Tax season has long been viewed as a golden opportunity to help low and moderate-income families build a savings cushion. However, for many families, refunds are pre-allocated to delayed purchases or paying down debt. Even when refunds are saved for emergencies, they’re often quickly depleted.
This isn’t necessarily a bad thing – 50% of EARN’s Savers said they were planning to save their refunds for emergencies, with the other half indicating their refunds would mostly go toward housing expenses, debt repayment, vehicle expenses, overdue medical treatments, and yes, even vacations. This corroborates JPMorgan Chase Institute’s January report showing a 60% rise in healthcare spending the week after a refund was received.
EARN is intrigued by the designation of tax refunds as “emergency savings,” because the definition of “emergency” and “savings” are likely to vary widely among Savers. For example, I may call overdue medical treatments an emergency, but you might not. Someone in Arizona may think of replacing a roof as an extravagance, someone in Louisiana might see it as critical.
In this month’s Big Data on Small Savings, we look at how changes in people’s bank account balances during tax season reflect their priorities. Many of the funds stay in savings, but a good portion of refunds were spent on planned “essentials.”
Next month, we’ll dig even deeper into Savers’ bank account data, looking at how spending patterns changed before and after tax time.
Special thanks to Commonwealth and Intuit Financial Freedom Foundation for their support and help with our tax time efforts, and to MetLife Foundation for their ongoing support of Big Data on Small Savings!