Money Smart Newsletter

Promoting Financial Education at Free Tax-Preparation Sites: Success Stories

About eight of every 10 taxpayers receive refunds. And given that the average IRS refund for the 2007 tax year was $2,300, this money is perhaps the most common – and the largest – financial windfall for many people. As part of the Winter 2008 issue of Money Smart News, we reported on the FDIC’s notification to financial institutions about how they could be involved with the IRS Volunteer Income Tax Assistance (VITA) program, which provides free tax preparation for low- and moderate-income individuals. The VITA program helps ensure that eligible taxpayers receive the Earned Income Tax Credit (EITC) and other federal income tax credits. As tax time approaches, we offer new success stories and tips to encourage bankers, educators, and others to use Money Smart with the VITA program to help people take charge of their financial future.

One example is the People’s Equal Action and Community Effort, Inc. (P.E.A.C.E.), a Syracuse, New York-based FDIC Money Smart partner that helps individuals and families become self-sufficient through such services as VITA, financial literacy, and asset-building programs. P.E.A.C.E. builds on its EITC/VITA services and Money Smart training programs by using a tax refund to help people make smart financial decisions and build assets.

P.E.A.C.E. gives its VITA clients the opportunity to enroll in a six-week Money Smart financial education class, where students learn how to design and stick to a budget, and stretch their money. They also learn the importance of reviewing and correcting any inaccuracies in their credit reports as mistakes on credit reports could make it harder for them to find a job, buy or rent a home, or obtain credit.

Also, consider the work of the Youth Co-Op, an organization in Florida’s Palm Beach County that helps refugees and people who obtained political asylum in this country obtain free tax assistance through VITA. “The power of this program is the combination of tax-return assistance with material from the ‘Pay Yourself First’ module of Money Smart,” said Lisa Green, Youth Co-Op’s Money Smart Program Coordinator. “With most clients receiving hefty refunds, it was a wonderful opportunity to integrate a session on the power of savings, where the adult student is challenged and engaged to improve his or her financial well-being and economic self-sufficiency.” One Haitian family received a refund of more than $6,000 and, in partnership with Youth Co-Op staff, developed a successful strategy for saving and using the refund.

Here are tips for integrating financial education into VITA programs:

• Provide financial education materials to people waiting to see a tax preparer.
• Encourage VITA tax clients to enroll in financial education workshops.
• Use financial education to spark an individual’s interest in opening a bank account. For example, someone who has mismanaged a checking account may be allowed to open a new account at a participating financial institution after completing a workshop using material from the “Check it Out” Money Smart module.
• Help people open Individual Development Accounts (IDAs) or similar savings accounts. IDAs are targeted at low- and moderate-income individuals and feature matching funds from the government or other sources that can help families save for a home, college tuition, or starting or expanding a small business.
• Bring financial educators to VITA sites to answer questions or provide help on budgeting or how to make a refund last longer.
• Consider the receipt of a tax refund a “teachable moment” – a time when someone may be particularly interested in acting on the information the instructor makes available. For example, although many low-income families may know how to stretch their resources, they also can benefit from learning how to set short-term financial goals (such as building a rainy day fund or saving money on banking transactions) and develop longer-term objectives (such as buying a home).

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