Tax Time’s Golden Opportunity: Increasing Financial Security for Low-Income Families
Lower-income households face pervasive economic insecurity and these constraints have only tightened in the wake of the recent recession. Across the United States, nearly 40% of households are asset poor, at least 20% have zero or negative net worth, and over half would be unable to cope with an unexpected expense of $2,000. At the same time, about 60 million Americans are unbanked or underbanked and the average household saved less than 4% of their disposable income during the first three quarters of 2011.
Building economic security and breaking the cycle of persistent poverty have long been significant aims of the field of social work. Could tax time present a unique opportunity for low-income households to build savings and increase year-round financial stability? In 2011, the average IRS tax refund was $2,913, almost a month’s take-home pay for a median-income household. This panel considers several policy and practice options to leverage tax refunds in order to encourage families to start or bolster savings and connect them to wider financial supports.
The three studies presented in this symposium represent a range of rigorous research methods, including randomized experimental design, quasi-experimental design, and qualitative methods. Both quantitative and qualitative data are analyzed using advanced methods to test research hypotheses to inform policy and program development.
The first study explores mental accounting of tax refunds and finds that, among the racially diverse low-income sample, persons approach tax season with generally accurate ideas about the likelihood and size of their refunds and base their predictions on both understandings of tax rules as well as deeper ideas of citizenship and deservedness. The second study evaluates a tax-time savings program that provides low-income tax filers with the opportunity to deposit a portion of their refund into a savings account and receive a match if the money remains in the account for a year. The study finds that participation is associated with a greater likelihood of saving. The third presentation introduces results from a large national experimental study, the Refund to Savings Initiative. This study employs behavioral economic techniques embedded within the free online version of TurboTax tax preparation software to encourage tax-time saving by low-income households and has the potential to reach a significant segment of the low-income population.
Conclusions and Implications:
The analysis and findings presented in this symposium address important questions about the potential of the tax-time opportunity to build financial stability. These results carry implications for social work policy and practice that addresses the financial needs of low-income families. Specifically, these presentations provide evidence and recommendations of how to best construct scalable and easy-to-implement tax-time savings pathways that help families reach their financial goals.