New Legislation Seeks to Curtail America's Savings Crisis
Today, Senators Cory Booker (D-NJ), Tom Cotton (R-AR), Heidi Heitkamp (D-ND) and Todd Young (R-IN) introduced a package of bills in the U.S. Senate to help working families save at key touchpoints in their lives, including at tax time and in the workplace (read Prosperity’s Now’s official stance regarding the legislation). These pieces of legislation will help working families build savings to achieve two important bulwarks of financial security: first, to have a buffer against financial shocks such as job loss, medical emergencies and car breakdowns, and second, to save towards long-term goals such as education and retirement.
As we’ve written about time and time again, Americans face a savings crisis. Prosperity Now’s Scorecard shows that almost 40% of Americans live in liquid asset poverty, meaning that if these households lose their income, they do not have enough liquid savings to live at the poverty level for three months. With so many households living on the verge of poverty, working families need opportunities to save at pivotal moments in their lives to protect them from the inevitable financial emergencies that come their way. Luckily, policymakers are responding to this crisis with thoughtful, practical solutions.
The bipartisan Refund to Rainy Day Savings Act (S.3220), reintroduced today in Congress, uses the tax time moment to let tax filers set aside a portion of their refund as emergency savings for later in the year. Drawing from our Rainy Day EITC proposal, this legislation allows working families to defer 20% of their refund by opting into the program. The savings would be transferred into their account six months later with interest. The legislation would also establish a pilot program to gauge the impact of matching funds with lower-income tax filers.
Lastly, this bill includes language to expand the flexibility of the innovative Assets for Independence (AFI) grant program, which encourages earnings, savings and self-sufficiency by offering matching funds and other incentives to help low-income workers save their own money and build assets. The bill widens the allowable eligible asset purchases for AFI, increases the maximum participant match and simplifies eligibility requirements for participation.
Using tax time to build rainy day savings is gaining traction at the local level as well. The Rainy Day Refund Act, introduced last month in Washington, DC by Councilmember Brianne Nadeau, also follows a tax time approach to rainy day savings by allowing eligible taxpayers to defer 30% of their DC EITC (Earned Income Tax Credit) for six months and get a 50% savings match. By strengthening this tax credit, working families will have another option to save for their short-term and long-term needs.
In addition to tax time, we also know that the workplace can offer the perfect structure to help working families save for emergencies. Companies are incentivized to help their workers save to lessen their workers' financial stress and, in turn, potentially increase workplace productivity. Prosperity Now's recent report, Saving for Now & Saving for Later: Rainy Day Savings Accounts to Boost Low-Wage Workers’ Financial Security, underscores the need for emergency savings across the country and explains how rainy day savings accounts in the workplace can fill that void.
To that end, the Strengthening Financial Security Through Short-Term Savings Plans Act (S.3218)—part of the package of savings bills introduced today in Congress—will make it easier for employers to offer rainy day savings accounts to their workers with the sole purpose of helping them save for unexpected emergencies. These accounts will help workers build short-term savings through automatic contributions, allowing working families to brace themselves for financial emergencies.
Want to help move these bills forward and help working families find new opportunities to save? Call your Senators and ask them to co-sponsor the Refund to Rainy Day Savings Act and Strengthening Financial Security Through Short-Term Savings Plans Act.