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Tying Saving to Credit Scores

Recent grad earns $50,000 for idea to boost American savings rate

December 20, 2010

EVANSTON, Ill. --- Jonathan Chan, a 2010 graduate of Northwestern University, hit the jackpot in the TIAA-CREF “Raise the Rate” competition, receiving $50,000 for his winning idea.

The competition sought suggestions for raising the U.S. savings rate to 10 percent over the next two years. As of October 2010, the nation’s personal savings rate was 5.7 percent -- lower than that of most other industrialized nations.

Chan’s winning solution for motivating people to put more money in the bank: reward those who save with a better credit rating.

Chan, who received a bachelor’s degree in economics from the Weinberg College of Arts and Sciences, proposed incorporating personal saving habits into current credit scores as a positive indicator of creditworthiness. "Every aspect of the system promotes spending and not saving," he said. "I argued that a better saver makes a better borrower."

Chan’s argument is premised on the fact that credit scores have been shown to influence people’s behavior.  

“Credit scores today reflect an individual’s payment patterns,” said Roger W. Ferguson, Jr., chief executive of TIAA-CREF, the leading providing of financial and retirement services in the higher education and non-profit community. “But they don’t account for savings -- effectively a payment to oneself and an investment in the future. Including such data in credit scores would reward those who currently save and encourage others to start.”

The contest was conducted entirely via social media. Chan, who now lives in his hometown, New York, and is employed in the financial industry, found it by chance when he randomly came across the TIAA-CREF Facebook page. Three months after entering the contest, he found out that he was a finalist.

“I was at work when I learned that I won, so I had to keep my composure,” Chan said.

Judges evaluated the effectiveness, clarity, innovativeness and feasibility of each of the finalist’s submissions. Entrants submitted proposals in both written and video form.

“Raise the Rate” entries were judged by Maria Bartiromo, host of CNBC’s “Closing Bell”; Aaron Patzer, founder of Mint.com; Dan Ariely, author, Duke University professor and economist and head of the eRationality research group at the Massachusetts Institute of Technology Media Lab; and TIAA-CREF CEO Roger W. Ferguson, Jr.

“Saving for the long term is critical to securing one’s financial future,” Ferguson said, “and as a nation, we aren’t where we should be.”

Topics: People