeownership and small businesses that materially enhance households’ well-being; and improvements in mental health. Of course, we don’t know for sure whether these outcomes would occur – like all significant policy changes, this policy innovation would need to be rigorously tested. But it’s an idea that merits further exploration, especially since any increases in earnings induced by the policy change would generate increased rent revenue that could help offset program costs.
Cambridge, MA Pilot Initiative
Two Boston-area organizations – Compass Working Capital and the Cambridge Housing Authority – are partnering to develop a pilot initiative to test a version of this concept. The pilot, expected to launch in 2016, will provide residents of two public housing developments with a special savings account into which the Housing Authority will deposit half of any increased rent that the resident pays due to increased earnings. In Cambridge, the rent payments required of a public housing resident rise whenever the resident’s income increases from one income band to the next. By depositing half of that increased rent into an account for the resident, the program hopes to provide an incentive for residents to increase their earnings along with a means for residents to build assets that they can deploy to pay for education for themselves or their children, to start a business, to buy a car or home, to save for retirement, or to invest in other strategic ways to improve resident well-being. In addition, an amount equal to one percent of residents’ rent will be deposited into residents’ accounts each month, providing a slow but steady accrual that should attract residents’ attention and provide an opportunity for all households to build modest savings on a monthly basis.
Residents of one of the pilot developments will have the ability to access their accrued funds once they successfully complete a stint working with a financial coach on their credit, debt levels, budgeting, savings, and earnings. Compass and CHA hypothesize that key outcomes (such as confidence, savings, earnings, and credit scores) will be strengthened by the addition of financial coaching. Residents of the other development will be able to access their funds without the financial coaching requirement. This aspect of the pilot is looking at whether the incentive on its own – if well-marketed – may lead to earnings increases and whether simply having an asset account shifts residents’ outlook for the future.
An initial pilot phase will be used to test how the initiative works in practice, examining, among other things, how best to market the incentives, how many people agree to start working with a financial coach, and what obstacles are encountered in implementing the program. Assuming funding can be raised to support a formative evaluation of the pilot initiative, additional lessons could be learned about whether and to what extent residents become aware of and understand the incentives and to what extent residents report the incentives shift their behavior and outlook for the future. A successful pilot would pave the way for broader implementation and rigorous evaluation to determine what impact, if any, the initiative has on residents’ earnings, savings, credit scores, debt levels, outlook for the future and mental health. An evaluation would also look at how residents deploy the savings they accumulate.
Building on Prior Initiatives and Learning
This pilot initiative builds on an existing collaboration between the two partners on a version of HUD’s Family Self-Sufficiency (FSS) Program, which Abt is currently evaluating. The existing program combines a somewhat similar savings account for participants in Cambridge’s Housing Choice Voucher program with robust financial coaching. While the partners report being pleased with the progress of the current program, a key limitation is that is relies on households volunteering to participate. By contrast, the pilot initiative makes the savings vehicle available to all residents automatically. The partners hope the automatic savings feature will boost interest in and participation in financial coaching as well as directly affect residents’ well-being.
Because rents in subsidized housing are based on residents’ incomes, a program for subsidized housing residents that induces increased earnings has the potential to generate rent revenue that can help offset the costs of the program. Reid Cramer of New America and I have examined how two different models for these savings accounts – which we call rental assistance asset accounts – might even be cost-neutral if they could induce sufficient increases in earnings. See here and here.
An intriguing idea. Now the hard work begins of trying to implement it successfully!