Tuesday, April 5, 2011

Saving, when there’s not much to save

Encouraging savings and developing assets (such as a car, a home, or money for emergencies) is especially important for persons with disabilities. These resources allow people to have choices that help with creating a better life - mental and physical health, self-esteem, and opportunities in your community. But, particularly when you live on a fixed income or earn a low wage, it can seem almost impossible. Consider these possibilities:

1. Individual Development Accounts
The Assets for Independence Act passed in 1998 allowed individuals with low incomes to participate in “individual development accounts” (commonly called IDAs). These accounts can really help people save for their own home. The core elements of the act included a savings match incentive, and financial literacy and homeownership counseling. A larger down payment provides more affordable loan terms and lessens the risk of potential foreclosures later.

The Assets for Independence Act expired in 2003, but is currently being reintroduced with streamlining of operating requirements, expanded eligibility, and enhanced funding. The Savings for Working Families Act would include an IDA tax credit, and authorize $4 billion over ten years to support financial institutions’ efforts to participate in matching individual savings. “Auto Save” directs a small amount of post tax wages to be automatically deposited into a new low cost individual savings account – in this case fund use is not restricted, so could be used for any emergency needs.

2. Retirement Investment Account Plan
One idea for those whose employers do not offer a retirement plan is to develop a “Retirement Investment Account Plan”. This would be a government authorized, but privately run central clearinghouse to accept worker contributions to retirement savings accounts. These workers would have access to an automatic payroll-deduction retirement savings account through their workplace. The employer would not have to administer the plan or take responsibility for the investment choices of employees.

3. Saver’s Bonus
A recent proposal from the New America Foundation is the “Saver’s Bonus”. This would create an incentive for low income individuals and families to save at tax time. Tax refunds represent receipt of the largest check families will receive all year. For example, in 2009 the average refund was just under $3,000, with over 24 million EITC recipients getting refunds as large as $5,767. Every dollar deposited into an eligible savings account would be matched (that means free to you!) by an additional dollar up to a maximum of $500 per year. The money could go towards your long term dreams such as money for education or retirement under accounts such as IRA’s, 401k’s, and 529 College Savings plans.

If you look around the world, other countries are thinking and trying out other ideas – all with the plan to help everyone save a little more money for the future. In the United Kingdom, and Latin America they’ve tried prize-linked savings. Savers are entered into drawings for small monthly prizes and a larger annual jackpot.

What would help you save more?

- Dave

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