Why tax credits make a difference for families with less financial flexibility
Recently, the Federal Reserve released its annual report from the Survey of Household Economics and Decisionmaking (SHED) and the top-line takeaway is clear: the financial well-being of households is in decline. Rising prices and inconsistent income are taking a toll on consumers’ financial health.
The report highlights that in 2022:
The share of adults who said they were worse off financially in the previous year rose to 35%, the highest level since 2014
40% of adults said their family’s monthly spending increased in 2022 compared to the previous year
23% of adults said their spending had increased but their income had not
Nearly two-thirds of adults stopped using a product or used less because of inflation
Just over one-half (51%) reduced their savings in response to higher prices
While this data pulls from a nationwide survey of households, and not specifically households living with low-to-moderate incomes, our members echo the sentiments shared in the SHED report.
SaverLife members are feeling the pinch of increased prices
At SaverLife, we amplify research and data that reflects our members’ lived experiences, priorities, and financial aspirations. The latest SHED data gives a much-needed context to the state of the financial system. It also highlights how the financial system has impacted people like SaverLife members’ ability to address rising prices, inflation, and income volatility in the last year.
For example, Tara is a SaverLife member and New Jersey native who works hard to maintain her budget and build up savings. But even with full-time work, in 2022 she found that she had little flexibility in her weekly grocery budget to cover the essentials she needed. “I’ve always been a penny pincher,” she explains. “Recently, my boss told me to ‘save money by switching to store brands.’ But I’ve always bought the store brands; I’ve always looked for the cheapest option and hunted for sales. Prices are going up and there’s no way for me to go down in price.”
Tax credits can fill the gap when finances fluctuate
Through our collaborative research with members on the impacts of the Child Tax Credit (CTC), SaverLife has learned how tax credits can help our members maintain financial stability when prices increase or their income becomes more volatile:
32% of SaverLife members who received the CTC shared that they would have a much harder time paying utility bills if CTC payments didn’t continue
26% would find it challenging to cover everyday essentials without access to this credit
23% said that their savings balances would fall
The ways our members, and the millions like them, access important tax credits like the CTC has been an ongoing challenge. From IRS processing delays to strict work requirements, people living with low-to-moderate incomes are being locked out of tax credits that can help them fill money gaps, especially when they experience changes to their grocery bill, child care, income, or other necessary expenses. We covered this in a previous blog post about the challenges facing people living with low-to-moderate incomes who are looking to maximize their tax returns.
Tax time is the greatest wealth-building opportunity for people living with low-to-moderate incomes, which is why we created a campaign to support our members in accessing all applicable tax credits, filing their returns, and maximizing their refunds. During the 2023 filling season, over 9,000 SaverLife members participated in our Tax Time pledge and committed all or part of their refunds to savings. However, overall access to tax credits continues to be a challenge.
How SaverLife is addressing the impacts of a shifting financial landscape
We believe that more can be done to address the latest findings in the SHED report — and to begin building a world where people with low-to-moderate incomes don’t feel the outsized impact of shifting prices, inflation, and income adjustments. To create the conditions for all people to achieve financial well-being, SaverLife is working to enact change on both the individual and systemic levels. Why? So that we can deliver timely and relevant support that helps individuals improve their financial health while creating a financial system that prioritizes their goals, pain points, and lived experiences.
In addition to connecting our members with information and resources to help them access important tax credits, we advocated — and continue advocating for — policy changes that redefine the tax code to include the experiences of people living with low-to-moderate income. We believe that improving the design of tax credits, like the CTC and Dependent Care Tax Credit, will make them more inclusive and applicable to households that feel the acute effects of the shifting financial landscape. And we encourage policymakers to prioritize this approach in their own work.
The latest SHED data highlights the necessity of centering people living with low-to-moderate incomes in larger systems-change conversations. More importantly, it emphasizes the urgency of delivering resources that can help individuals immediately offset the impacts of changing prices and income.
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