http://bondsmakeiteasy.org This presentation in 2007 by Harvard Business School Professor Peter Tufano and Doorways to Dreams (D2D) Fund Executive Director Timothy Flacke provides information on the promise and potential of U.S. Savings Bonds.

1. © 2007, D2D Fund, Inc. 1
Promise & Potential of
U.S. Savings Bonds
Peter Tufano, Harvard Business School & D2D Fund
Timothy Flacke, D2D Fund
June 20, 2007

2. © 2007, D2D Fund, Inc. 2
Agenda
Introductions
LMI saving, tax time & the bucket problem
Reinventing U.S. Savings Bonds
Some context
An experiment
Findings
Good news / bad news
Suggestions

3. © 2007, D2D Fund, Inc. 3
Why Are We here?
Care about saving, especially for Low to
Moderate Income (“LMI”)
Why save?
Shocks (emergencies)
Strategic investments (e.g., home, education)
Deferred consumption (e.g., retirement)
How do we help low-income households
to save?

4. © 2007, D2D Fund, Inc. 4
How Can We Help Families Save?
Force them to save
Make it hard not to save
Make it easy to save
Bribe them to save
Social support for savings
Make them excited to save
Social Security; UK Child Trust Program
Defaults and opt outs; bundling
SMaRT plan, Split Refunds and Savings
Tax advantages, matching funds
AmericaSaves
“Prize-linked” savings

5. © 2007, D2D Fund, Inc. 5
LMI Saving? Go Where the $$$ Are
Tax Time combines:
Savable funds (tax refunds)
Topical tie in (finances top of mind)
Intermediation (tax preparer typically involved,
possible advisor or salesperson)

6. © 2007, D2D Fund, Inc. 6
Tax Time: How Much Money?
$220 billion (2003) in total refunds
$103 billion for AGI < $40k
$82 billion for AGI < $30k
Average refund $1,482 (AGI < 30k)
5% of annual income in single shot
Median net financial assets only $2,000 (for
bottom quintile by income)*
Meaningful saving opportunity, especially
relative to current savings
* Source: Aizcorbe, Kennickell, and Moore (2003).

7. © 2007, D2D Fund, Inc. 7
How to Capture Refunds as Savings?
Refund Splitting
direct portion of refund directly to savings
where possible, offer new accounts during tax
prep process
Pilot tests TS 2004 - 2006
Demand as high as 13%
Ultimate outcome: Form 8888

8. © 2007, D2D Fund, Inc. 8
But Saving Requires a “Bucket”
Sizeable segment can’t get saving product:
Mainstream institutions
disinterested or fearful (ChexSystems review)
products aren’t inviting (min. balances, fees)
often little physical presence in LMI communities
Others (check cashers, payday lenders)
aren’t depositories / don’t offer saving
Result: a pipe from
savable refunds to...
nowhere

9. © 2007, D2D Fund, Inc. 9
Where Can We Find a Bucket?
Imagine a universal
savings vehicle
Characteristics of this
vehicle?
small denomination
portable
competitive return
no principal risk
good liquidity...
Product already exists:
U.S. Savings Bonds

10. © 2007, D2D Fund, Inc. 10
How Did We Get Here?
2005: Reinventing Savings Bonds
Thought piece: how to reinvent bonds to
serve LMI market
Recommendations:
Offer bonds to tax return filers
Reinvigorate bond marketing
Recognize bonds as part of financial lifecycle
Clarify, expand emergency access to bonds
Don’t discourage bonds w/ means testing

11. © 2007, D2D Fund, Inc. 11
Laying the Groundwork
2006: Just Keep my Money
Report on “pre-experiment” test of refund-
driven savings bond program
test operational feasibility of selling bonds
in commercial tax prep context
trying to merge tax refund & bond order
process from point of view of IRS
Indication of demand
but sample too small, too late in tax
season, product too limited (no gifting)
further study required

12. © 2007, D2D Fund, Inc. 12
This Year’s Agenda
Ran experiment to answer:
Will consumers buy bonds at tax time?
Preview: YES!
Experiment offered bonds to 8,000+ clients
5.9% - 9.6% of clients offered, bought
510 clients bought bonds for 881 people
Substantial demand for bonds relative to
other tax time saving products

13. © 2007, D2D Fund, Inc. 13
Context: An American Saving Crisis

14. © 2007, D2D Fund, Inc. 14
Beyond the Headlines
In 2004, bottom 25% of U.S. households
by net worth had:
mean net worth of ($1,400)
median net worth of $1,700.
10% of HH had financial assets of <$100
In terms of net financial assets, 25 to 33%
are asset poor
can’t survive three months at poverty line
Source: Bucks, Kennickell, and Moore (2006), SCF (2004), Havenmann and Wolff (2001), Caner and Wolf (2002)

15. © 2007, D2D Fund, Inc. 15
Estimates of U.S. Asset Poverty by
Group
Blacks / Hispanics 62 percent
Head aged less than 25 years 72 percent
Head aged 25-34 years 52 percent
Head with < high school degree 60 percent
Renters 64 percent
Female heads with children 71 percent
Source: Havenmann and Wolff (2001).

16. © 2007, D2D Fund, Inc. 16
Why Target LMI Savings?
Need (as above)
Impact
Same $$$ / higher marginal impact on LMI families
Assets matter - to individuals, families, kids,
communities (Sherraden 1991, 2001)
Appetite
While savings rates are down, not so for lowest 60%
of Americans (Maki and Palumbo 2001)
When given incentives to save, poorest families
saved at highest rates (Sherraden 2007)

17. © 2007, D2D Fund, Inc. 17
Efforts & Barriers to Boost LMI Saving
“Asset Building” field has emerged
champion of LMI saving / asset building
laboratory for policies, programs, products
But scale, access & cost are still problems
Innovation just beginning – mixed success
Products: SVCs, HRB “Easy IRAs”
Marketing: America Saves (social marketing), ZMET
Policy: split refunds, savers’ credit, Automatic IRAs

18. © 2007, D2D Fund, Inc. 18
Saving Challenges for LMI
Uneasy
About
Saving
Not
Allowed
to Save
Not
Thinking
About
Saving
Competing
spending
priorities
Need access
to $ (liquidity)
ChexSystems
Minimum
balance req.
No local FI
presence
Mistrust
depositories
Risk averse
Skeptical
Unclear goal

19. © 2007, D2D Fund, Inc. 19
Product Challenges Especially Tough
Barrier
Small balances
Checkered (credit) past
Risk averse
Mistrust mainstream
financial service firms
No bank account
Unclear goal(s)
Long-term goals &
liquidity needs in tension
Bond Feature
Low $50 minimum
No credit screen
Principal is risk free
Gov’t backed, no fees,
good return
No bank acct required
Can save for anything
Long-term orientation,
access after 1 year

20. © 2007, D2D Fund, Inc. 20
Other Key Bond Features
Gift-able
can be purchased for self or with co-owner
Inflation indexed
Strong history
high awareness
fond memories
No Patriot Act or KYC compliance

21. © 2007, D2D Fund, Inc. 21
How Savings Bonds Compare
YesNoNoMay Buy as a Gift
NoYesYesChexSystems Review
3 months interest
(redemptions within 5
years of purchase)
Greater of 3 months
interest or $25
None
Early Redemption
Penalty / Forfeiture
1 yearNoneNoneMinimum Holding Period
Adjusts bi-annuallyYesNoRate Fixed
$50$2,500$100Minimum to Open
$0$0$36Annual Fees
4.52%3.25%0.20%Rate of Return
Series I U.S.
Savings Bond
Example 1 Year
Certificate of Deposit 2
Example Savings
Account1
1) Source Bank of America (www.bofa.com), Regular Savings Account as of 6/15/07;
annual fees assumes balance less than $300.
2) Source: Wells Fargo (www.wellsfargo.com); Standard CD as of 6/15/07; rate of
return assumes balance less than $5,000.

22. © 2007, D2D Fund, Inc. 22
Savings Bond History
Today’s savings bonds trace roots to 1935
for small saver especially
“appeal primarily to individuals w/ small amounts to invest”
(U.S. Department of the Treasury, 1981)
for public good, not just gov’t borrowing needs
Dept. of Treasury “to promote wise spending, intelligent
saving, & safe investment” (U.S. Department of the
Treasury, 1918)
to “democratize public finance”
“Every (person) who owned a Gov’t Bond... would serve
as a bulwark against the constant threats to Uncle Sam’s
pocketbook from pressure blocs & special-interest groups”
(Morgenthau, 1944)

23. © 2007, D2D Fund, Inc. 23
Savings Bond Marketing

24. © 2007, D2D Fund, Inc. 24
Fundamental Questions:
Demand? New Savings?
Do LMI individuals want savings bonds?
If so, who, why & under what circumstances?
Would bond sales constitute new or substitute
saving?
Is there demand, does it increase savings
One way to find out: experiment

25. © 2007, D2D Fund, Inc. 25
TS 06: Pre-experiment
2006 pre-experiment
location - 1 HRB district, 14 offices (Schaumberg, IL)
duration - 3 weeks only
context - commercial tax preparer only
purpose - test operations, indication of demand
Take-aways:
3% take up rate despite handicaps
no gifting option
late in tax season
limited training
operationally complex - need to streamline

26. © 2007, D2D Fund, Inc. 26
TS 2007 Savings Bond Experiment
Product: Series I bonds
fixed rate (premium above inflation) + inflation rate
fixed rate set at purchase, inflation rate adjusts
every 6 months
Channels
H&R Block offices
larger scale, commercial firm environment
select VITA (Volunteer) tax prep. sites
lower income clients, core mission to support saving
Dates
Tax season start till March (VITA), April (HRB)

27. © 2007, D2D Fund, Inc. 27
Pilot Details: Marketing & Sales Training
H&R Block
Relied on tax
preparers (“pros”) to
offer bonds to clients
Majority of 400 tax
pros trained in group
sessions
Marketing limited to
point of sale (posters,
monitor toppers, etc.)
VITA
“Bond Coordinator”
marketed to clients,
dealt w/ ops issues
Most tax preparers
trained directly or
indirectly (used CBT)
Marketing limited to
point of sale (posters,
brochures)

28. © 2007, D2D Fund, Inc. 28
Marketing Examples
VITA H&R Block

29. © 2007, D2D Fund, Inc. 29
Research Tools
H&R Block
Tax data
Survey data
buyers
non-buyers
control
Transaction data
savings & settlement
products
VITA
Tax data
Survey data
buyers
sample of non-buyers
Transaction data
bond orders details

30. © 2007, D2D Fund, Inc. 30
Research Details
Consents from all parties
All personal identifiers stripped from tax
data
Form 7216 authorization obtained from
all H&R Block clients
Research participation not required for
bond purchase

31. © 2007, D2D Fund, Inc. 31
Bond Eligibility - Requirements to Buy
H&R Block
Refund >$500
Willing to open Easy
Savings account to
facilitate buying bond
total bond sale > $50
VITA
Refund >$50
Willing / able to use
direct deposit (or
Western Union Quick
Cash product)
total bond sale > $50

32. © 2007, D2D Fund, Inc. 32
Bond Purchase Processing
H&R Block
Individual “conduits”
(Easy Savings Acct)
HRB splitting
(internal systems)
Instructions, consent
collected via software
Difficult to train tax
pros & explain to
clients, automated
processing
VITA
Pooled “conduit”
(clearing account)
IRS splitting (via new
Form 8888)
Instructions, consent
collected via paper;
faxed by site
Easy to train preparers,
labor-intensive, error
prone processing

33. © 2007, D2D Fund, Inc. 33
What Did We Find?
Context
roughly 10,000 study participants
Block: 3,729 Treatment / 1,485 Control
VITA: 4,410 Treatment / 431 “Incentive Offer”
Block
27 offer & 4 control offices
2 cities (Boston, Schaumberg, IL)
VITA
4 offices
4 cities (Baltimore, Boston, Denver, Tulsa)

34. © 2007, D2D Fund, Inc. 34
Measuring Take Up
Take up = purchase / offer
Nuances in determining eligible offers
Block
definitive offers - certain client offered bond
possible offers - possible client offered bond
VITA
direct depositers - clients who had sufficient refund
($50) & used direct deposit (required to buy bonds)
all eligible - clients who had sufficient refund ($50)
to buy a bond

35. © 2007, D2D Fund, Inc. 35
Conditional on receiving an offer to buy bonds:
Does Anyone Want Bonds?
Block
5.9% bought (definitive)
1.1% bought (possible)
220 buyers
407 bond recipients
VITA
9.6% (direct
depositers)
6.0% (all eligible)
231 buyers
377 bond recipients

36. © 2007, D2D Fund, Inc. 36
Compared to What?
For H&R Block offices:
IRA
Openings & Re-
contributions
Savings Account
Openings & Re-
contributions
Treatment offices 1.5% 1.4%
Control offices 0.6% 0.1%
Block national 0.9% 0.2%

37. © 2007, D2D Fund, Inc. 37
Compared to What? (Other Samples)
Opened IRAs (w/out incentive) at tax time
H&R Block experiment, 2005 (Duflo et al.)
2.2% (all filers, pre-experiment)
3.5% (non-married, avg. AGI 30k)
2.9% (married filers, avg. AGI 69k)
Contributed to an IRA
Percent of eligible tax filers (IRS data, TY02)
3.4% (AGI < 20k)
4.6% (AGI < 30k)
5.6% (AGI < 40k)

38. © 2007, D2D Fund, Inc. 38
Explaining Demand
Bonds are familiar to buyers
Awareness: 85-88% (Block), 73-75% (VITA)
Prior purchase: 35-39% (Block), 15% (VITA)
Have you ever purchased a US Savings Bond for yourself and/or
someone else before?
0 %
10 %
2 0 %
3 0 %
4 0 %
50 %
6 0 %
70 %
A . Y e s , f o r
mys e lf .
B . Y e s , f o r
s o me o ne e ls e
C . Y e s , f o r
mys e lf A N D
s o me o ne e ls e
D . N o , I have
ne ve r p urc has e d a
b o nd .
someone else before?
3 0 %
4 0 %
50 %
6 0 %
70 %
Bond Purchasers
Non-Bond
Purchasers

39. © 2007, D2D Fund, Inc. 39
Take-up in Context
Long-term product
Bonds connote long-term saving
Requirement for 1 year holding, minimum
No immediate tax benefit (vs. IRA)
Nothing for tax preparer to “sell” to client
Took patience, endurance to buy a bond
Block
open another product (Easy Savings)
get balance paid back to you (orders under $300)
VITA
complete 3 additional forms
entrust part of refund to bank not present at site

40. © 2007, D2D Fund, Inc. 40
What if We Offer an Incentive?
20% discount on bond purchase
for 1 week (1/29 - 2/3) in Tulsa VITA site
goal: gauge effect of financial incentive
up to $70 subsidy ($350 purchase) per client
special marketing materials highlighted
incentive
431 clients offered bonds w/ incentive
60 takers

41. © 2007, D2D Fund, Inc. 41
Incentive Findings
Take-up: rate nearly doubled or more
15.2% of those offered & eligible
18.1% of direct depositers
Same portion of refund spent (5.8%) as non-incentive;
avg $ / client $189 vs. $185
Only 22% “yes, would’ve bought bonds w/o incentive”
Compare to IRAs opened at tax time
H&R Block experiment, 2005 (Duflo et al.)
20% incentive (added to client contribution)
9.6% take up of eligible tax filers ($300 refund)
Average AGI $44,789 (IRA) vs. $20,704 (bond)

42. © 2007, D2D Fund, Inc. 42
Block VITA
(averages)
Buyers Non-Buyers Buyers Non-Buyers
n 220 3,509 231 4,179
AGI $ 36,828 $ 41,171 $ 20,888 $ 18,105
Refund $ 3,836 $ 2,951 $ 3,177 $ 1,373
Dependents 1.3 0.8 1.3 0.6
% of Refund
Used for Bonds
5.9% - 5.8% -
% of Bonds w/
Co-Owners
82% - 84% -
Buyer / Non-Buyer Details
Huge portion w/ co-owners
Buyers appear to have
more dependents
larger refunds
Consistent % of refund used for bonds

43. © 2007, D2D Fund, Inc. 43
Gifting: Co-ownership
Bonds may be purchased with:
beneficiaries (contingent on owner’s death)
co-ownership (either party may redeem bond)
Chose co-ownership as most gift-like
only name required (no SSN) - easy point of sale
up to 4 (Block) / 5 (VITA) co-owners (plus client)
buyers: a) self only, b) self & others, c) others only

44. © 2007, D2D Fund, Inc. 44
Gifting Details
Among VITA bond buyers:
59% bought one or more bonds for child
9% bought one or more for grandkids
Among Block bond buyers:
Most popular to buy bonds as gift by wide margin
“Self & Others” spent the most on bonds, bought
most gifts
Bought for
SELF only OTHERS only SELF & OTHERS
% of purchasers 31% 52% 17%
Avg $ spent / buyer $ 145 $ 241 $ 335
Avg. # of gifts / buyer - 1.9 2.3

45. © 2007, D2D Fund, Inc. 45
Gifting: What’s Going on?
D2D consumer research suggests children
are a powerful force in LMI financial plans

46. © 2007, D2D Fund, Inc. 46
More on Gifting - Gender Differences

47. © 2007, D2D Fund, Inc. 47
New Savings?
For bond buyers:
54% (VITA) / 40% (Block)
reported no prior savings
Of remainder, 46% (VITA) / 22%
(Block) reported savings &
investments < $1,000
53% (VITA) said they would
have saved less if they had not
bought a bond
No
40%
Yes
56%
4 %
Block Bond Buyers:
Do you have any savings
or investments?

48. © 2007, D2D Fund, Inc. 48
Why Did This Work? The Good News
Strong foundation
very high awareness, experience w/ bonds
solid product design (return, fees, credible)
Bond features appeal to LMI tax clients
gifting
small amounts (1/3 of VITA bonds @ $50)
allows small savings “win”?
Tax time & bonds a good fit
immediacy & simplicity (do it now / it’ easy)
compliance relatively easy (Pat Act, KYC)

49. © 2007, D2D Fund, Inc. 49
Bank
#1
Bank
#2
Tax
Filer
Bank #3
-- Bank
Midwest
IRS
Bureau
of
Public
Debt
Tax Pro
enters
coupon
into TPS
for bond
type
purchase
H&R
Block
Tax Pro
fills out
purchase
form
Signs
new
account
agree-
ment and
consent
Tax Pro
faxes
form to
WHQfor
process-
ing Client
info
added to
refund
card
account
WHQ
monitors
card
account
for
refund
receipt
WHQ
sends
letterto
client
outlining
purchase
details
WHQ
fills out
spread-
sheet
with
purchase
info and
uploads
Move
funds
from
pooled
account
to fed
account
Submit
via
normal
savings
bond
process
Contact
HRB to
indicate
bonds
purchase
complete
Tax prep
and
return
filing
Receive
Savings
Bonds
info (via
Fed
Line)
Process
Savings
Bond
Mail
Bond to
Tax Filer
Receive
US
Savings
Bond
Process
Tax
Return
Send
Refund
Send
Instruct-
ions for
Temp-
orary
Account
Opening
Send
Instruct-
ions for
Split
between
debit and
check
Open
Temp-
orary
Account
Split the
Refund
Send
Funds to
HRB
refund
card
account
Send
Check to
Tax Filer
Close
Account
Receive
Refund
Check
Decide to
buy
bond(s)
Funds
received
& moved
(via ach)
to a
pooled
account
Refund
card
account
closed
Receive
bond
purchase
letter
Tax Season 2006, US Savings Bond Process Flow
Bank
#1
Bank
#2
Tax
Filer
Bank #3
-- Bank
Midwest
IRS
Bureau
of
Public
Debt
Tax Pro
enters
coupon
into TPS
for bond
type
purchase
H&R
Block
Tax Pro
fills out
purchase
form
Signs
new
account
agree-
ment and
consent
Tax Pro
faxes
form to
WHQfor
process-
ing Client
info
added to
refund
card
account
WHQ
monitors
card
account
for
refund
receipt
WHQ
sends
letterto
client
outlining
purchase
details
WHQ
fills out
spread-
sheet
with
purchase
info and
uploads
Move
funds
from
pooled
account
to fed
account
Submit
via
normal
savings
bond
process
Contact
HRB to
indicate
bonds
purchase
complete
Tax prep
and
return
filing
Receive
Savings
Bonds
info (via
Fed
Line)
Process
Savings
Bond
Mail
Bond to
Tax Filer
Receive
US
Savings
Bond
Process
Tax
Return
Send
Refund
Send
Instruct-
ions for
Temp-
orary
Account
Opening
Send
Instruct-
ions for
Split
between
debit and
check
Open
Temp-
orary
Account
Split the
Refund
Send
Funds to
HRB
refund
card
account
Send
Check to
Tax Filer
Close
Account
Receive
Refund
Check
Decide to
buy
bond(s)
Funds
received
& moved
(via ach)
to a
pooled
account
Refund
card
account
closed
Receive
bond
purchase
letter
Tax Season 2006, US Savings Bond Process Flow
What Worked? The Bad News
Operational nightmare - it took this
to allow bond sales in commercial
tax preparer

50. © 2007, D2D Fund, Inc. 50
Aren’t All Essential Ingredients
Available?

51. © 2007, D2D Fund, Inc. 51
Why Not Enough?
Someone has to ask
what would take up look like if no one asked
solution: make it so all tax filers likely to consider it
Firms won’t process at scale
complex = expense
solution: facilitate process so private sector doesn’t
have to subsidize government when consumer
asks the government to “Just keep my money”

52. © 2007, D2D Fund, Inc. 52
Not a New Idea: Bonds on Tax Forms
1962 IRS
Form
1040A

53. © 2007, D2D Fund, Inc. 53
What Can We Do?
Continue to facilitate gifting
any changes must allow (promote?) gifting
Ensure bonds do no harm
don’t discourage saving in bonds by including bonds
in public assistance means testing
Align bonds w/ realities of LMI households
expand & make emergency policy more explicit
recognize financial lifecycle (rollovers)
Re-brand around families (“family bonds”)
Consider financial incentives
for LMI to buy bonds
for tax preparers to claim on clients’ behalves

54. © 2007, D2D Fund, Inc. 54
Policy Agenda Framework: 3 Pillars
Increase & facilitate access, appeal
offer in tax filing process, with gifting
clarify / expand emergency redemption policy
exclusion for means tested benefits
Maintain / Build Awareness
restore marketing budget
re-brand around families, gifting
Offer Incentives
expand Saver’s Credit
Series T Bonds - at a discount, at tax time only, for
EITC eligible

55. © 2007, D2D Fund, Inc. 55
Contact
Prof. Peter Tufano
Harvard Business School / D2D Fund, Inc.
ptufano@hbs.edu
617.495.6855
Timothy Flacke
D2D Fund, Inc.
www.d2dfund.org
tflacke@d2dfund.org
617.541.9064