As part of Commonwealth’s ongoing work focused on savings innovations, we have developed solutions to enable financially vulnerable tax filers to make the most of the critical tax time moment and the tax refund windfall. Last year, we conducted research to identify new insights and opportunities for building financial security at tax time. Building on opportunities identified in this research, we developed a feature we are calling “RefundPal” and we are continuing to explore how this approach might be designed and practically applied to impact financial security.

The Federal Reserve has found that 41% of Americans could not cover even a $400 emergency with savings – and for many Americans, the tax refund is their only realistic shot to “reset” and build up this level of financial cushion. It’s been our experience over almost two decades focused on increasing financial security and opportunity that a quarter or more of refund recipients save part of their tax refund, or use it to purchase US savings bonds. This suggests that, when presented with the right opportunity and tools, people make thoughtful, careful financial choices about how to use their refunds. RefundPal is another tool in that arsenal.

RefundPal combines a pre-commitment offer — giving people the chance to commit to saving a portion of their refund before they’ve had a chance to mentally allocate it to other purposes — with a well-timed nudge when the refund arrives that allows users to follow through on their commitment with minimal friction. A similar intervention tested by Common Cents Lab and Digit showed initial promise, and we believe a feature like the one they tested can be applied more broadly and in new contexts to drive impact. This concept leverages two of the opportunities we highlighted in our research:

• Consider interventions focused on behavior outside the tax preparation moment. The tax preparation process is already loaded with decisions and offers and may not be the optimal time or context to encourage saving. RefundPal uses pre-commitment before tax season and well-timed messaging when the refund lands in an account to help people use part of their refund to start or build a savings fund.
• Engage partners that have not typically been involved in people’s experience at tax time. A feature like RefundPal would enable financial institutions, prepaid providers, fintechs, or other financial service providers to get more involved in a critical moment in their customers’ financial calendar, when they receive what is often the largest lump sum of money they will experience all year. These providers are missing the opportunity to utilize proven behavioral strategies and financial transaction data to help their customers meet a need at this moment.

Currently, we are conducting research with users to better understand how RefundPal could be most effectively designed to drive savings behavior. We’re also talking to financial service providers to understand the barriers and opportunities for an offering like RefundPal.

Join Us.

If you’re an employer, fintech, prepaid provider, financial institution, or retailer and would like to explore real-world implementation of this promising approach to building financial security at tax time, contact Mariele McGlazer at info@buildcommonwealth.org.