May 7, 2015
Washington, DC – The Asset Building Program at New America released a report today connecting failures in federal policy to the widespread lack of flexible savings and high levels of financial insecurity in American households. Current federal savings policy supports long-term saving at the expense of family financial security by incentivizing saving in restricted-use accounts that levy harsh penalties for using the funds to meet unexpected expenses. These policy choices leave too many American families vulnerable to amassing credit card debt, taking out a payday loan, tapping home equity or withdrawing retirement funds. The new report, Flexible Savings: The Missing Foundation for Financial Security and Economic Mobility, calls for a better approach: supporting families in building short-term savings to create financial stability, economic mobility, and long-term retirement security.
“Current federal policy allocates hundreds of billions of dollars each year supporting long-term and restricted use savings but does nothing to help families save for emergencies," said Reid Cramer, Director of the Asset Building Program at New America. "That tells families to build their financial house on precarious foundations. When almost sixty percent of families do not have one month of income available as emergency savings, unexpected expenses can become financially debilitating. Unsavory payday loans and penalized withdrawals from retirement plans are just the beginning of the consequences. We can do better for all Americans.”
The report calls for reorienting savings policy to support the full range of real-world savings needs and recommends a series of policy reforms that would remove unnecessary barriers to saving and create focused incentives. The recommendations include:
● Removing barriers to building short-term savings through eliminating asset limits in public assistance programs;
● Broadening access to financial services by
○ Using public assistance programs, like TANF, to promote financial inclusion;
• Implementing stronger consumer protections for bank-account eligibility screening,
○ Expanding financial services through the U.S. Postal Service,
○ Facilitating access to savings vehicles at tax time,
● Leveraging long-term savings mechanisms for short-term needs by
○ Expanding the President’s myRA initiative,
○ Adding a flexible, emergency savings pocket to state-based retirement savings initiatives and employer sponsored , private sector retirement savings plans; and
● Establishing tax incentives for flexible savings through legislative proposals like the Financial Security Credit.
A full copy of the report, is available at: http://www.newamerica.org/asset-building/flexible-savings/