Adult Committee Recommendations
Many of Vermont’s adults struggle financially. The recent recession demonstrated that our citizens have trouble making complex financial decisions that are critical to their well-being. We know that Vermonters need help.
ADULT FINANCIAL LITERACY
• 62 percent of Vermont adults do not have a rainy day fund – a liquid emergency fund that would cover three months of life's necessities.
• Only 44 percent of Vermont adults paid off their credit cards in full over the past year.
• About 24 percent of Vermonters overdraw their checking account.
• Sixteen percent of Vermonters are late with their mortgage payments.
There are ways to help Vermonters by creating incentives and opportunities for savings and asset building. Providing multiple personal finance educational opportunities for Vermonters and giving them access to useful tools and resources will help them make better choices. To increase the personal finance knowledge and financial best practices of all adult Vermonters, we recommend:
1. Provide adults with a wide variety of personal finance learning opportunities, when and how they need them.
We recommend that employers, schools, colleges, libraries, nonprofits, community organizations, churches and our state and local governments create opportunities for our adult citizens to increase their financial sophistication. In particular, training should be provided to parents to help them and their children become wise consumers of postsecondary education. These engagements should occur at trusted places with trusted content and should never include sales pitches for specific financial products or services. Unfortunately, many Vermonters do not know where or how to access financial education, counseling or coaching services, nor can they easily distinguish quality programs from those that are not. The Vermont Financial Literacy Commission, once established, could make recommendations on how to connect with quality and trusted financial education providers (including print, audio-visual and online educational resources) and asset building services, and identify ways of making all Vermonters aware of the existence of these services through such efforts as public service announcements. In addition, the Vermont Department of Libraries could work with selected public libraries to develop collections of resources on financial literacy, sponsor programs for the public and include financial literacy in library outreach activities.
2. Increase the opportunities and incentives for low-income Vermonters to save and build assets.
Access to emergency savings is essential for families to weather crises in the short term. In the longer term, families with good savings behavior will be able to leverage their savings into appreciable assets such as an education credential, home, or business. A household that is just making ends meet is more susceptible to being driven into poverty during difficult times. An asset-building strategy, providing a route to both financial security and opportunity, should be accessible to all Vermonters. The Vermont Financial Literacy Commission, once established, could investigate some of the following topics related to asset building for low-income Vermonters:
• What methods will help low-income Vermonters increase their savings?
• Do any Vermont state policies and programs discourage saving?
• Are there proven ways that Vermont should consider to encourage more individuals to participate in programs that successfully increase asset building?
• What have other states done to successfully increase asset building? The following are a few areas of experimentation being undertaken in other states that may be of interest to the commission:
- Asset test policies for Temporary Assistance to Needy Families (TANF).
- Methods used to increase the participation of low-income employees that take advantage of the Earned Income Tax Credit (EITC).
- Allowing local credit unions and state-chartered banks to offer prize-linked savings accounts.
- Policy modifications designed to reduce the negative impact of public assistance benefit cliffs on income growth and asset building.
3. Increase the percentage of Vermont employees who are saving for retirement.
Many Vermont employees do not have access to a payroll-deducted retirement plan. Nationally, only 53 percent of employers offer a plan, but that number drops to 17 percent for employers with fewer than 10 employees and to 33 percent for employers with fewer than 50 employees. And if you’re saving outside of work, you must grow a nest egg of $1,000 to $5,000 to cover the minimum balance required to open up an Individual Retirement Account (IRA). Although the majority of taxpayers are eligible to save through private IRAs, only 15 percent take advantage of this savings vehicle. We know that many individuals are either not saving for retirement or do not appear to be saving enough. We recommend that all Vermont employers currently offering defined contribution retirement plans consider the benefits to their employees of adding auto enrollment and auto escalation features to their plans where feasible. We also recommend that Vermont employers who are not currently offering defined contribution plans to their employees consider whether adding such plans – or taking advantage of the U.S. Department of Treasury’s MyRA program (see: http://www.myra.treasury.gov/) or other programs that encourage retirement security – would be a benefit that they could reasonably offer to their employees. We recommend that the Vermont Financial Literacy Commission, once established, explore ways of promoting saving for retirement and consider how to support ongoing and new efforts to make retirement saving more accessible for all Vermonters. In particular, the commission should review the forthcoming findings of the Public Retirement Study Committee created by the Legislature in 2014.