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April 15, 2015
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Standford Explores the IRS's Secret, Successful Low-Income Savings Program

More than 80 percent of filers making less than $50,000 a year get a refund. Those refunds are more than $2,000 on average. There’s a lot of handwringing over those figures: Financial advisers urge people not to give the government an interest-free loan, and instead reduce their withholding and set-up an automatic savings plan. (It’s worth noting that many low-income households couldn’t follow that advice even if they wanted to, because they don’t have access to free savings accounts, ore ven to jobs that offer steady pay and automatic savings options.) Meanwhile, social service agencies run programs that encourage households to put their refunds into long-term savings and rainy day funds. They worry that the households are missing a chance to build assets and economic stability. That’s a legitimate concern when 60 percent of households have less than three months of liquid savings, and emergencies like a vehicle breaking down, a job loss, or an unexpected cut in hours is likely. But neither the financial advisers nor the social service agencies have had much luck changing behavior, based on historical IRS data and surveys of household emergency savings.

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