February 16, 2012
Impulse Saving May Be ‘New’ New Thing
You’ve heard of impulse purchases. But how about impulse saving?
It’s purely an idea at this stage, and it may not work. But a New York City check-cashing firm plans to start a program that will allow customers to throw $20, $10, even $1 into savings – on impulse – when they’re cashing a check or flush with cash.
“I know my customers,” said Joseph Coleman, president of RiteCheck Cashing Inc., which has 12 stores open 24/7 in Harlem and the Bronx. “If they could put $5 away or $20 away for a television they wanted, to buy a car, or for Christmas, they would do it.”
Key to making the program work is simplicity, operating on the theory that barriers and red tape thwart savings deposit; if a customer wants to open a savings account, RiteCheck will print an application that’s already filled out and needs only a signature. RiteCheck teamed up with long-time business partner Bethex Federal Credit Union to open and manage the accounts.
“People have intensions to save” but “get derailed by the lack of a clear, easy path to start saving,” said Innovations for Poverty Action’s (IPA) Jonathan Zinman, a Dartmouth College economist who worked with Coleman to create the product. The non-profit IPA granted $15,000 this month to set up RiteCheck’s program.
IPA is testing other programs for low-income people, including a savings account with a low $15 minimum deposit at a Washington, D.C., credit union and a debt-repayment program at a Tulsa, Okla., tax-filing service.
Check-cashing companies are often criticized – people, sometimes incorrectly, think payday loans. Coleman said his industry is “one of the most misunderstood on the face of the earth.” But that’s where low-income people do their banking, and the companies are concentrated in minority and immigrant neighborhoods.
RiteCheck customers can’t justify paying a bank’s high fees, Coleman said, and banks don’t want “customers with high [transaction] volume and low balances” either. That’s not entirely the case: Traditional commercial banks have community banking divisions that offer low-cost checking accounts to low-income customers.
But Coleman maintains that check-cashing firms are still “cheaper than banks if you’re low income.” RiteCheck, which has operated since 1956, charges a fee for each transaction, from cashing checks to selling MetroCards and accepting cell phone and utility payments – $1 to pay a bill, for example. Savings account deposits will be free.
An important feature for the impulse savings program is that cash-strapped customers want to know that if they deposit $10 today, it can be withdrawn tomorrow for an emergency. Savings programs for low-income people often require them to commit to lock their money away, but they need “liquidity,” Coleman said. He also said the plan may require regulatory approval.
So, will it work? IPA will test whether it spurs people to save and how much. Squared Away will report on the results.