Leveraging Public Assistance to Promote Financial Inclusion

In a report out today, the Asset Building Program at New America argues that Temporary Assistance for Needy Families (TANF)—the national welfare program designed to help move low-income families to employment and reduce dependency on the safety net—has features that keep families in the financial margins and make it harder to get out of poverty.

“Leveraging Public Assistance to Promote Financial Inclusion: A New Approach for TANF” notes that from asset caps to transaction fees, TANF not only fails to support saving and financial inclusion, but also often actively discourages it.

“Financial inclusion among America’s most vulnerable families will remain elusive until public policy is seen as part of the problem, not just the solution. As the government pursues ideas for building financial inclusion, it should start by getting rid of the barriers to doing so that are baked into our public assistance programs,” said Rachel Black, senior policy analyst with the Asset Building Program. “This paper lays out common-sense alternatives to remove barriers and promote financial inclusion.”

The report makes three key recommendations:

• Raise or eliminate TANF asset limits. Currently, TANF families are subject to a median savings cap of $2,000, with nine states capping it as low as $1,000. Research shows that these limits discourage saving and bank account ownership.
• Establish direct deposit as the default for TANF disbursement. This would allow recipients more flexibility to view and manage their transactions and bank account, and eliminate transaction fees for withdrawing funds.
• Negotiate contracts with EBT/prepaid card issuers that prioritize consumers. States should negotiate contracts with issuers that remove or reduce fees for ATM withdrawals, balance inquiries, and requests to view transaction history.

“Helping families connect to the financial mainstream and build savings is a necessary part of promoting self-sufficiency. Embedding efforts to do so in TANF would not only put more families on sustainable path toward financial independence, it would also improve the performance of the program,” said Aleta Sprague, the author of the report.