Asset building is crucial to a family or individual’s financial success. The difference between getting by and getting ahead is the ability to save and build assets. According to the recently released CFED Poverty Scorecard, 27.1% of Americans are asset poor (meaning that if they lost their incomes they would not be able to survive for three months because they do not have enough assets to fall back on).
SaveUSA is pilot program in four cities that offers eligible individuals a 50-percent match if they deposit a portion of their tax refund into a “SaveUSA Account” and maintain the initial deposit for approximately one year. SaveUSA, which is being offered in New York City, Tulsa, Newark, and San Antonio, has already helped residents open 1,662 accounts and save nearly $1 million dollars.
SaveUSA is based on the $aveNYC program which began in 2008 and was sponsored by New York City’s Department of Consumer Affairs’ Office of Financial Empowerment (OFE), the Center for Economic Opportunity, and New York City Mayor Bloomberg. Behavioral economics research proves that saving programs are successful in low-income populations if strong financial incentives to save are offered. Under the $aveNYC program, the match was originally capped at $250 for the first two years, and was raised to $500 in 2010.
Under the SaveUSA pilot, accounts are offered at Volunteer Income Tax Assistance (VITA) sites, where families and individuals can receive free tax preparation services. The idea is to encourage consumers to think about tax refunds not just as money back in their pockets, but as an opportunity to begin saving for the future. Additionally, VITA sites and SaveUSA both encourage eligible taxpayers to apply for the Earned Income Tax Credits ( EITC). The EITC is a refundable tax credit for working low-income individuals and families who make below a certain wage. The idea is that low-income families can kick-start their asset building by depositing a portion of their tax refund, including their EITC refund, in their SaveUSA account thereby making them eligible for the maximum match.
Title XII of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorized a BankOn USA initiative that the U.S. Treasury Department is currently developing. The federal BankOn USA pilot program is similar to both the $aveNYC program and BankOn programs. BankOn, which originated in San Francisco as a pilot in 2006, is a collaboration between financial institutions and community organizations to offer low-cost savings and checking accounts and financial education to low-income individuals. These partnerships allow banks and credit unions to offer products to the unbanked as well as raise awareness and conduct targeted outreach to bring consumers into the financial mainstream. BankOn programs also typically provide second chance accounts to those who have had accounts closed and whose name appears in ChexSystem.
The Treasury Department is currently exploring the use of pilots, awards, and competitions to assess and promote effective approaches to designing and implementing the BankOn USA program if funded through federal appropriations. President Obama called for $20 million in his FY 2013 budget proposal to fund BankOn USA.
Programs such as SaveUSA and BankOn USA provide the starting point for financial stability and economic mobility. By encouraging individuals to begin saving for their futures, they are empowered to enter the financial system, prepare for emergencies and have the financial know-how to succeed.
This blog post was coauthored by Alison Terkel.