Prize-linked savings proves to be engaging savings mechanism for underserved bank customers

The following is a guest post from Timothy Flacke, Co-Founder & Executive Director of Commonwealth.

Savings are the foundation for building wealth, but millions of underserved Americans struggle to take the first step towards establishing financial security through an emergency savings account.

Before the pandemic, 40% of Americans reported that they would struggle to afford a $400 emergency, and 1 in 4 households now say they have no emergency savings at all.

At Commonwealth, a national nonprofit, we have decades of experience addressing the challenges of saving money for families living on low and moderate incomes (LMI).

We brought that perspective to our work with Truist Bank to launch its Start. Save. Win! Savings Sweepstakes.

The project, part of BlackRock’s Emergency Savings Initiative, rewarded repeated savings deposits with chances to win dozens of monthly cash prizes, encouraging savings behavior with chances to win incentives that drive habit formation.

Prize-Linked Savings (PLS) is an idea Commonwealth pioneered in the U.S. Our experience set us up to help Truist design and pilot test a creative savings innovation for an emerging market of consumers.

We have found that nearly all people aspire to save and be prepared for the future; the challenge is offering them the right tools and opportunities to save. And in our research, making savings easy, engaging, fun, and rewarding often creates just the right opportunity to enable emergency savings.

Our team collaborated with Truist to shape Start. Save. Win! as an intervention on top of its existing savings account option, with no fees or minimums and good liquidity — essential requirements for a high-quality emergency savings product. For three months in 2021, everyone who entered an Essential Savings Account was part of Start. Save. Win! They received an entry into a chance to win a cash prize with every $25 deposit in drawings that went on for six months.

In total, 25,000 people opened an account during that period, with savings balances totaling approximately $37 million, and 27% of participating households achieved the goal of $400 in savings.

Innovation can help engage underserved audiences, address new markets, and fuel a purpose-driven approach toward banking that advances the financial security of the most financially vulnerable consumers. Whether considering PLS or another product or feature innovation, there are several best practices for emergency savings interventions:

Prioritize inclusive product design

Many fintechs and financial institutions rely on human-centered design to create new banking products. While having access to great products doesn’t replace access to financial resources, particularly for historically excluded groups, Commonwealth’s research and real-world field testing demonstrate the opportunity for product designers to provide positive experiences for underserved customers and increase engagement through human-centered, inclusive design.

Rather than putting the responsibility for change exclusively on the individual, designers can have a much more significant impact by focusing on changing the products and distribution channels that have been historically inaccessible, poorly designed, and intentionally or de facto discriminatory.

Follow best practices for designing emergency savings products

As financial institutions and fintechs work to develop and champion emergency savings products, Commonwealth has identified five design principles to support the dynamic saving and unique needs of LMI households. These include high liquidity, low and transparent costs, innovative distribution channels, highlighting emergencies as a use case, and digital transformation.

View Financial Security as a journey

Commonwealth research found that acknowledging and highlighting saving as a journey, with even $5 saved as a positive first step, encourages people and makes them feel that even modest steps are part of a larger purpose.  Various non-financial factors affect individuals’ perceptions about being able to attain financial security — many of which result, in large part, from the financial and social systems in which people live. Framing financial security as a journey is an effective way for financial institutions to create positive, motivational, agency-building savings products and innovations.

As evidenced by Trust’s Start! Save! Win! program, the most successful emergency savings product designs are not a fluke or a one-off; they are a natural and logical expression of a company’s core values and thoughtful strategy.

Because Truist has prioritized enabling financial security and opportunity for underserved people in a sustainable, impactful way, Start. Save. Win! is a natural extension of their offerings and has been embraced by their customers.

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