Saving is a habit: so is loan paying
Saving money and paying bills involve the same habituation, but one makes wealth and the other merely excavates indebtedness.
Via the Pittsburgh Post-Gazette comes this enlightening article illustrating the value of making savings a habit:
Four years ago, when she began putting a few dollars of her paycheck into savings every month, Toni Corinealdi was a single mother earning about $18,000 a year as an office manager for a small sheet metal company.
Post-Gazette caption:
Toni Corinealdi records her checks and pays her bills in her office at her home in the Spring Hill section of the North Side as a result of what she learned from the Action Housing Family Savings Account Program.
When it comes to homeownership, housing and housing affordability are intertwined with savings, not just to accumulate the down payment, but also because savings are practice to develop the habit of making monthly financial payments. Consider that:
- Saving means making regular equal payments to build up a cash balance.
- Borrowing means making regular equal payments to pay down a debt.
Since the cost of borrowing is always higher than the rate of savings, any given fixed monthly payment will accumulate to a higher savings balance than the loan it will support.
So if we want to move the poor economically upwards, both financially and in their housing, they have to learn to save. This isn’t easy:
Saving was no mean achievement for the Spring Hill resident. With two daughters to support, her income hovered about 20 percent above the poverty level.
But Ms. Corinealdi, and many like her, have learned to save, thanks to a well designed program that includes what we may suggest are essential ingredients: 1. The participant has to go first
Lots of people claim they will change their behavior if only you give them their cookie first.
That never works. Here the program requires Ms. Corinealdi, and those like her, to go first, to demonstrate she can save before she becomes eligible for the match. This is critical.
2. Make the new participants self-select Of course, some people cannot or will not change their behavior. It it not our job to save them in spite of themselves. Rather, the program seeks to find those who would if they could.
Nobody mandated that Ms. Corinealdi participate. She chose to. But to get them to come, you must …
3. Offer a meaningful, tangible financial incentive
You can talk ’til you’re blue in the face, but if you want to get people’s attention, wave money: 
“If you wave money, they will come …”
But Corinealdi, 37, was enticed by a significant incentive: The state Family Savings Account program, which was then offering to match every dollar she could put aside for savings up to $1,200 over two years.
4. Couple incentives with financial literacy education
To get the match, she also had to participate in a financial literacy program.
As much as the prospect of state matching money, the financial education classes she was required to take turned the tide for her, she said.
“I learned a lot — not just to save, but how to budget my money,” Corinealdi said. “I just sat down, took a look at everything, how I was spending my money, and we made some changes,” cutting back mainly on cable television services and eating out.
5. Ring-fence the money to a long-term purpose
IDA participants not only must enroll in financial literacy programs, they also must put their matching funds toward specified objectives, such as home ownership, post-secondary education for themselves or their children, starting a business or paying for home repairs.
Does it work?
A recent experiment by the Retirement Security Project, primarily sponsored by the Pew Charitable Trusts, found that low- and middle-income clients of H&R Block in the
