This week is America Saves Week when many community organizations promote saving money and encourage people to look at the state of their own finances. For many Oklahoma families, this would be a disheartening exercise. Four in ten Oklahomans don’t have the cash, or property that could be sold for cash, to support themselves at the poverty level for three months. For these families, just one small emergency, from an unexpected medical bill to a car repair, could easily mean debt or financial collapse. But why are so many Oklahomans in such dire financial straits?
Savings are a key part of security now and opportunity in the future
Having emergency savings to cover an unexpected expense is a crucial component of financial stability. It can help families cover unexpected expenses and avoid taking on debt. But being able to save money is also connected to upward mobility for both adults and children in the household. Low-income individuals who are able to save are more likely to move up the economic ladder, and children of low-income parents who are able to build a solid cushion of savings are more likely to experience upward economic mobility themselves as adults. Saving money is important, and most Americans recognize that. And yet many don’t save.
Saving money is nearly impossible when you don’t have enough of it
Many simply don’t save due to a lack of money; if there’s no money left after bills and rent and food and other essentials, putting money back for an emergency simply doesn’t happen. More than 1 in 4 jobs in Oklahoma are low-wage jobs, which means that many Oklahoma workers don’t make enough money to save.
This is increasingly exacerbated by unpredictable or inconsistent scheduling, where employees’ hours – and pay – can vary significantly from week to week. This makes it harder for employees to reliably save a given amount, and weeks with few work hours can force workers to spend any accumulated savings on standard living expenses like rent.
Without savings, minor emergencies can trigger financial ruin
So what happens when disaster strikes and no savings are available to draw from? Most often, people look to borrow. The best case would be a friend or family member who can lend you the money: a low cost option that you can probably pay back gradually and without interest.
But if you can’t borrow from someone you know – maybe because most everyone you know is in the same situation – you’ll have to take on debt with interest. If you have a good credit score, this may be manageable. You’ll get a good interest rate and may be able to pay the debt (and interest) back over time. However, more than half of Oklahomans don’t have good credit, and thus can’t get this kind of loan. As a result, they’ll most likely turn to a payday loan or some other type of predatory lending. In Oklahoma, this is especially common – and it’s also the worst option. If you can pay back the loan at all, you’ll likely pay back more in interest and fees than you borrowed. If you can’t pay it back, you’ll be stuck in a debt trap of new loans to repay old loans that can be extremely difficult to escape. According to data from the Oklahoma’s payday loan database, 54 percent of payday loan borrowers took out seven or more loans in year.
What can we do to make saving easier?
There are things we can do to help families save more. Making sure that jobs pay a living wage and provide paid sick leave would be a great start. This would ensure that working families can support themselves and won’t face financial difficulties if someone gets the flu and can’t go to work for a couple of days. Unfortunately, these policies have not fared well in Oklahoma. Last year, three bills (HB 1477, HB 1634, HB 1940) to raise the minimum wage were introduced, but none have received consideration. A bill (HB 1939) that would have allowed local governments in Oklahoma to raise their minimum wage was voted down by committee this year. And two bills to require paid sick leave (HB 1536 and HB 1310) are also still waiting to be heard.
Tax credits that encourage and reward work are also an important part of the solution. The money these families get back at tax time can help offset Oklahoma’s regressive tax system and allow them to put something away for a rainy day. The Earned Income Tax Credit (EITC) has been remarkably successful at boosting the incomes of working families with tax refunds that can be used to pay down debt and build savings. Unfortunately, Oklahoma made the state EITC non-refundable in 2014, reducing the opportunity for over 300,000 working Oklahoma families to save. We must restore the refundability of this credit.
We can also do more to protect Oklahomans from predatory lending traps. At the national level, there was some hope for relief in a new rule from the Consumer Financial Protection Bureau (CFPB) that would have instituted basic and common sense protections for payday loan borrowers. Unfortunately, the CFPB recently announced they intend to reconsider the rule, signaling to predatory lenders that they needn’t put a lot of effort into reforming their harmful business practices. And it’s unlikely that the Oklahoma legislature will take action to curb these practices in the absence of a federal rule. Instead, last year an attempt to expand this harmful industry in Oklahoma was nearly successful – we must fight any attempts to try again this year. More high-cost loans on the market is not the solution to any problem in Oklahoma.
Oklahomans aren’t choosing not to save because they don’t want to; they’re not saving because they can’t, and opportunities to change this have been stymied. But without policy change, too many families will continue to live one accident away from financial disaster.
America Saves Week is an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status. Learn more about organizations in your community celebrating America Saves Week here.