How Congress Can Help Families Save for Emergencies

Americans are facing a savings crisis, but there are promising solutions on the horizon. Last week, Prudential Financial announced an emergency savings feature it designed with Prosperity Now to help workers save for a rainy day alongside retirement. Congress is considering legislation to help working families save at key touchpoints in their lives, including at tax time and in the workplace. These developments mark an important moment for advocates working to help families build emergency savings.

In a new policy brief, Helping Families Save to Withstand Emergencies, Prosperity Now details the actions Congress can take to help more Americans save for an unexpected financial emergency—and how much of a difference that would make.

For many low- and moderate-income families, emergency savings is the difference between financial security and crisis. Yet 37% of U.S. households live in liquid asset poverty, meaning they don’t have enough short-term savings to cover three months of basic living expenses in the event of a financial crisis. Households of color are particularly affected: 51% are liquid asset poor, compared to 28% of White households. Fifty-seven percent of Black households are in liquid asset poverty, as are 61% of Hispanic households. 

Savings are even harder to build for many families that rely on safety net programs like the Supplemental Nutrition Assistance Program (SNAP). Many programs carry savings penalties, sometimes called asset limits, that make it impossible for households to save sums as low as $1,000 and continue receiving benefits.

Having emergency savings is one important step towards helping families achieve financial stability, a source of stress for too many people. Nearly half of Americans say they do not feel financially stable, including 75% of low-income and low-wealth households. Savings allow families to create stability in volatile economic situations. A rainy day fund can fill a hole in a personal budget when one month’s income is lower than expected, perhaps because of a dip in hours at work or an unexpected expense, like a car repair or medical bill.

Both the government and workplaces play a role in helping more families build emergency savings. Through programs like Prosperity Now’s partnership with Prudential, employers can actively encourage workers to save money for a rainy day alongside their existing retirement plans. Meanwhile, Congress can pass bipartisan legislation to use tax season—which represents an important moment in many families’ financial calendars—and the workplace to help people save.

Three Ways Congress Could Improve Emergency Savings

Congress could take steps to address this savings crisis by using tax policy and building on several decades of successes in retirement savings.

Two weeks ago, a bipartisan group of senators—Sens. Cory Booker (D-NJ), Tom Cotton (R-AR), Heidi Heitkamp (R-ND) and Todd Young (R-IN) introduced the Refund to Rainy Day Savings Act (S. 3220). The legislation would allow tax filers to defer 20% of their refund, which would accumulate interest for six months before being deposited into their bank account. It also includes a pilot to match savings from deferred tax refunds for low-income households through the federal Assets for Independence (AFI) program. This is a straightforward, bipartisan proposal that would help families save for emergencies later in the year.


In the same bipartisan package of savings legislation, the senators proposed the Strengthening Financial Security Through Short-Term Savings Plans Act (S. 3218). The bill would make it easier for workplaces to offer rainy day savings accounts alongside their retirement plans, or as separate accounts for employers that do not offer a retirement plan. Workplace-based emergency savings accounts are a great opportunity to encourage savings through automatic payroll withdrawals and take advantage of some of the tax benefits of retirement accounts.

Finally, Congress could enhance the Saver’s Credit, a tax credit meant to encourage families to save. Right now, the Saver’s Credit only applies to retirement savings, and it cannot be used to reduce the total taxes owed by a household below $0. By expanding the credit to include emergency savings and allowing lower-income households to take the credit as part of their tax refund, Congress could encourage families to save more.

Our new policy brief provides more detail about how these policies could help working families build savings, achieve financial stability and prepare for the future. These policies would directly help low- and moderate-income families and ought to be a higher priority than other proposed legislation to extend the provisions of the December 2017 tax law, which did not address the savings crisis. 

To help us move this bipartisan emergency savings legislation forward, please call your Senators and ask them to co-sponsor the Refund to Rainy Day Savings Act (S.3221) and Strengthening Financial Security Through Short-Term Savings Plans Act (S.3218).

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