Spotlight Exclusives

Financial Empowerment: Providing New Tools to Low-Income Consumers

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Tax filing season is approaching and, with it, the annual and vitally needed campaign to encourage all eligible Americans to take full advantage of the Earned Income Tax Credit (EITC). Many recipients use their EITC funds to pay bills, which is important to maintaining their credit scores. These scores impact many areas of consumers۪ lives, including access to affordable credit, and sometimes to employment and housing, as well. But just as importantly, the credit also offers the potential to enhance another aspect of financial stabilitysavings. That۪s why our agency, the Consumer Financial Protection Bureau (CFPB), is working to ensure that this financial building block is used as broadly as possible by eligible low-income Americans.

With an average of 19 to 20 percent of all tax filers claiming EITC, the impact of this critical program cannot be overstated. Congress recognized EITC۪s role in building savings in the Dodd-Frank Consumer Financial Protection Act of 2010. Congress directed the CFPB to provide opportunities for consumers to access “wealth building and financial services during the preparation process to claim earned income tax credits and federal benefits.”

EITC funds can help low-income families achieve financial stability both in the short and long term. The credit can fund short-term emergency savings, which buffer people against costly crises that drive some to high-cost lenders. EITC also helps individuals build longer-term asset-building savings for education, home ownership, or business development.

This year, the Office of Financial Empowerment, which focuses on low-income and economically vulnerable people, has undertaken a new effort to encourage savings by EITC recipients. With our colleagues at the CFPB۪s Office of Financial Education, we have launched a pilot project that employs insights from behavioral economics. We are mailing information to residents in three locales around the country where there are large numbers of eligible households, as well as local organizations that have been engaged in EITC and free tax preparation outreach. 

Our materials encourage consumers to utilize free tax preparation sites and “pre-commit” to savings. This will be accomplished by urging participants to think about how, and how much, they would like to save, and to gather in advance the information they will need on filing day to direct a portion of their tax credit to accounts at financial institutions. After this coming tax season, with the help of participating local organizations, we will assess whether this strategy increases savings. 

This work builds upon the efforts of hundreds of organizations across the country that are working to engage and encourage families to apply for the benefits. Many EITC and asset building coalitions are not only helping consumers increase their incomes through the credit, they are also spurring new and innovative practices to reduce poverty, increase personal savings, and promote financial security. For example, a financial empowerment program in Delaware that connects families to financial coaches and a toolkit of resources to help them achieve economic security. Another example is the growing coalition of Cities for Financial Empowerment, formed by municipal governments across the country in order to learn from one another and establish best practices in financial empowerment strategies.  These types of organizations represent a sample of the range of private-sector and community-based efforts supported by funders that focus on building financial stability among low-income people. 

The specific implementation strategies may differ in communities and across different financial empowerment programs, but the core principles are the same. These include expanding financial education and consumer protection, as well as access to safe and affordable credit, transaction, and savings products.

The CFPB is working to aid these efforts not only through the new savings initiative at the Office of Financial Empowerment, but by using the full range of tools at our disposal to create a fair, competitive, and transparent financial marketplace. These tools include supervision of financial providers, enforcement, regulation, and consumer engagement and response.  

Many ongoing efforts to reduce poverty and economic hardship have correctly focused on increasing family income through work and maintaining a strong safety net. But in order to help families truly achieve financial security, new strategies that emphasize the importance of savings and financial empowerment must be utilized. 

With the existing work and tools of the new CFPB, we can develop new partnerships to help place more low-income consumers on a path to economic stability. When families “pre-commit” to savings, they also “pre-commit” to a better life and a more secure future.

To print a PDF version of this document, click here.

Clifford Rosenthal is the assistant director of the Office of Financial Empowerment at the Consumer Financial Protection Bureau.

The views expressed in this commentary are those of the author or authors alone, and not those of Spotlight. Spotlight is a non-partisan initiative, and Spotlight۪s commentary section includes diverse perspectives on poverty. If you have a question about a commentary, please don۪t hesitate to contact us at


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