Are Tax-Time Savings Sustainable? Findings From the SaveNYC Evaluation

Background and Purpose: Over the last two decades, asset building interventions have grown increasingly popular as ways to help low-income individuals begin to climb the ladder out of poverty. Individual development accounts (IDAs), which match participants' savings when they are used for asset investments like home purchase, are the classic asset building intervention. Recent years have seen increasing innovation in asset building programs, which raise new research questions. One such intervention is tax-time savings accounts, which promote savings by devoting a portion of the tax refund of a low-income filer to a savings account. These interventions are based on the ideas that tax refunds are one of the largest single payments low-income individuals receive all year, and that it is easier to set aside portions of such windfalls than it is to set aside portions of regular paychecks. This study tests the effects of such an intervention on the real savings and the perceptions of financial security of participants.

Methods: Data for this study are from the first surveyed cohort of SaveNYC study participants. SaveNYC is a tax time savings program that invited tax filers at select New York City Volunteer Income Tax Assistance (VITA) sites to deposit some portion of their refund into a savings account. If participants were able to leave the money in the account for an entire year, their balance was matched at a rate of 50 cents for every dollar, up to a limit. Participants in the program and a comparison group drawn from non-participating VITA sites were surveyed at baseline and again one year later. Comparison of the two groups revealed some differences in important predictors at baseline, so subsequent analyses use propensity score weighting to compensate for these initial differences. Regression analyses were conducted to predict presence of savings, amount of savings, and perception of financial security from treatment and important covariates such as demographic variables and prior financial well-being.

Results: Results suggest that the SaveNYC program had a small but meaningful effect on participants. Compared to non-participants, SaveNYC participants were more likely to have some savings (even after earning the match and having their accounts closed) and had a higher volume of savings. In addition, participants were more likely than comparison group members to report feeling that they could get by on their savings for at least one month without income.

Conclusions and Implications: The findings of this study suggest that tax-time savings program can successfully boost the savings levels and feelings of financial security for low-income tax filers. If participants have more money at their disposal to weather emergencies, and they associate their feelings of financial security with their increased savings, these effects have the potential to motivate continued saving.