Last week the New York Times' City Room Blog posted a piece on the $aveNYC matched savings program. This was in response to a report on the program that was recently released by New York City's Office of Financial Empowerment, which runs $aveNYC. The program encourages low-income New Yorkers to save part of their tax refunds. Every dollar that they save in a $aveNYC account is matched at 50 percent up to a total of $250 in matching funds. The account is a certificate of deposit through a participating financial institution and participants receive the match money after one year if they do not withdraw any of the initial deposit.
The purpose of the program is to help low-income households build some savings for short-term goals or emergencies. These households are more likely to experience unanticipated expenses or drops in income and need some emergency funding to draw on. However, many of these households now rely on high cost alternatives to savings for this funding, such as credit cards and payday loans. That's where $aveNYC comes in.
The report highlights some very promising findings for the pilot program over its first two years. Despite only having an average income of approximately $15,000, over 1,000 individuals have participated in the program and saved about $400 on average. 61 percent of these participants received the maximum match amount by saving at least $500 of their own tax refunds. In the first year, 76 percent of the accounts remained untouched for a year and received the matching funds.
Overall, $aveNYC participants deposited over $45,000 and saved a total of over $73,000. Furthermore, one-third of participants had no banking account before participating in the program and 36 percent reported having no savings. 83 percent of participants also reported that the matching money motivated them to sign up for the program.
Also discussed in the piece was the Saver's Bonus, a federal policy proposal put forward by the New America Foundation that is very similar to $aveNYC. The Saver's Bonus would provide a dollar for dollar match up to a total of $500 in matching funds for low- and moderate-income tax filers who save a portion of their tax refunds. In addition to a certificate of deposit, other types of accounts would also eligible for the Saver's Bonus, such as Individual Retirement Accounts (IRAs), 529 College Savings Plans and U.S. Savings Bonds. Like $aveNYC, the Saver's Bonus would provide both a means and an incentive for low- and moderate-income families to save, but on a national scale.
Each year the federal government provides hundreds of billions of dollars in incentives for Americans to save and build assets, however most low- and moderate-income families are not eligible to receive them. A proposal like the Saver's Bonus would help remedy this by providing a direct incentive for low- and moderate-income families to save. $aveNYC is demonstrating the promise of this approach; Congress and the Obama Administration should take note.