Discussion and Introduction of "A Fragile Balance: Emergency - - PowerPoint PPT Presentation

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Discussion and Introduction of "A Fragile Balance: Emergency - - PowerPoint PPT Presentation

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Discussion and Introduction of "A Fragile Balance: Emergency Savings and Liquid Resources for Low-Income Consumers" March 17, 2015, 12-1pm CST Brought to you by: Center for Financial Security at the University of Wisconsin- Madison

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Discussion and Introduction of "A Fragile Balance: Emergency Savings and Liquid Resources for Low-Income Consumers"

March 17, 2015, 12-1pm CST Brought to you by: Center for Financial Security at the University of Wisconsin- Madison

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Our Presenters

  • J. Michael Collins

Faculty Director, Center for Financial Security Ezra Levin Associate Director, Government Affairs at CFED Jessica Dorrance Senior Project Manager, UNC Center for Community Capital Ingrid Holguin Policy Advisor for Strategic Partnerships, Office of the Mayor of San Jose Formerly, Savings Program Director, Opportunity Fund

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SAME RESULTS

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SAME RESULTS

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SAME RESULTS

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  • $96.5 billion: Preferential rates for investment income
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  • $96.5 billion: Preferential rates for investment income
  • $31.5 billion: Exclusion for inherited investments
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  • $96.5 billion: Preferential rates for investment income
  • $31.5 billion: Exclusion for inherited investments
  • $23.8 billion: Exclusion of interest on state & local bonds
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  • $96.5 billion: Preferential rates for investment income
  • $31.5 billion: Exclusion for inherited investments
  • $23.8 billion: Exclusion of interest on state & local bonds
  • $23.5 billion: Reduced estate taxes
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  • $96.5 billion: Preferential rates for investment income
  • $31.5 billion: Exclusion for inherited investments
  • $23.8 billion: Exclusion of interest on state & local bonds
  • $23.5 billion: Reduced estate taxes
  • $1.2 billion: Deferral of interest on US Treasury savings bonds
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  • $96.5 billion: Preferential rates for investment income
  • $31.5 billion: Exclusion for inherited investments
  • $23.8 billion: Exclusion of interest on state & local bonds
  • $23.5 billion: Reduced estate taxes
  • $1.2 billion: Deferral of interest on US Treasury savings bonds

$176 B

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Federal spending on investments and inheritance tax programs is projected to expand rapidly and will set a new record in 2015

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Average Income from Capital Gains and Dividends

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Historical Estate Tax Rates and Exemptions

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Historical Estate Tax Rates and Exemptions

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Building Emergency Savings through “Impulse Saving”

Jessica Dorrance ▪ March 17, 2015 Emergency Savings Webinar

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This impulse savings pilot was part of the Financial Capability Innovation Funds, managed by CFSI.

The Financial Capability Innovation Fund is supported by a coalition of funders.

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Chapter Outline

  • The need for emergency savings
  • Barriers to building savings
  • Description of impulse savings
  • Description of MAGIC Mojo
  • Strengths and limitations
  • Opportunities going forward

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Low-income households face some significant barriers to building up even small amounts of savings.

  • Half of Americans are liquid asset poor.
  • Savings rate of less than 3%.
Photo Credit: Images of Money
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STRUCTURAL

  • Low wages
  • Un- and underbanked

consumers

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PSYCHOLOGICAL/BEHAVIORAL

  • Present bias
  • Difficulty predicting future

needs

  • Small hassles become big

hurdles

Savings Barriers

Image credits: dannya and jpnoak
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A traditional budgeting based approach may be ineffective for some low-income households. In many cases, there isn’t anything left over to save.

For instance, approximately 20% of people spend as much as they make.

Households need alternative approaches to building savings.

Photo credit: Tax Credits
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Into all good savings plans a little impulse spending often falls. Buying something on impulse can feel good.

Photo credit: Charlie Brewer
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What if impulsivity could be leveraged to help people save money, rather than spend it?

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Impulse Savings & MAGIC Mojo

Sought to leverage the enjoyment of impulsive action and overcome some of the key barriers that prevent lower-income individuals from being able to save.

1) Required little planning. 2) Promoted goal-setting. 3) Did not require a bank account. 4) Allowed access to funds when needed.

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MAGIC Mojo was offered as an optional added feature to the MAGIC Card.

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Watc h your goal light up as you save

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Januar y & F e br uar y $10 oil c hange c oupon 3/ 3/ 2013 $6 no dr ive thr u 1/ 29/ 2013 $2 fr e e Re dbox c oupon 1/ 28/ 2013 1/ 25/ 2013 $6 no c igar e tte s $7 no e ating out 1/ 19/ 2013 $3 ge t star te d 1/ 16/ 2013

MAGIC Mojo saves made by John who was saving for a vacation.

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Goal Types

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0% 5% 10% 15% 20% 25% 30% 35% 40%

Emergency fund Take a vacation Buy something Family Home sweet home Pay off debt Other (adopt pet, etc.) Wedding or special event Education or Classes Retirement Blitz

Percent of MAGIC Mojo Users

Goal Type

Saving for an emergency fund was the most commonly selected savings goal.

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Total Goal Amounts

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0% 5% 10% 15% 20%

Percent of MAGIC Mojo Users

Total Goal Amount Approximately 60 percent of MAGIC Mojo users had a savings goal of less than $1,000.

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Goal Duration

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0% 5% 10% 15% 20% 25% 30%

Less than 4 weeks 4 to 11 weeks 12 to 23 weeks 24 to 35 weeks 36 to 47 weeks 48 to 52 weeks 52 weeks or more

Goal Duration

Percent of MAGIC Mojo Users

The most commonly selected goal durations ranged from 4 week to 23 weeks.

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Lack of willpower

  • Hard to stick to a plan
  • Hard to resist temptation

Need for flexibility

  • Unexpected expenses
  • Inconsistent income

MAGIC Mojo Addresses Barriers and Meets Critical Needs

Photo credit: 401(k) 2013 Photo credit: Liz Henry
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Savers used a combination of methods to make saves. Nearly 90% of savers used an automatic recurring transfer to move money into savings.

Flexibility in the Savings Mechanism

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Flexibility in Withdrawals

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0% 5% 10% 15% 20% 25% 30% 35% 40%

Give money to someone else Buy something Pay household expenses or bills Cover unexpected emergency expenses Complete my savings goal

Percent of MAGIC Mojo Users

Reason for Withdrawal

Just over 50 percent of MAGIC Mojo users took money out to cover bills or emergency expenses.

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Opportunity Going Forward

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  • Prepaid cards are becoming an increasingly

common financial tool.

  • For some lower-income consumer prepaid cards

are less expensive than checking accounts.

  • Prepaid cards with a savings feature provide a

secure way to save.

  • Impulse savings is applicable across a wide

range of savings tools and decision points.

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Contact Us

  • Jessica Dorrance

Senior Project Manager UNC Center for Community Capital 919.962.0134 ▪ dorrance@unc.edu

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Start2Save: Helping Working Families Meet Unexpected Expenses and Opportunities

Ingrid Holguin Savings Program Director, Opportunity Fund

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Start2Save

A matched savings product to help low-income families build emergency savings

Program Paradigm Product Performance Partners Policy

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Program: Opportunity Fund IDAs

Fifteen years experience and +4,000 IDAs Low-income individuals can save Long-term asset building as savings goal  Integrated financial education  80% graduation rate & 90% utilization rate  Most vulnerable populations  Addressing liquid-asset poverty  Banking  Ongoing savings

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Paradigm

 Can the asset-building paradigm include a focus

  • n building short-term, liquid assets?

 Can an emergency matched savings program reach more vulnerable populations?  Are short-term savings a first step in the path to long-term asset building?

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Product: Start2Save

  • Matched savings: Save $500 / Earn $1,000
  • Financial Education
  • Financial Coaching
  • Monthly deposits
  • Case management
  • Graduates: “Savers4Life”
  • Savings account / secured credit card / prepaid

card

  • New savings goals / credit–building goals
  • Automated savings options
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Performance

  • 500 accounts opened

 Yr 1: 50 accounts ---- Yr 5: 250 accounts projected  50% growth, year-on year  Partners are the client / can pay for service

  • 80% graduation rate
  • 50% maintain savings balance: >=$500
  • 50% continue to deposit regularly
  • 15% secured credit card adoption
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Partners

Integrate S2S emergency savings program into the fiber of social services provider programs

― Financial Security ― Financial Aspirations

  • Transitional Housing Shelter

Residents

  • Foster Youth
  • Volunteer Tax Assistance Program

Clients

  • Financial Education students
  • Ways to work car loan applicants
  • Emergency Cash Assistance

recipients

  • Refugees in Resettlement Programs
  • College prep programs for at-risk

youth

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Policy

The lever to scale and sustainability:

  • 1. Match: Tax-time savings incentives
  • 2. Savings: Earned Income Tax Credit: federal

and state

  • 3. Disincentives: Eliminate federal and state asset

limits

  • 4. Pilot at scale: Expand the AFI mandate:

 Add emergency savings as an asset  Flex emergency withdrawal rules while saving-up  Expand allowable use of match $: deposit into a qualified savings account

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Q & A

  • J. Michael Collins

Faculty Director, Center for Financial Security Ezra Levin Associate Director, Government Affairs at CFED Jessica Dorrance Senior Project Manager, UNC Center for Community Capital Ingrid Holguin Policy Advisor for Strategic Partnerships, Office of the Mayor of San Jose Formerly, Savings Program Director, Opportunity Fund

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Thank you for attending today’s webinar! Please visit http://emergencysavings.org/ for more information on the book and where to purchase.

Please also note that the presentation slides and recorded webinar will be posted on our website: http://www.cfs.wisc.edu/

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Please join the Center for Financial Security

  • n April 7, 2015 Noon-1pm CT for our next webinar on

Resources for Financial Education

www.cfs.wisc.edu/ Please contact Hallie Lienhardt hebennett@wisc.edu or 608-890-0229 with questions.