Promoting Savings at Tax Time
In January 2020, SaverLife published a report with Prosperity Now and the Social Policy Institute at Washington University in St. Louis that evaluated tax time savings interventions and behaviors.
In the report, we explore the behaviors and outcomes related to savings and financial well-being of low and moderate-income (LMI) tax filers in the United States. Through surveys administered at or near the moment of filing taxes and then three to six months later, we examined how tax filers used their tax refund and the role that the refund plays in filers’ financial lives and financial well-being.
This analysis is unique in that it compares tax filers’ outcomes over time across three different tax-filing and savings program platforms: volunteer income tax assistance (VITA) sites, online tax filing through the Turbo Tax Free File Product (TTFFP) and SaverLife.
Key Findings
Low-income tax filers are saving a portion of their refund at higher rates than previously thought or measured, and are more successful in following through with saving their refund with SaverLife.
Savings is just one of the uses of the refund and not the most important use for many low-to-moderate income tax filers.
SaverLife tax filers who successfully saved experienced fewer hardships and higher financial well-being after filing their taxes.
Saving some of your refund, and saving it for longer than six months was correlated with positive financial well-being changes in the months after tax filing.
Changes in Savings Balances & Refund Spending After Receiving Refund
About half of refunds are placed in savings accounts upon receipt. SaverLife members then tend to make net withdrawals from savings accounts in the months following saving their refunds. This corroborates the data showing SaverLife members use refunds for emergencies, as savings balances that were inflated from the receipt of refunds act as a lifeline to ward off emergency expenses or income dips in the months following the receipt of a refund.
February refund recipients also used the influx of funds to “catch up.” Comparing February spending to the average of the prior three months, the data show a 53% increase in utility payments, a 61% increase in credit card payments and a 43% increase in telecommunications payments.
