March 25, 2013 | Read Time: 2 minutes
Tax refunds are often the largest amount of money low-wage workers receive all year, which means that tax season is a critical time for charities that focus on economic empowerment.
Groups have had to contend with a fast-changing landscape of financial products. In November, the National Community Tax Coalition, a membership organization of 2,300 nonprofits that provide free tax preparation, selected a prepaid debit card that will be available to clients who don’t have a bank account.
Member organizations have been experimenting with prepaid cards for several years as a way to help clients who don’t have checking accounts get their tax refunds faster, says Jackie Lynn Coleman, executive director of the coalition. The cards are reloadable, offer free direct deposit and an optional savings account, and provide account alerts via text message along with online budgeting tools.
Still, Ms. Coleman hopes the cards will be an intermediate step on the way to opening traditional checking and savings accounts.
Disbursed Monthly
The Financial Clinic, a nonprofit in New York, created a new financial product, the Now and Later account, also with tax season in mind.
Because New York City offers an earned-income tax credit, on top of state and federal credits, some of the organization’s low-income clients receive as much as 40 percent of their annual income in their tax refund, says Mae Watson Grote, founder of the Financial Clinic.
The new accounts are a budgeting tool that lets clients split a lump-sum payment like a tax refund into monthly disbursements.
“Maybe they catch up on some bills,” says Ms. Grote. “But then they can take the balance and put it in the account and pay themselves one twelfth every month so that they’re avoiding eviction in July or they’re being able to pay for their children’s back-to-school clothes in September.”
Like Plumbing
Giving low-income people the tools they need to build a strong financial foundation is critical to helping them move out of poverty, says Sarah Gordon, a vice president at the Center for Financial Services Innovation, a nonprofit in Chicago.
“We like to think about financial services as plumbing,” she says. “It’s pretty invisible when everything is working really well, but when something goes wrong and the pipe bursts, you’ve got a real mess on your hands.”
