3 ms·

It is hard to come up with a setup where paying poor people takes that money to savings (i.e., gets it out of the circulation). I am not saying paying poor folk

by ptero 4y ago

It is hard to come up with a setup where paying poor people takes that money to savings (i.e., gets it out of the circulation). I am not saying paying poor folks is always a bad idea, I just fail to see a single practical approach where this will lead to a reduction in M2. My 2c.

jjoonathan 4y ago
Encouraging banks to not stiff uninformed retail would be a good start (see: grandparent comment). Capped personal savings instruments would be the next step (see: I-Bonds).
toast0 4y ago
You missed the whole idea "paying poor people to save" If you, say, give people $100 in a year if they keep $1000 on deposit for the whole year, you'd be paying them to save. Sure, the poorer people are going to go out and spend that $100 when it comes in. And if there's no new incentive to keep the $1000 in savings, they may likely spend that too. And you'd need to limit it to one offer per natural person, etc, or people with access to lots of money would endeavor to make many $1000 accounts to get the 2x market rate interest I made up. Maybe $1000 is too much to ask poor people for, but you could scale it down. If you do it right, you get both the policy goal of reducing velocity of money, because you're getting people to save rather than spend some money, and you also get the typical policy goal of distributing money to the poor because even if everyone can get this $100, it's more impactful to the poorer. Or you could do a savings account linked to a lottery. Every $1 in savings up to $X gets you a ticket, if the bank earns about the federal funds rate on the deposit, give half to the individual depositors, and pool the other half to share among the lottery winners. Might be more 'exciting' for some people and encourage more savings that way.
- JumpCrisscross 4y ago
  > you could do a savings account linked to a lottery. Every $1 in savings up to $X gets you a ticket, if the bank earns about the federal funds rate on the deposit, give half to the individual depositors, and pool the other half to share among the lottery winners This is a good idea. Could it be implemented under current regulation as a neobank?
  - atdrummond 4y ago
    There’s a governmental bank in the UK that runs a lottery: https://www.nsandi.com/products/premium-bonds https://www.nsandi.com/products/premium-bonds
  - toast0 4y ago
    They've been doing similar things at Wisconsin credit unions for several years: https://www.theleague.coop/solutions/savers-sweepstakes https://www.theleague.coop/solutions/savers-sweepstakes And here's a hip app based version that isn't a bank, but keeps your funds at a bank: https://www.withyotta.com/ https://www.withyotta.com/ Not sure about the terms or pay ratios on either of these, but I didn't come up with the idea, and I kind of find it distasteful, but it would seem to hit the right mix of meeting policy goals and attracting the desired clientele, so I restated it.
- ptero 4y ago
  It might be worth trying, but you are describing CDs with souped up interest rates. Many poor folks carry credit card balances at 15+% interest. Paying those off would be much more efficient for them that those CDs. Unfortunately if they manage to pay their credit cards they soon start racking them up again.
  - giantrobot 4y ago
    This elides a more fundamental problem. For a lot of middle class earners, it's difficult to keep non-trivial amounts of cash on hand. So there's no cash to cover the cost of a broken appliance or repair on a car. A credit card is many people's only accessible $1k for some emergency bill. It's not that most people are maxing out credit cards on fur coats and caviar, they're paying for necessary and often unplanned expenses. They rack up credit card charges because as soon as they pay off one expense they get hit with another. This is especially true for people stuck with 15% interest rates.
- zamnos 4y ago
  they're poor. this means they, and everyone around them don't have enough money. What's the point of saving into a rainy day fund? to have money when it's a rainy day. Except when you're poor, it's always raining. car needs gas, then it needs work before it'll run, or it needs a new windshield, or car insurance. Dog needs to go see the doctor. or their friends have problems and need money to pay their bills. what are you trying to get them to save for, when the problem simply is they don't have enough of it?

by ptero 4y ago

jjoonathan 4y ago

Encouraging banks to not stiff uninformed retail would be a good start (see: grandparent comment). Capped personal savings instruments would be the next step (see: I-Bonds).

toast0 4y ago

You missed the whole idea "paying poor people to save" If you, say, give people $100 in a year if they keep $1000 on deposit for the whole year, you'd be paying them to save. Sure, the poorer people are going to go out and spend that $100 when it comes in. And if there's no new incentive to keep the $1000 in savings, they may likely spend that too. And you'd need to limit it to one offer per natural person, etc, or people with access to lots of money would endeavor to make many $1000 accounts to get the 2x market rate interest I made up. Maybe $1000 is too much to ask poor people for, but you could scale it down. If you do it right, you get both the policy goal of reducing velocity of money, because you're getting people to save rather than spend some money, and you also get the typical policy goal of distributing money to the poor because even if everyone can get this $100, it's more impactful to the poorer. Or you could do a savings account linked to a lottery. Every $1 in savings up to $X gets you a ticket, if the bank earns about the federal funds rate on the deposit, give half to the individual depositors, and pool the other half to share among the lottery winners. Might be more 'exciting' for some people and encourage more savings that way.

JumpCrisscross 4y ago
> you could do a savings account linked to a lottery. Every $1 in savings up to $X gets you a ticket, if the bank earns about the federal funds rate on the deposit, give half to the individual depositors, and pool the other half to share among the lottery winners This is a good idea. Could it be implemented under current regulation as a neobank?
- atdrummond 4y ago
  There’s a governmental bank in the UK that runs a lottery: https://www.nsandi.com/products/premium-bonds https://www.nsandi.com/products/premium-bonds
- toast0 4y ago
  They've been doing similar things at Wisconsin credit unions for several years: https://www.theleague.coop/solutions/savers-sweepstakes https://www.theleague.coop/solutions/savers-sweepstakes And here's a hip app based version that isn't a bank, but keeps your funds at a bank: https://www.withyotta.com/ https://www.withyotta.com/ Not sure about the terms or pay ratios on either of these, but I didn't come up with the idea, and I kind of find it distasteful, but it would seem to hit the right mix of meeting policy goals and attracting the desired clientele, so I restated it.
ptero 4y ago
It might be worth trying, but you are describing CDs with souped up interest rates. Many poor folks carry credit card balances at 15+% interest. Paying those off would be much more efficient for them that those CDs. Unfortunately if they manage to pay their credit cards they soon start racking them up again.
- giantrobot 4y ago
  This elides a more fundamental problem. For a lot of middle class earners, it's difficult to keep non-trivial amounts of cash on hand. So there's no cash to cover the cost of a broken appliance or repair on a car. A credit card is many people's only accessible $1k for some emergency bill. It's not that most people are maxing out credit cards on fur coats and caviar, they're paying for necessary and often unplanned expenses. They rack up credit card charges because as soon as they pay off one expense they get hit with another. This is especially true for people stuck with 15% interest rates.
zamnos 4y ago
they're poor. this means they, and everyone around them don't have enough money. What's the point of saving into a rainy day fund? to have money when it's a rainy day. Except when you're poor, it's always raining. car needs gas, then it needs work before it'll run, or it needs a new windshield, or car insurance. Dog needs to go see the doctor. or their friends have problems and need money to pay their bills. what are you trying to get them to save for, when the problem simply is they don't have enough of it?