Reinventing Savings Bonds
Executive Summary — At one point in American history, savings bonds were an important tool families used to build assets and get ahead. While times have changed, this function of savings bonds may be even more important now, especially for the 41 million low- and moderate-income American households. Tufano and Schneider lay out a case for why savings bonds should be reimagined to help millions of Americans build assets now. Key concepts include:
- Allow taxpayers to purchase bonds with Federal tax refunds.
- Help low- and moderate-income families redeem their bonds before twelve months.
- Enlist private sector social marketing for savings bonds.
- Find a role for savings bonds in the life cycles of low- and moderate-income families.
- Make the process of buying savings bonds more user friendly.
Savings Bonds have always served multiple objectives: funding the U. S. government, democratizing national financing, and enabling families to save. Increasingly, this last goal has been ignored. A series of efficiency measures introduced in 2003 make these bonds less attractive and less accessible to savers. Public policy should go in the opposite direction: U.S. savings bonds should be reinvigorated to help low and moderate income (LMI) families build assets. More and more, these families' saving needs are ignored by private sector asset managers and marketers. With a few relatively modest changes, the Savings Bond program can be reinvented to help these families save, while still increasing the efficiency of the program as a debt management device. Savings bonds provide market-rate returns, with no transaction costs, and are a useful commitment savings device. Our proposed changes include (a) allowing Federal taxpayers to purchase bonds with tax refunds; (b) enabling LMI families to redeem their bonds before twelve months; (c) leveraging private sector organizations to market savings bonds; and (d) contemplating a role for savings bonds in the life cycles of LMI families.