Flexible Savings

The ability of
families to build up a financial cushion that can be tapped without penalty or
restriction to meet unexpected expenses is a primary determinant of financial
security and a key to future economic mobility. Being able to access flexible
savings when expenses exceed income prevents an over-reliance on debt, decreases
the likelihood of experiencing hardship, and promotes advantageous asset
building over the long term. Yet many families are unable to amass even a small
pool of flexible savings that can make a difference. Current public policy
creates unnecessary barriers and offers insufficient incentives to support
families in the process of accumulating strategically useful savings. The lack
of flexible savings is a problem not only for lower-income families, but
affects households at nearly all levels of income. 

While policy supports to
help families build certain long-term assets, such as retirement savings and
home equity, do exist at the federal level, there are no federal policy
provisions to support flexible savings. Perhaps worse, families are penalized
when they are forced by circumstance to draw down on their own savings that
have accumulated in tax-preferred accounts. In light of growing evidence about
the extent of financial insecurity among American households, policymakers
should consider ways to support families’ efforts to build flexible savings.

Click here to read the full paper.