united way impact

The Savings Paradox: Helping Families Build Assets

Poor credit ratings, crippling debt and fear of financial institutions prevent many low-income families from laying long-term financial plans, leaving them mired in a cycle of poverty. How United Way is partnering to reverse the trend.

Every tax season, millions of dollars go unclaimed by America's low-income workers. Many don't know about the tax credits available to them, and others can't afford the tax preparation needed to claim the substantial savings (as much as $4,000 per family).

These uncollected tax refunds are indicative of a larger trend. Wary of parting with their hard-earned pay and often distrustful of larger banks, many low-income workers have left the financial mainstream behind, preferring to live on cash instead of trusting their money to banks and financial institutions.

The problem is pervasive. Nearly 20 percent of all American households do not have a bank account of any kind.(1) It's a costly and risk-filled way to handle income, and it fails to encourage long-term saving -- a reality that has unexpected social consequences. The possession of assets has been linked to helping lower divorce rates, improving health among adults and children, increasing property maintenance (thus driving up value) and, interestingly, boosting local civic involvement.(2) In short, when people save, it benefits not only family but community as well. It also eases the strain on our welfare system, as fewer individuals will slip back into poverty once savings have been put aside for leaner days.

But how can low-income workers start saving when living paycheck to paycheck is the norm? Through a unique program, United Way is working with city officials, community organizations, companies and individual volunteers to begin putting families on the path to permanent economic self-sufficiency.

Here's how it works:
For the past three years, United Way has partnered with the City of Boston to promote the Earned Income Tax Credit (EITC) as part of our core strategy to help individuals and families build assets. The EITC has become one of the largest federal efforts supporting low-income families. Last year alone, over 6,000 families collected a combined $7 million in refunds, an average of $1,200 per family. Thousands more could have been helped had they been aware of the credit, which is why United Way has taken steps to recruit volunteers to help operate tax preparation sites throughout low-income areas.

As part of the free tax-preparation process, qualifying families are encouraged to use all of their refund, or at least a portion, to open savings accounts -- and banks are making it easier for them to do so. Several small community banks targeting non-native populations have sprung up in recent years, and many banks now have bilingual tellers and publications. Some banks offer free or low-cost checking accounts for low-income families, and have also begun working to restructure their credit requirements to make it easier for individuals with poor credit histories to open accounts.

Companies can help contribute to the effort by adding the Advanced EITC to their wage packages. This program spreads an EITC recipient's refund over a year, and winds up providing a raise of $1 to $2 per hour at no cost to the company.

Finally, more can be done to help families maintain their savings once established. This year's EITC campaign in Boston also features consumer education information on reducing debt, establishing credit and avoiding predatory businesses such as rent-to-own and check cashing companies.

Individuals with tax expertise and/or bilingual skills can help. Each tax season, volunteers are needed to prepare tax returns for low-income families, and tax professionals are needed to train those volunteers. Free preparation sites need greeters that speak several languages (particularly Spanish, Haitian Creole and Vietnamese).

In short, it will take a little guidance from public and private entities, as well as some help from everyday citizens, to move low-income families safely away from the poverty line and into the economic mainstream.

1. Maximizing the Earned Income Tax Credit in Your Community: A Guide for Municipal Leaders. National League of Cities Institute for Youth, Education and Families

2. Page-Adams, D. & Scanlon, E. (2001). Assets, Health and Well-Being: Neighborhoods, Families, Children and Youth. St. Louis, MO: Center for Social Development at Washington University