New York City’s $aveNYC Account Program Encourages Tax Time Savings
The New York City Office of Financial Empowerment (OFE) created the $aveNYC Account Program in 2008 to help low-income individuals and families build savings and avoid the need for emergency loans. For families who make less than $45,000 per year and individuals who make less than $20,000, the program offers a $1 match for every $2 saved. Participants are required to open accounts when they file their taxes, have a portion of their tax refunds directly deposited into their accounts, and keep the funds there for one year. The match was capped at $250 for the first two years, but in 2010, was raised to $500. $aveNYC accounts are offered at free tax assistance sites, including Assets for Independence (AFI) grantee the Fifth Avenue Committee, and housed at credit unions and community development banks throughout the city.
OFE designed the $aveNYC Account program using principles of behavioral economics. The program takes advantage of tax season to reach residents, helps them access the Earned Income Tax Credit (EITC), and starts them on the path of accumulating savings. Since 2008, more than 2,500 people have opened the accounts. The majority of participants are African-American or Latina mothers with average incomes of $17,000 per year. Upwards of 80 percent of participants have used their accounts to save for a full year. These participants have received the savings match, and 70 percent of them have continued to save.
The $aveNYC program has been particularly effective in reaching unbanked and underbanked residents. More than one-quarter of participants reported that they did not have a savings or checking account before joining the program, and an equal percentage did not have any savings before opening their account.
On average, accountholders were able to save $387 in 2008, $381 in 2009, and an estimated $705 in 2010. The jump in the average savings came as a result of modifications that OFE made to the program, one of which was doubling the amount accountholders must initially deposit, from $100 to $200. Other changes include formalizing partnerships with Volunteer Income Tax Assistance (VITA) sites, shifting the marketing focus to what people can save for, increasing staff and volunteer training, and canceling the requirement that accountholders must be eligible for the EITC. The latter modification in particular contributed to a sharp jump in the number of accounts opened between 2008 (177) and 2009 (1,058). The changes were made in light of feedback that OFE solicited from program partners, financial institutions, and tax filers.
The success of the $aveNYC Account program is an integral part of CEO’s track record of using innovative and evidence-based solutions to address poverty. CEO and the Mayor’s Fund to Advance New York City recently received a $5.7 million, 1-year grant from the Federal Social Innovation Fund to replicate several successful programs including $aveNYC. With this grant, CEO and the Mayor’s Fund will support innovative strategies in eight localities: Kansas City, MO; Memphis, TN; Newark, NJ; New York, NY; northeastern Ohio (greater Akron, Cleveland, and Youngstown); San Antonio, TX; Savannah, GA; and Tulsa, OK. The $aveNYC model will roll out under the name $aveUSA in Newark, San Antonio, Savannah, and Tulsa.
The success of $aveNYC Account program demonstrates the potential to help thousands more low-income people move out of poverty and into the financial mainstream when tax time and savings initiatives are linked. $aveNYC is an adaptable model that provides a wealth of lessons and best practices that can benefit AFI grantees.
This article originally ran in the IDAresources.org Update Newsletter on 01/20/11 and is available for archival purposes.