April 24, 2014
What Does it Mean to Promote Financial Literacy?
April is Financial Literacy Month. Helping families understand how to manage and save their money helps them to pay bills and rent, purchase food and clothing, and save for the future. Financial security is critical to children’s well-being.
Financial literacy skills are especially important in New York City, where far too many families live in poverty, struggle with housing security, and face a high cost of living. Our Keeping Track data show that close to 30% of New York City residents spend more than half their income on rent. In addition, more than 400,000 households throughout the city do not use formal financial services, such as banks or credit unions, to save or borrow money.
It is essential that we protect and expand upon efforts to help New Yorkers gain access to financial services such as savings, payments and credit – in other words “get banked.” Without financial literacy though, families cannot fully participate in or take advantage of these opportunities.
Our Recommendations to Make New York City a Better Place for Every Child lays out a number of priorities aimed at helping New Yorkers achieve economic security, which includes expanding opportunities to help New Yorkers earn and save. For example, we support the efforts of the Department of Consumer Affair’s Financial Empowerment Centers to help New Yorkers open a bank account, manage their debt and achieve their financial goals. Such programming teaches New Yorkers about financial institutions, and helps them better understand how their money works.
Improving New Yorkers’ financial literacy is complementary to a proposal that we have been advancing at the State level to help families better manage their tax refunds and credits. Specifically, we want the State to allow New Yorkers to split their State tax refund so they can direct a portion of it to 529 college savings plans or other savings vehicles. This option would be particularly useful for low-income families, whose tax-time refunds often comprise as much as 40% of their incomes. Furthermore, we are advocating that the State exclude 529 college savings accounts from the asset limit tests used to calculate eligibility for public assistance. Together, these proposals would allow low-income families to be able to save money for college. We hope to see these proposals implemented in time for next tax season.
We cannot overstate what an incredible tool tax credits are in the fight against poverty. In 2011, tax credits kept an estimated 290,000 New Yorkers out of poverty. New York City has been a leader in establishing local versions of the Earned Income Tax Credit (EITC) and the Child Care Tax Credit (CCTC), but we hope to see these credits strengthened further. We therefore recommend that the City expand the income eligibility of household heads and the age of the children for whom costs are refundable under the City’s Child Care Tax Credit, as well as deepen the City’s Earned Income Tax Credit to 10% of the federal credit.