The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

As of April 2011, the savings rate in the U.S. was only 4.9%. Moreover, a 2009 Federal Deposit Insurance Corporation (FDIC) survey revealed that approximately 30 million American households are either unbanked or underbanked. “Unbanked” households are those without a checking or savings account, and “underbanked” households are those that have a checking or savings account but rely on alternative financial services. The unbanked and the underbanked are particularly vulnerable to predatory practices by non-bank check-cashing services, payday loans, rent-to-own agreements, and pawn shops. Given the current economic climate, it is more important than ever for policy makers to concentrate their efforts on getting more people “banked” and saving.

One interesting proposal getting more people, particularly low-income consumers, saving are prize linked savings accounts. These accounts are bank accounts that allow savers to win cash prizes in proportion to how much they save. It is akin to buying a lottery ticket, except that one will always get back the money one has saved.

As some supporters of these types of accounts explain, if gamblers and lottery spenders allocated their funds to prize-linked savings instead, it would lead to increased aggregate savings. In 2007, U.S. residents spent around $90 billion on legalized forms of gambling. The appeal of participating in a lottery suggests that providing an incentive similar to lottery may be an effective tool to recruit more savers. Researchers including Peter Tufano of the Harvard Business School have shown that this program could work in the U.S. Tufano’s research in Indiana predicted that the unbanked would have the greatest interest in prize-linked savings. Following the study in Indiana, Tufano and his team at D2D Fund launched a larger scale prize-linked savings project in 2008 with the Michigan Credit Union League and the Filene Research Institute in Michigan. The product named “Save to Win” allowed savers the opportunity to win monthly cash prizes or a $100,000 grand prize at the end of a year for every $25 deposited. At the end of the pilot year, over 11,500 savers had saved over $8.5 million in Save to Win accounts.

While prize-linked saving programs are available in over twenty countries around the world, including the U.K., Sweden, and South Africa, they are not widely available in the U.S. due to state law and federal regulations. Current law in Michigan, Alaska, Georgia, and Arizona allow for savings promotion raffles, but options are limited in other states. That is because most states in the U.S. prohibit privately run lotteries, and prize-linked savings is considered illegal under such provision. In order to test this new idea to promote saving, Rhode Island, Maine, Maryland, Nebraska, Washington, and North Carolina have passed legislation to enable prize-linked savings programs. Although unsuccessful, legislators in Arkansas, Mississippi, Iowa, and New Mexico have also made similar attempts. However, federal law prohibiting non-credit unions from operating a prize-linked raffle complicates the legislative campaigns in various states.

Even though prize-linked savings may raise aggregate savings among low-to-moderate income families, they do not solve the problem of getting more people to use mainstream bank services that provide more protection for their funds. Moreover, we must keep in mind that one innovative idea alone will not solve the chronic problems of the U.S. economy.

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Congressman Tom Petri (R-WI) and Congresswoman Niki Tsongas (D-MA) introduced a bill that would reform asset limit tests in the Supplemental Security Income (SSI) program on June 2. HR 2103 would enable people with disabilities to open bank accounts, work, and save.

One of the most common policy barriers to asset building and self-sufficiency for people with disabilities are asset limit tests. In general, eligibility for SSI is limited to those who have no more than $2,000 in assets for an individual and $3,000 for a couple. This SSI asset test generally counts all resources deemed accessible to an individual, including defined-contribution retirement accounts, such as 401(k)s and IRAs.

Such asset limits are painfully low, and haven’t been raised since 1989. SSI beneficiaries are allowed little emergency savings, which leaves them vulnerable to predatory lenders and requires them to ultimately rely on greater government assistance. To address this situation the SSI Savers Act of 2011 would:

• Increase asset limits from $2,000 (single) and $3,000 (married) to $5,000 and $7,500 respectively, and index those limits to inflation;

• For recipients younger than 65, exclude retirement accounts, education savings, and individual development accounts from counting against the limit; and

• For recipients 65 and older, allow retirement accounts up to $50,000 (single) and $75,000 (married) and reduce SSI benefits accordingly instead of creating an immediate cut off.

The bill is similar to HR 4937 introduced last session by Representatives Petri and Tsongas.

Click here to take action and send a message to your legislators urging them to support SSI asset limit reform, then follow-up with a call. The switchboard's number is 202.224.3121. The operator can connect you to your legislator's office.

For more information on asset building for people with disabilities, please visit the Sargent Shriver National Center on Poverty Law’s web resource pages to review our webinar series on asset building for people with disabilities: Accessible Assets, Part 1 (November 2009) and Accessible Assets, Part 2 (February 2011).

This blog post was coauthored by Ji Won Kim.

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August 14, 2010, marked the 75th anniversary of Social Security. The social security system has helped reduce the rate of poverty among the elderly, but millions of seniors continue to face economic insecurity. Social Security alone cannot remedy the growing inadequate rate of Americans’ retirement savings and current pessimism about the security of such savings. In fact, Social Security was never intended to be the sole source of retirement income, but rather to provide seniors with a moderate standard of living. Yet, it has become an increasingly larger part of people’s retirement funds. Without Social Security, approximately 20 million Americans would fall below the poverty line, including more  than 13 million elderly and 1 million children.

According to the Social Security Administration, Social Security benefits constituted 50 to 90% of income for more than 33% of Social Security recipients, and 90 to 100% of income for more than 31% of recipients. Women, in particular, may be forced to over rely on their Social Security benefits. Social Security is virtually all of the money that more than 4 out of 10 single women over age 65 in will have. This highlights the need to put more policies like Universal Voluntary Retirement Accounts (UVRAs) in place to provide economic security for low- to moderate-income people.

UVRAs are a simple, easy way to encourage individual retirement savings. Generally, UVRAs are government-administered contribution retirement plans for those who lack access to an employer-sponsored plan. Under UVRA programs, employers that do not offer a retirement plan would be required to allow their workers to open and contribute to a UVRA account through regular payroll deductions. Through automatic enrollment with an opt-out option and a limited number of investment options, UVRAs can attain high participation rates. Additionally, by including a low default contribution rate, UVRAs alleviate potential burdens on low-income individuals while ensuring that they engage in at least minimal savings. Because UVRAs are paid through payroll deductions, they would be portable from job to job thereby encouraging continued savings behavior regardless of changes in employment.

The Automatic IRA Act of 2010, S. 3760, sponsored by Senator Jeff Bingaman (D-NM) and John Kerry (D-MA), would expand retirement savings coverage. Specifically, the bill, which is similar to the bill previously introduced into Congress in 2007, would amend the Internal Revenue Code to allow employees not covered by qualified retirement plans to save for retirement through automatic IRAs. Employers would be required to provide Automatic Individual Retirement Accounts (IRAs) to each qualifying employee. Several states have also introduced UVRA legislation in recent years, and the concept of UVRAs was proposed in President Obama’s 2010 budget. These repeated attempts to enact UVRA legislation demonstrate lawmakers' recognition of the growing retirement problem. In particular, the need to continue Social Security in order to lift millions of Americans out of poverty, while at the same time providing other retirement opportunities for those who do not currently have them or who are most vulnerable.

For more information on UVRAs, see “Universal Voluntary Retirement Accounts: A Financially Secure Retirement” in Clearinghouse Review and the archive of the Shriver Center’s recent webinar on UVRA.

Ji Won Kim coauthored this article.

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