Incentivized savings accounts are a special type of savings product designed to encourage low-income families to build financial reserves. Building savings is critical for low-income households, who experience income shocks more frequently than other households and often have no reserves to draw on during a financial emergency. According to Prosperity Now (formerly CFED), about 19 percent of White households and 41 percent of households of color are asset poor, meaning they do not have sufficient assets to subsist for three months, at the federal poverty level, in the absence of income. The absence of emergency savings and lack of access to the mainstream financial system can drive individuals to use predatory financial products like payday and vehicle title loans that often entrap them in cycles of debt and prevent them from building credit.
Cities and states have implemented matched or incentivized savings accounts to help address financial insecurity, which harms residents and exerts a major toll on city budgets. Incentivized savings accounts take many forms. They are commonly offered as individual development accounts for adults and have at least a dollar-for-dollar match for savings toward higher education, homeownership, or starting a business. Child savings accounts typically have an explicit focus on savings toward college expenses or other post-secondary training. Incentives vary, but a key feature of most child savings accounts is an initial deposit, in addition to savings matches. Typically, individuals must meet certain income limits to qualify for an incentivized savings account. These savings programs are proven to serve diverse constituencies and have bi-partisan policy appeal.
For more resources on incentivized savings accounts, see Prosperity Now; the Institute on Assets and Social Policy; 1:1 Fund; the Center for Social Development at Washington University in St. Louis; and the Center on Assets, Education, and Inclusion (AEDI) at the University of Kansas.