October 22, 2015
Polishing the EITC on its 40th Birthday
The Earned Income Tax Credit is a critical lifeline that lifts some 9 million low-income Americans out of poverty – half of them children.
But the federal tax refund program isn’t perfect. The large refunds come just once a year, in the spring tax filing season. A cash crunch is a year-round problem for working families with low or erratic incomes who can’t always pay their bills.
A new study by the Center for Economic Progress identified additional financial benefits from the Earned Income Tax Credit (EITC) when participants in a Chicago pilot project received smaller, regular EITC payments throughout the year.
For example, workers who received the quarterly payments – in May, August, October, and December – were much less likely to have high-rate payday loans than people whose EITCs came all at once, helping program participants to avoid expensive late fees on payday loans. There was also evidence that workers in the EITC pilot accumulated less total debt, though the sample size was small.
The participants surveyed overwhelmingly said they preferred the periodic payments, and they reported lower stress levels than the control group. Shirley Floyd explained why in a previous blog post:
When Floyd receives a one-time tax refund in February, “the entire thing is gone” by March. But each payment she received in the pilot program, she said, allowed her “to do what you need to do.”
The program was run by the Center for Economic Progress, which provides financial services to low-income families. David Marzahl, president, was disappointed that about one-third dropped out of the research pilot, leaving only 217 participants who saw it through to the end. Nevertheless, he feels the pilot confirmed the concept’s potential to help low-income working persons with children and would like to see it expanded into a nationwide program, administered by the IRS. …Learn More
October 8, 2015
Blacks Invest Less Often
If two people – one black, one white – have good jobs with comparable incomes, the black person would still be less likely to have a taxable investment account, such as a mutual fund, a new study finds.
Numerous reports have shown that black Americans have fewer retirement and other savings accounts, and less money in those accounts than white Americans. But the problem with many of these comparisons is that they lump people together, regardless of how much they earn.
A new study by the FINRA Investor Education Foundation looks at one type of account – taxable investment accounts – and controls for income as well as two other characteristics that influence wealth: education and age. The study, using data from a 2012 survey of more than 25,000 U.S. households, found that when everything else is equal, black American households were still 7 percentage points less likely to have taxable investment accounts than white households; and Hispanic households were 4 percentage points less likely to have such taxable accounts than white households.
FINRA also identifies other characteristics typical of the one-third of households with a taxable account. …Learn More
September 15, 2015
401(k) Catch-up: Help for the Few
Longer lives, eroding Social Security benefits, and rising health care costs – these are just some of the reasons older workers need to save more in their 401(k)s.
To encourage them, Congress in 2001 approved a “catch-up contribution” for workers over age 50. The size of this additional tax-deductible contribution started at $1,000 in 2002 and jumped to $4,000 by 2005 and $5,000 in 2006. (After 2006, it continued to increase, though only at the rate of inflation, and is currently $6,000.)
But the catch-up contribution has not turned into a broad-based solution to Americans’ retirement woes that some proponents had claimed at its passage. According to researchers at the Center for Retirement Research (which supports this blog), it helps only a select group of older workers: those who were already contributing at or near the tax-deductible maximum allowed on their regular 401(k) contributions. It’s a group with higher-than-average incomes and wealth than the typical older worker. …Learn More
September 8, 2015
In Support of Allowances for Kids
With summer’s chaos subsiding and school starting, it’s time for a financial lesson wrapped in an allowance!
The conventional wisdom behind a weekly allowance is that it impresses on children the limited value of a dollar. But the benefits of financial education are not well-founded in academic research. The benefits of an allowance might have something to do with kids’ confidence in handling their money, which research shows is central to how well adults manage their finances.
Kids between ages 8 and 14 who get an allowance were two times more likely to feel knowledgeable about managing their money than kids who do not – 32 percent versus 16 percent – according to a survey of 1,000 parents and 881 children by T. Rowe Price. The kids with allowances also feel they know more about credit, student loans, and other financial matters. …Learn More
August 13, 2015
Retirement: a Priority for Millennials?
Saving for retirement is more crucial for Millennials than for any prior generation. Data are emerging that reveal how they’re doing.
Vanguard’s 2014 data from its large 401(k) client base shows that 67 percent of young adults between 25 and 34 who are covered by an employer plan are saving – this is well above a decade ago.
A survey recently by the Transamerica Center for Retirement Studies found evidence that this generation makes retirement a priority: a majority of working adults in their 20s and early 30s – now the largest single demographic group in the U.S. labor force – view retirement benefits as “a major factor in their decision on whether to accept a future job offer.”
This indicates that Millennials are getting the message, said Catherine Collinson, president of the Transamerica Center for Retirement Studies.
The growth of automatic enrollment in 401(k) plans “has helped pull young people and non-participants into the plans,” Collinson said, “but I also believe it’s also due to heightened levels of awareness.” …Learn More
August 6, 2015
Retirement Researchers Convene Today
Why do older workers retire before they’d planned? How has the Affordable Care Act affected retirees in particular? And what’s known about U.S. immigrants’ wealth levels and Social Security contributions?
Researchers from around the country will present their findings on these and a range of other retirement topics during the 17th annual meeting of the Retirement Research Consortium, starting today at the National Press Club in Washington, D.C.
For the meeting agenda, click here.
The Consortium’s members are the Center for Retirement Research at Boston College (which supports this blog), the NBER Retirement Research Center, and the University of Michigan Retirement Research Center. The studies being presented are all funded by the U.S. Social Security Administration through the Consortium’s members.Learn More
August 4, 2015
Tax Refunds Advanced to Low Earners
Things are looking up for Shirley Floyd of Chicago.
Her daughter just earned a college scholarship, and Floyd has landed a better job. The new job requires the 37-year-old to stand on a concrete floor, sometimes 10 to 12 hours a day, inserting automobile gaskets into cardboard sleeves for shipping. But her earnings, including overtime, are much larger than her $216 biweekly paychecks in 2014, when she was a part-time home health aide.
When Floyd was unable to keep her head above water last year, she received a financial lifeline from a program run by the Center for Economic Progress in Chicago. Under the pilot program, which was supported and funded by the Chicago mayor’s office and housing authority, 343 low-income recipients of the federal Earned Income Tax Credit (EITC) signed up for quarterly advances on their current year’s EITC payments, which they otherwise would have had to wait to receive the following year at tax time.
“It was an awesome program,” Floyd said about the advances, which always seemed to arrive at just the right time. “That pressure is relieved – for a little while. You’re able to do what you need to do.” She also believes quarterly payments are better than a large, one-time tax refund in February, because “the entire thing is gone” by March.
Under the Periodic Payment Pilot Program, low-wage workers with at least one child could get up to 50 percent of their estimated future EITC refunds as quarterly advances, up to a maximum of $2,000 per year. Floyd used her advances of nearly $400 per quarter to pay utility bills, rent, or her daughter’s tuition at a Catholic high school. …Learn More