Why Talking About Money Is Not Enough
While as a financial capability professional working tirelessly to serve the needs of individuals in your communities, it is also vital that you take time to support federal legislation that aims to level the playing field for all working Americans.
Recently I read a blog post from a personal finance blogging hero of mine, J.D. Roth, entitled “Does the world of personal finance need more politics?” In this post he responds to a recent column written by Washington Post Opinion writer Helaine Olen entitled, “Why the world of personal finance needs more politics.” Dear Reader, know that Helaine Olen is a hero of mine as well, so I read both pieces (plus the 100+ comments following J.D.’s post) with great interest.
Many of the commenters agreed with J.D.’s thesis that personal finance bloggers in particular – and the FinCon Expo as a whole – should not mix personal finance with politics. I read through dozens of these like-minded comments before I found the few commenters who took the stance that individual agency will only take you so far, and that responsible social policy is necessary the address the needs of everyday working people to assist them in financially supporting themselves and their households.
This inspired me to write this post. Here in my teeny tiny corner of the internet I am making the case that in fact, just talking about money with your clients is not enough to fully assist them in getting ahead financially (and yes, it is not lost on me that Talking About Money is in fact the name of my entire blog). As financial capability practitioners you need to support social policies that protect workers and level the playing field for households.
To help in this post, I will describe some federal bills that are currently being supported by my friends at Prosperity Now, a national non-profit that advocates for fair and just social policies that protect households’ financial stability. Let’s take a look at three federal bills that Prosperity Now is supporting in 2019:
American Opportunity Accounts Act
What is it? This bill was introduced in the House by none other than my own Congressional Representative from Massachusetts, Ayanna Pressley, and in the Senate by New Jersey Senator and presidential candidate Cory Booker. The summary of this bill is to “require federally funded and managed savings accounts (American Opportunity Accounts) to be established for American children who are under the age of 18.”
What does it do? American Opportunity Accounts (or AO Accounts for short) are Children’s Savings Accounts that are seeded at a child’s birth with an initial deposit from the federal government of $1,000, and added to annually until that child reaches the age of 18, potentially amassing a balance of around $45,000 for some children. The language in the bill make it look as if these accounts might be restricted to higher education, home ownership, or possibly retirement if not accessed in early adulthood.
Why is it important? This bill to establish “baby bonds,” as they are known in some circles, could be a game changer in creating a nest egg for kids growing up in families that are barely making ends meet from month to month. Kids benefiting from AO Accounts would have more choices when they reach early adulthood with regards to pursuing education or affording housing. You can read more about Opportunity Accounts in a 2018 article that Vox did on Cory Booker here.
Refund to Rainy Day Savings Act
What is it? This bill was introduced in the House by New Jersey Representative Bonnie Watson Coleman and in the Senate by New Jersey Senator (and all-around busy guy) Cory Booker. The summary of the bill explains that it “requires the Department of the Treasury to establish and implement a Refund to Rainy Day Savings Program to permit a taxpayer to defer payment on 20% of a tax refund to be deposited into a Treasury account, accumulate interest, and disbursed to the taxpayer in six months.
“The bill also reauthorizes the Assets for Independence (AFI) federal matched savings program through FY2024 and requires appropriations for the program to be reserved for general research and evaluation, grants for AFI innovation projects to expand the availability of matched savings accounts to low-income individuals, and a three-year matched savings account pilot program established by the Department of Health and Human Services (HHS) to encourage savings by low-income taxpayers.”
Wow, that is a lot all in one bill!
What does it do? The aim of this bill is to support the emergency savings of working Americans, as it is estimated that only about 40% of Americans do not have $400 to weather a financial emergency. The bill states that American tax filers can choose to have up to 20% of their tax refund placed in an account in the Treasury to be released six months later (presumably in the fall).
This bill also reauthorizes the AFI matched savings programs hosted by non-profits. This 18-year demonstration program that served approximately 84,000 low-income households came to its fateful end in 2017 and this bill is a valiant attempt to revive it.
Why is it important? The Refund to Rainy Day Savings Act offers to enact a broad-scale behavioral economics campaign through which workers are given the chance to “save” a portion of their tax refund that is then released at a time of year (maybe during back-to-school or the holidays) when these same household might have a higher likelihood of incurring debt to cover their expenses.
This Act would also bring back the AFI program, a longstanding matched savings program that helped a considerable number of families create savings, purchase assets, and increase the likelihood of their long-term financial stability.
Saving for the Future Act
What is it? This bill is sponsored in the House by California Representative Scott Peters and in the Senate by Delaware Senator Christopher Coons. It supports the creation of a universal personal savings program where “each applicable employer shall contribute to a qualifying plan, on behalf of each employee that is not enrolled in an active, defined benefit pension plan sponsored by such employer.”
What does it do? This bill proposes employees have savings plans that encompass both retirement savings and emergency savings in the same vehicle. It also requires that employers save on their employees’ behalf in these designated accounts. The Savings for the Future Act is designed as an opt-out program (meaning that everyone is automatically in the program unless they take active steps to un-enroll) where employees commence saving at a 4%/year savings rate that increases by 0.5% each year until they are savings at a rate of 10%/year.
A unique feature of this plan is that the first $2,500 that the worker saves serves as an emergency fund that can be tapped for short- or medium-term goals. Savings beyond $2,500 are directed into the retirement portion of the plan.
Why is it important? This Act is important because it takes active steps to help workers save for short-term needs in an emergency fund and for their long-term needs in the retirement portion of the fund. As was mentioned above, Americans have perilously few dollars saved to weather a financial storm, and the Savings for the Future Act provides a vehicle for that precious emergency fund. And with only about 11% of American workers receiving union protection such a pensions, this Act forces employers to do more to ensure that their employees have at least some retirement savings.
Are you interested in what your state might be doing to promote financial capability among its residents? Check out Prosperity Now’s State Policy priorities bill tracker here. Do you want to learn more about what you can do to advance fair and just social policies for the communities that you serve? In summer 2019 Prosperity Now hosted Camp Prosperity to teach people like you these skills. While the live sessions are over, you can find their recordings here.