Asset Building Program

The Financial Security Credit

Each year the federal government provides hundreds of billions of dollars in incentives for families to save and build wealth through the tax system. There are two main problems with this approach, first low-income and moderate-income families are not eligible for most of these tax incentives. Instead, the benefits accrue largely to upper-income individuals and families.

Second, the main savings supports focus on retirement savings and ignore the reality that millions upon millions of American families lack basic emergency savings, the essential first step on the savings ladder. These hard-working families, like any other household, need to save to achieve economic mobility and financial stability.

The Financial Security Credit directly addresses this issue by using the federal tax system to provide these families with the same kind of incentives that upper-income families enjoy for saving. Eligible families would:

  • Apply for the Financial Security Credit at tax time on their federal income tax form;
  • Have the ability to divert a portion of their tax refund into the approved savings product of their choice, or;
  • Open an approved savings product directly on the tax form, and;
  • Receive a 50 cent match on every dollar of savings, up to $1,000, held for at least eight months.

Families have a variety of savings needs. The Financial Security Credit would empower families to choose to address the savings needs that they felt are most important. Eligible savings products would include IRAs, 401(k)s, 529 College Savings Accounts, Coverdell Savings Accounts, Savings Bonds, 12-month or longer Certificates of Deposit and savings accounts.

For information about the Financial Security Credit, please read:

Tax Reform and the Financial Security Credit

The Financial Security Credit should be considered as part of any major effort to overhaul the nation’s tax code. Our tax code should clearly support savings for all Americans and it should be designed in a way that is simple, efficient, inclusive and fair. To learn more about this approach to tax reform, please read:

Watch Reid Cramer, director of the Asset Building Program discuss pro-savings tax reform here:

 

History

The Financial Security Credit was first proposed by the Asset Building Program in 2008 (and was then called the “Saver’s Bonus.”) Some of the early resources on the proposal include:

To see a complete list of content relating to the Financial Security Credit, please click here.

SAVE USA: A Real World Demonstration

The New York City Department of Consumer Affairs Office of Financial Empowerment (OFE) launched a pilot project, the $aveNYC Account, in February 2008 to test whether or not a proposal like the Financial Security Credit would be attractive to low-income New Yorkers, whether they would be able to save, and whether or not the savings would make a difference in their lives.

Many workers see their "biggest paycheck" at tax time thanks to tax refunds and the Earned Income Tax Credit (EITC). $aveNYC leveraged that moment to help New Yorkers build savings. Eligible taxpayers had the opportunity to deposit part of their refund into a safe account and if they maintained the original level of funds in that account they received a match of 50 cents for every dollar, up to a maximum threshold. The results were so promising that the program received an infusion of federal funds from the Social Innovation Fund of the Corporation for National and Community Service, through the New York City Center for Economic Opportunity, to expand to other cities. Now Save USA, the project is also operating in Newark, NJ; Tulsa, OK, and; San Antonio, TX. Save USA has generated significant and valuable information about how best to operate such a policy and has been profiled by PBS.

Save USA is also being evaluated by MDRC and the early findings are demonstrating that there's an appetite for a proposal like the Financial Security Credit, that even very low-income individuals will participate, and that the savings makes a difference in their lives.

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