The Saver’s Bonus and Removal of Asset Tests: Making Federal Spending Work Better for Low-Income Families

In many ways, the asset poverty line is a better and more complete indicator of how a particular family is faring financially than the traditional poverty measurement. Asset poverty acknowledges that income only goes so far; even earning a wage sufficient to meet basic expenses, a household without any savings is always one emergency away from disaster. Unfortunately, while some segments of the U.S. population are strongly encouraged to save, others, such as most recipients of public benefits, are effectively banned from saving due to restrictive asset tests. Additionally, lower-income households have inadequate access to products and incentives that facilitate saving. Two policy interventions that could significantly increase the abilities of lower-income families to save include the elimination of asset tests in public assistance programs, and the implementation of the Saver’s Bonus.

In 2009, nearly half of U.S. households were below the asset poverty line, which means they lacked sufficient savings to live at the poverty line for three months: 43% of households had less than $4632 saved up. In certain parts of the country, more than half of the population was experiencing asset poverty; Alabama represented the highest rate, at 64.5%. To see the levels of asset poverty and income poverty in your own state, check out the interactive map on the Assets Report 2012 infographic.

As documented in the infographic, the FY 2013 federal budget allocates no funding toward helping families plan for emergencies; most of the money devoted to encouraging savings is granted to higher-income households through tax breaks. Even worse, certain policies continue to actively discourage low-income people from saving enough money to cope with a crisis. In all but a few states, recipients of cash welfare (Temporary Assistance for Needy Families, or TANF) cannot have more than a couple thousand dollars in liquid resources, thus practically guaranteeing that the household is and will remain below the asset poverty line for as long as it is receiving benefits. Some families even “spend down” their assets simply to qualify for assistance, which utterly counters the programs’ objectives of facilitating a move to self-sufficiency. Eliminating—or at least liberalizing—the asset tests in TANF and SNAP/Food Stamps would allow more families to set aside enough money to weather a sudden illness, accident or other unanticipated financial need.

Another policy intervention that would encourage saving by low-income households is the Saver’s Bonus. As discussed throughout the Assets Report, the tax code provides billions of dollars in subsidies for saving for retirement, college and homeownership, but neglects short-term or precautionary savings needs. The Saver’s Bonus would offer an opportunity for low-income families to save by providing a match for a portion of the family’s tax refund that is invested in a range of products, including savings bonds and college and retirement funds. Furthermore, the Saver’s Bonus would allow a tax filer to use their refund to open an account directly on their federal income tax form.

In New York, a pilot of the Saver’s Bonus, $aveNYC, allowed tax filers at Volunteer Income Tax Assistance (“VITA”) sites to open accounts that offered a fifty percent match for the account holder’s deposits. The average income of the participants was $17,900 and the average amount they saved was $561, before the match; seventy percent of participants continued to save after the required savings period had concluded. Studies have shown that even a modest amount of savings, such as five hundred dollars, can significantly increase a family’s financial security.

As elsewhere with its asset spending, the budget’s commitment to promoting savings manifests primarily in tax breaks for those who are already well off. Those who really need to save in order to move out of poverty are granted few resources that would enable or encourage them to do so. While a greater shift in national economic priorities is ultimately necessary, policy reforms such as the Saver’s Bonus and the removal of asset tests can effect real change in the meantime.