Southern Bancorp is committed to encouraging healthy savings habits, encouraging policy changes that incentivize individual and family savings programs, and removing policy barriers to accessing savings. That’s because we believe the best way to build communities and enhance upward financial mobility is to empower our communities to build assets and accumulate wealth.
With savings, Arkansans and Mississippians are much more likely to start a business, buy a home, or send their child to an institution of higher education. Savings also helps families and individuals to weather unexpected financial hardships, which inevitably occur.
So how healthy are the finances of Arkansans and Mississippians?
The 2017 Prosperity Now Scorecard provides an opportunity to compare the progress on savings in Arkansas and Mississippi. It measures household prosperity broadly in the United States, assessing all 50 states and the District of Columbia on 113 measures in five issue areas: Financial Assets & income, Business & Jobs, Homeownership & Housing, Health Care, Education. According to the study, Arkansas adopted 21 of 53 preferred policies and received an overall ranking of 45 while Mississippi adopted 11 of 53 preferred policies and ranked 51 in a comparison of the 50 states and the District of Columbia.
Let’s take a look at savings and assets.
Prosperity Now reports that Americans living in the South lack personal and household savings, making them particularly vulnerable to financial shocks.
The depth of the savings crisis across the South is especially stark. In a handful of states, nearly half of all households are living in liquid asset poverty, including Arkansas (48.4%) and Mississippi (53.4%).
According to the Department of Numbers, the median household income for Mississippi is trending slightly upward since 2011 at $40,593 and the median household income for Arkansas is $41,995. Both states lag behind national median income which is $55,775.
So, how can people save money when their income falls short of what most workers earn?
It is clear that while incomes, and thus, workers’ ability to save, are ticking upward as the states recover from the recent US financial crisis, some policy changes could positively boost the upward trend.
What Can We Do to Boost Individual and Household Savings?
Matched savings programs – Private sector investments in partnership with savers has the potential for success and scale. Micro-Savings Programs provide an opportunity for relatively low investment and high impact. Consider the EARN Research Institute’s Starter Savings Program. This micro-savings program provides a monthly $10 match for every month that a saver’s account increases by at least $20. Savers claim their matched funds at the 6-month mark, and they keep saving. According to EARN, 83% of savers continue to save after the match period ends. Incentivizing the private sector match by authorizing a tax deduction for match is an effective tool for companies seeking to provide real impact and scale in the community.
Children’s Savings Accounts – Children’s Savings Accounts (CSAs) are savings or investment accounts established for post-K-12 education or training for children, and the impact on children has been remarkable. First, just the existence of a CSA increases the expectation of college attendance for children. Studies show that children with a CSA in their name with as little as $500 or less are 3 times more likely to attend college and 4 times more likely to graduate from college. Second, CSAs create two generations of savers per household. As parents and guardians are the custodians of their children’s accounts, parents and children are literally developing disciplined savings habits along-side their children with every deposit. Typically parents open a qualified account at a financial institution. Often school districts are key partners in connecting parents to provider institutions. Private sector partners provide match dollars which are awarded as students complete certain milestones: for example, participation in a reading competition or science fair, perfect attendance, completion of the semester, etc. These match funds are typically held in a “mirrored” or parallel account and released upon the student paying college or training tuition with the funds.
Individual Development Accounts – From 1999 to 2016, the Federal government established the Assets for Independence (AFI) program. This unique program provided a 2 to 1 match for individual savers. The program was very successful, enabling more than 115,000 individuals to save for qualified asset purchases such as a) capitalizing a small business b) higher education tuition, and c) purchasing a home. States like Arkansas, Indiana and Tennessee showed a strong commitment to helping people save by allocating state match funding. Unfortunately, many state allocations ended due to shrinking state budgets. Though state budgets have shrunk, and the Federal AFI match funding has ended an opportunity remains to continue the private match component through incentives.
In 2017, Mississippi has provided incentives for savings accounts for first-time home buyers and for disabled persons. The First Time Home buyer Savings Account Act establishes tax-deferred savings accounts for certain qualified home-purchase expenses. The Mississippi Achieving a Better Life Experience (ABLE) Act allows individuals with qualified disabilities to create tax-free savings account for their expenses.
Employers and business owners looking for a way to balance their community impact and invest in Mississippians have a prime opportunity to enhance the scale and impact of these important initiatives if their match dollars resulted in a tax deduction. A tax deduction for IDA match dollars is arguably the best vehicle for broadly impacting savers with varied savings goals and purposes. State legislatures should consider incentivizing our partners in the private sector by providing a tax deduction for qualified savings match programs. Their generosity could directly lead to greater financial stability for savers.
Finally, Asset Limits. Most public benefit or work support programs like TANF, CHIP, SSI, or Medicaid have an asset test or limit. This means that individuals or families that save money in bank accounts or cash on hand could lose their benefits if the savings grow too much. Rather than encouraging people to move upward out of poverty, these asset limit tests actually are a great obstacle to families saving money for emergencies, education, etc. Mississippi has set an example by eliminating these restrictions for recipients of SNAP and LIHEAP; however, the asset limits on TANF recipient remains. Arkansas has not removed any of its asset limits for recipients of public benefits.
There are many other policy fixes that could be offered, to be sure. The point here is that we have the ability to make policy changes to help hard working Arkansans and Mississippians save their own money, provide for and educate their families, and move forward on the pathway to greater economic success. Just a few changes can make a big difference. Let’s start now.