The implementation IS the innovation.
By Megan Thibos
A few days ago, I wrote about E+Co CEO Christine Eibs Singer’s observation that oftentimes, the implementation IS the innovation. I was struck by Christine’s comment, because that’s exactly what’s so fantastic about one of the more interesting financial innovations to come out of Doorways to Dreams (D2D), a nonprofit dedicated to improving savings products and opportunities for low-income consumers in the United States. D2D and their founder, HBS professor Peter Tufano, have spent the last four years researching, piloting, and ultimately reinstating an abandoned distribution channel for an abandoned product. This year, families will have the opportunity to use their income tax refunds to purchase U.S. Savings Bonds directly, just by filling out the fairly simple IRS Form 8888. The only—but critical—new idea in the whole concept is the idea that it might be a good idea. Back in the 1960s, taxpayers could direct their tax refunds to the purchase of savings bonds. But as the consumer finance landscape got more sophisticated, savings bonds fell out of favor, culminating with Treasury completely eliminating its marketing budget for savings bonds in 2003.
Yet D2D has a lot of good reasons to think that savings bonds—and especially the direct sale of savings bonds at tax time—make for a really good savings vehicle for low-income Americans. They are (essentially) risk-free, are available in small denominations, pay relatively high interest compared to bank accounts, are simple to understand, are easily gifted to children or other family, don’t require a bank account, don’t require any action to maintain them, have no fees, and they come in tangible paper form—which low-income people find especially reassuring—while benefiting from electronic registration in case of loss or theft. Offering them at tax time, when low-income families receive large windfalls from the EITC and are likely to be thinking about their finances, makes a lot of sense. Offering savings bonds through direct allocation of the tax refund takes advantage of a whole host of behavioral economics insights that say that people are a lot better about making decisions that are good for them if they have the opportunity to make the decision at least several days before it is implemented—and if the implementation is then done automatically.
How did D2D convince Treasury to reinstate a program they abandoned more than 50 years ago? They set up a pilot program at VITA (Volunteer Income Tax Assistance) sites across the country using a jury-rigged distribution system in which purchasers directed a portion of their refund into a special bank account, and the bank then used those funds to purchase the bonds on behalf of the buyer. After 3 years of pilot testing, Treasury agreed to make the change. Sometimes the implementation is the innovation.
Megan Thibos is currently pursuing her Masters in Public Policy at the Harvard Kennedy School. Her academic and career interests are centered around creating pathways for social and economic mobility through more equitable and accessible housing, finance, and labor markets—in both developing and industrialized country contexts. For her Masters capstone project, Megan is evaluating opportunities for the development of risk management tools and products specifically tailored to the needs of low-income U.S. families for Boston-based nonprofit Doorways to Dreams.
