Tuesday, October 23, 2018

Making more of a good thing?

ACFCU hopes a fun savings incentive can
lead to deeper conversations with low and
moderate income taxpayers about financial goals.
“Because it’s received at one time I worry that we’re creating a system where we essentially make people non-poor in the spring and then we drop them right back into poverty for the rest of the year.” – Elaine Maag, Urban-Brookings Tax Policy Center, on the Earned Income Tax Credit

Across the income spectrum, holiday spending time is here. Halloween costumes, home décor, and Christmas presents are seen as absolute musts – even for folks long past the months when large tax refunds had left them relatively flush.

People will spend an average of more than $86 on Halloween this year. When your checking account is often down to $8, never mind $80, before the next payday comes, 86 bucks is a lot to shell out. But shell out we often do, even if it means borrowing from predatory lenders or maxing out the credit card.

At Appalachian Community Federal Credit Union, we believe it doesn’t have to be that way. We’re hopeful that with financial coaching, some fun incentives and plenty of innovation, we can help some folks move the needle on the income volatility that large refunds and relatively low earned incomes tend to create.

The boon of an $8,549 tax refund for a two-parent family of five with a $28,000 adjusted gross income can’t be overstated. Neither can $9,066 for a two-parent family of four with AGI of under $21,000, or $6,955 for a single mom of two with AGI just below $28,500, or $9,983 for another single mom of two with AGI of less than $18,000.

Elaine Maag of the Urban Institute
ACFCU and Tusculum University served the families above earlier this year through their Volunteer Income Tax Assistance (VITA) partnership. Dozens of those low and moderate-income families received refunds exceeding $4,000 and the EITC played a big part. But what happens to that one-time money, and is there room for greater impact?

“When Pew Research did some analysis on income volatility, they asked people questions about whether you’d rather have more income or a steady income,” the Urban Institute’s Elaine Maag told me in a recent wide-ranging interview. “People said they would like steady incomes even more than knowing their total income in a year would be more.”

Maag’s work focuses on income support programs for low-income families and children – the EITC being one of the biggest and longest-running. A big proponent of the EITC and its expansion, she’s aware of the “fiscal cliff” folks often fall off later in the year. March through June are good months. Families catch up on late bills, pay ahead sometimes, stock up on staples, have a little fun and get needed big-ticket items or repairs. Then the lump sum dwindles and regular monthly take-home pay isn’t enough.

“We live monthly lives,” Maag said. “Our rent or mortgage payments our due monthly, we eat food not just in April, we eat it throughout the year. Our needs are not annual needs in a lot of cases.”

Commonwealth's Mariele McGlazer
That’s one reason why this coming tax season our VITA taxpayers can participate in SaveYourRefund. Anyone who puts at least 50 bucks of their refund into a second savings account is put into a drawing, and 10 $100 prizes are distributed each week of tax season. Mariele McGlazer of Commonwealth, which partners with the folks at America Saves to promote the program, says it’s a nice carrot and an opening to discuss bigger things.

“There can be a real reluctance or hesitation around using that moment as a time to talk about people’s financial goals and what they might be able to do with that refund to leverage it to their advantage,” McGlazer told me in an interview. “It’s an easy way into that conversation and an easy way to start talking about saving at tax time.”

We hope to engage people in those conversations and offer taxpayers financial coaching and other paths to meeting their long-term goals. America Saves’ motto says it all: Start Small. Think Big.
(Jeff Keeling is vice president of communications and community relations for AppalachianCommunity Federal Credit Union.)

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