Information, Choice Context, and Defaults in Low Income Savings Decisions: Evidence from a Field Experiment of Tax-Time Savings

Abstract

This project experimentally examines how information, choice context, and defaults affect the savings decisions of approximately 25,000 low-income clients of volunteer tax-clinics during tax time. The paper exploits a recent innovation in the federal tax form that allows filers, even those without a bank account, to devote a fraction of their anticipated refund towards the purchase of a Series I Savings Bond. Specifically, I test the role of financial education, menu choice, and soft defaults on the decision to save. Further, using extensive surveys and micro-level tax records, I test whether the influence of the decision context is mediated by financial literacy, time-inconsistency and refund expectations. While prior research has documented the effect of choice defaults on savings decisions (e.g., Madrian and Shea 2001; Beshears et al. 2010), this paper extends this research to a large and policy relevant population and also explores the mediation of these effects by expectations and critical dispositional traits.