Tax Time Savings for all with U.S. Savings Bonds: Training Webinar

November 19, 2010 Boston EITC Coalition

2

A Savings Crisis Some alarming facts:

■ Americans had stopped saving – in early 2008 our personal savings rate fell to just 0.1%.

■ Debt has grown – from 1994 to 2008, average family credit card debt doubled from $4.3k to $9.6k.

■ Inequality is high – the bottom 40% of Americans own 5% of the nation’s wealth.

■ Vulnerable are hardest hit – poorest 25% of families have negative net worth.

■ Finally, a window of opportunity to help people save again - the savings rate is creeping upward as a result of the recession

3

Why Saving Matters

Role of Savings:■ emergency reserves

■ for “get ahead” investments (home, education, retirement)

■ alternative to costly credit

■ provides sense of security, comfort

Process of Saving:■ promotes thinking ahead, prioritizing

■ models behavior for kids

■ emotional payoff (pride, satisfaction)

“No one has everspent his wayout of poverty.”

~ Dr. Michael Sherraden

4

But Saving is HardChallenges lower-income savers face:

■ Limited income – a minimum wage worker makes $15K a year.

■ Consumerism – pressure to buy is everywhere.

■ Family & friends – are often in need, creating pressure to share resources.

■ Few opportunities – most people save with structured help (e.g., 401(k) plans), but poor people get little or no such help.

Q: How many Americans currently hold Savings Bonds?

A: 55 Million.(That’s 1 in 6!)

5

With Help, Anyone can Save

Some Examples:

In one matched saving test:■ 2,300 people saved $1.3MM - 2.2% of their

income, an average of $550

■ Almost half lived below poverty level; 4 in 5 lived below 2x the poverty line

In test of U.S. Savings Bonds:■ 1,385 VITA tax clients (6%) saved $250k+ in

bonds for 2,300 people

■ Buyers’ average income: $20K

■ Average amount saved: $192

$500 invested in a US Savings Bond at 4% for 10 years will grow to $743.6

Tax Clients want to Save

In one study, 49% of VITA clients agreed:

“I wish that when I had cash, I was better disciplined & saved it rather than spent it.”

6

A Quick Quiz…

Low and moderate income tax filers receive how much money each year in federal tax refunds?

■ $100 million (average of $500 per household)

■ $1 billion (average of $1,000 per household)

■ $100 billion+ (average of $1,680 per household)

7

A Quick Quiz…

Low and moderate income tax filers receive how much money each year in federal tax refunds?

■ $100 million (average of $500 per household)

■ $1 billion (average of $1,000 per household)

■ $100 billion+ (average of $1,680 per household)7

What might help people save some of these funds?

8

Tax Time Opportunity

Key elements to foster saving:

■ Funds to Save - $100 billion is returned to poor families each year

● On average, $1,680 per household● Up to 20% of annual income

■ Assistance – tax preparers can serve as trusted helper to suggest saving

■ Convenience – saving at tax time requires no 2nd step, extra trip to bank

Assistance and guidance from a trusted tax preparer is a critical to helping tax clients save at tax time

9

Something to Consider

For many lower-income clients■ tax season is the only chance each year

when saving seems possible.■ a tax preparer may be the only person all

year who asks them to think about saving.

Most people won’t save unless someone asks them to consider it.

VITA volunteers & staff owe it to their clients to

raise this important topic.

Buying $100 U.S. Saving Bonds every year for 20 years would leave a tax client with over $3,000 – enough to fill the gaps in a child’s college scholarship.

10

A Proposition

How about a “Return to Thrift”?■ culture that supports saving■ more families with financial reserves■ emphasis on the future, planning■ especially critical for working families

But How?■ need a secure, trustworthy product■ available to all, at key moments■ long-term in nature■ able to be gifted…

Did You Know?

From 1917-1966, the YMCA and others

sponsored “National Thrift Week,” complete

with local “Thrift Captains”

11

How many Americans own U.S. Savings Bonds?■ Over 1 million

■ Over 10 million

■ Over 50 million

Another Quick Quiz

12

How many Americans own U.S. Savings Bonds?■ Over 1 million

■ Over 10 million

■ Over 50 million

55,000,000 Americans own savings bonds – 1 in 6!

Another Quick Quiz

13

How many Americans own U.S. Savings Bonds?

■ Over 50 million

55,000,000 Americans own savings bonds – 1 in 6!

In the 1960s, tax filers could receive their federal refund in the form of a savings bond.

■ True

■ False

Quick Quiz

14

Yes! Here’s an example…

How many Americans own U.S. Savings Bonds?

■ Over 50 million

55,000,000 Americans own savings bonds – 1 in 6!

In the 1960s, tax filers could receive their federal refund in the form of a savings bond.

■ True

■ False

Quick Quiz

1962 Form 1040AWith option to receive refund as U.S. Savings Bond

15

It’s easy to do on Form 8888

Just complete Part II for U.S. Savings BondsIf bonds are for tax filer just complete Line 4If bonds are for others, complete Lines 5 and 6

■ If beneficiary check box Enter amounts on RHS

.

16

U.S. Savings Bonds Overview

Series I U.S. Savings Bondsan “IOU” from the US Government:

■ safe – principal protected by “full faith & credit of U.S. government”

■ accessible – buy for as little as $50

■ smart – solid return (.74%), no fees

■ simple – sold at “face value” ($50 buys $50 bond), rate adjusts twice a year

■ long-term – must be held for 1 year before “redemption” (cashing in)

■ portable – may be redeemed at most banks & credit unions

U.S. Savings Bonds have been a

popular, respected investment option for over 70 years.

17

Important Bond Facts

Redemption (“cashing in”)■ At most banks & credit unions■ Requires valid ID

Minimum holding■ Must be held for 1 year■ If redeemed before 5 years, lose 3

months’ interest

Loss / theft replacement■ Complete Treasury Form PDF 1048■ Get signature certification from bank■ Mail to Treasury

Proceeds from Savings Bonds are exempt from federal tax if used for secondary education

(check IRS Publication 970 for details).

18

Savings Bonds as Gifts

Tax Clients can buy bonds for:■ Themselves

■ And/or up to three other people

■ e.g., kids, grandkids, spouses, nieces / nephews, godchildren, etc.

Details■ Tax client needs only name of gift

recipient (no SSN)

■ Client & gift recipient will be listed on bond as co-owners

■ Either party may redeem bond

In a 2008 study, 68% of buyers purchased savings bonds for

others, mostly children & grandchildren

19

John Q. Saver123 Main StreetAnywhere, WA 99000-0000OR Jen Saver

123-45-6789 01 2009

FRB-MPLS

04-15-07

2

:C000090007 :04 000000000000 C000000000I

Purchaser’s Social Security Number

Owner’s Name & Address (Co-Owner Name, if any) Authentication Stamp

Issue Date

Example Savings Bond

20

Bond Features & Benefits

Benefits

Reach saving goal sooner

No fees to erode savings

Simple tax site order process saves time

Easy to give savings as a gift

Value not lost as prices rise

Feature

Competitive return (.74% currently)

No fees

Convenient

Can buy for others

Inflation protection

Loss & theft protection Savings are safe

21

Bonds vs. Savings Accounts or CDs

Savings Bonds: CD-like returns, no fees and a $50 minimum

Typical Savings Account*

Typical 1 Year Certificate of Deposit (CD)*

Series I U.S.Savings Bond

Rate of Return .17% .53% .74%

Annual Fees $0 $0 $0

Minimum to Open $100 $1,000 $50

Rate Fixed No Yes Adjusts bi-annually

Minimum Holding Period

None 1 year 1 year

Early RedemptionPenalty / Forfeiture

NoneAll interest earned to withdrawal date

3 months interest (redemptions within 5

years of purchase)

ChexSystems Review Yes Yes No

May Buy as a Gift No No Yes

*Source: National Average rates, www.bankrate.com

22

And Another Quiz

Which of the following are true about Series I U.S. Savings Bonds: A. They pay a competitive interest rate (.74% currently).

B. They can be purchased for as little as $50.

C. They can only be redeemed where they were purchased.

D. They can be purchased as gifts for anyone else – all you need is the gift recipient's name.

23

And Another Quiz

Which of the following are true about Series I U.S. Savings Bonds: A. They pay a competitive interest rate (.74% currently).

B. They can be purchased for as little as $50.

C. They can only be redeemed where they were purchased.

D. They can be purchased as gifts for anyone else – all you need is the gift recipient's name.

All of these statements are true except letter C.U.S. Savings Bonds can be redeemed at most banks and

credit unions nationwide, not just where they were purchased.

24

Yet Another Quiz

How long must savings bonds be held before they may be redeemed?A. 6 months

B. 12 months

C. 5 years

D. They may be redeemed any time

25

Yet Another Quiz

How long must savings bonds be held before they may be redeemed?A. 6 months

B. 12 months

C. 5 years

D. They may be redeemed any time

U.S. Savings Bonds must be held for at least 12 months before they may be redeemed.

Bond buyers should understand that they can not access funds saved in bonds for one year after

purchase.

26

Finding: People Want to Save

LMI tax clients value saving● 49-63% of buyers saved part of

refund in the past

● 48% of decliners

Saving is a growing concern

27

Finding: People Like Savings Bonds

Pleased with bond purchase Familiar with bonds

● 65% of tax clients “familiar” (vs. 32% for IRAs)

● 63% of tax clients had bought bond, received bond as gift or known someone who has owned

28

Finding: Who Saves Demographics

● Parents: 70-75% of buyers; grandparents: 4-15%

● Gender: 79% female

● Age: ~ 40 years, same as sample

● Income: average AGI of buyers ~ $20k

● Ethnicity: African American over represented among buyers; Hispanic slightly under

Other● Large tax refund ($3.4k for buyers vs. $1.7k)

● First time savers: as high as 50%

29

Finding: Why People Save Who: for kids & grandkids

● 70%+ of buyers bought for others

● 59% of buyers “I want to put something away for my kid’s future”

What: for education, retirement● Children / family (27%), Education (23%),

Retirement (18%)

Time horizon: long-term● 2/3rds still saved after 3 years (in line with

national average)

30

Finding: How People Decide to Save

When: at “point of sale”● ~50% report deciding to save at tax site

How: human contact

■ “learned about option to buy bonds today…”● 79%+ when someone talked to me

● 12% from brochure or poster

● 20% before coming to tax site

31

Presenting Savings

Consider■ Saving requires many tax

clients to take a “leap of faith” ● What if they need the money

later? Or their savings disappear?

■ Clients generally trust you, their tax preparer or other VITA staff

■ You are there at the key moment – when the refund amount is clear

As the face of any savings offer, your role is critical.

54% of bond purchasers during the TS ‘07 pilot, said they had no money “saved or invested” prior to buying bonds

As tax preparer, YOU play a crucial role in a client’s decision to save for the future - their own, or that of their children or grandchildren.

32

Bond Order Process

How it Works1. Client chooses to order bond in Part II

of Form 8888 2. Government mails bonds to clients

Your Role(s)1. Explain opportunity - describe savings

bonds & chance to order at tax site2. Seek decision – ask client to decide if,

how much & for whom to order bonds

3. Process order – complete IRS Form 8888 and enter name of owner and co-owner(s) or beneficiary and amount for bonds

Tax Preparers Matter

In a 2007 study, 41% of tax clients who saved part of their refund decided to do so only after meeting with their tax preparer.

33

Talking with Clients

Bonds are a good fit for…■ Parents / guardians – bonds are

popular gifts for kids● 68% of ’08 buyers bought bonds for others

■ First time savers – seeking a safe way to start saving

● Bonds can be ordered for as little as $50

■ Long-term savers – who want a tool to build savings over time

■ People on ChexSystemsSM – who do not qualify for a bank account

New Savers?

54% of tax clients who bought savings bonds in 2007 said they had no money “saved or invested” prior to buying bonds.

34

Conversation Starters

To raise the topic of saving, try open-ended questions:

■ I see you have a savings bond brochure; have you had a chance to look at it – what do you think?

■ We have a new, free service this year to help you save; have you heard about it – what questions do you have?

■ Have you ever heard of US savings bonds? What have you heard? –or- May I tell you about them?

■ Do you recall how you used last year’s tax refund? What are your plans this year?

When a client speaks:

• Listen closely• Look her in the eyes• Never interrupt• Consider repeating

back her key points

35

Seeking A Decision

To help clients decide about buying bonds:

■ Answer any questions; tactfully correct any misinformation

■ Briefly re-state 2 or 3 relevant bond features

● For example, “as I mentioned, bonds are very safe, available for just $50, and earn .74% right now.”

■ Then ask directly, “would you like to order a savings bond today?”

■ If client declines● Politely ask them why● Correct any misunderstandings, ask again

Remember:

• Saving is hard & many client’s won’t say “yes.”

• It is normal for about 1 in 10 to order bonds.

• Please keep asking clients about bonds – even if many say “no.”

• Always respect clients’ choices, as they know what’s best for them.

36

Possible Client Concerns

Concern: I can’t afford to save■ Response

● Even a little is a start; you can begin for $50● You just saved $150 in tax preparer fees - you

could save some of this amount● How did you use last year’s refund? Buy a $50

bond & you’ll still have some of your refund next year

Concern: I don’t trust the government■ Response

● 55 million Americans hold Savings Bonds● Savings bonds have been sold since 1934● You trust the gov’t to send your refund● The same department that processes your

refund issues bonds

During 2007 & 2008 pilots, bond purchases used, on average, 6% of their refund to buy savings bonds

37

Client Concerns (more)

Concern: I’ll save by myself, my own way

■ Response● It’s great you already have a plan to save!● We are offering another saving option that

can save you time & a trip to the bank.● Bonds are among the safest saving

options with very competitive returns.● You can buy a bond for your kids, grand-

kids or others - bonds make great gifts.● For most of us, if we don’t do it now we

may never do it.● It’s free to split your refund and buy a

bond today.

Q: Does one pay state or local Income taxes on Savings Bonds?

A: No.

38

Another One

Which of the following are good ways to begin a conversation about savings bonds with tax clients?

A. Do you want to buy a savings bond?

B. Have you heard about our new saving option this year? What questions do you have?

C. Has anyone talked with you today about savings bonds? What do you think about them?

39

Another One

Which of the following are good ways to begin a conversation about savings bonds with tax clients?

A. Do you want to buy a savings bond?

B. Have you heard about our new saving option this year? What questions do you have?

C. Has anyone talked with you today about savings bonds? What do you think about them?

Both letter B & C are good conversation starters.

They are open-ended, non-threatening and will help you learn more about the client’s thoughts and feelings.

40

Final Quiz

If a client says “I’m not interested” which of the following is the best way to respond?

A. Fine. How do you want to receive your refund?

B. Why? Savings bonds are a great way to save and saving is really important.

C. Okay, that’s fine. Thanks for considering it. It would help me to understand why you aren’t interested – could you give me some idea?

41

Final Quiz

If a client says “I’m not interested” which of the following is the best way to respond?

A. Fine. How do you want to receive your refund?

B. Why? Savings bonds are a great way to save and saving is really important.

C. Okay, that’s fine. Thanks for considering it. It would help me to understand why you aren’t interested – could you give me some idea?

Letter C is the best response.

It accepts the client’s answer but keeps the conversation going and provides an opportunity to identify and correct any misunderstandings about savings bonds.

42

PLEASE: Ask every client who has a refund

■ If you don’t, who will?

■ Tax time may be a client’s only feasible saving opportunity all year; it may be a year before they have another chance.

■ It never hurts to ask; you can’t be sure who will say yes unless you ask!

■ Everyone deserves a chance to decide for themselves.

YOU can Encourage Savings Habits

Did you know?81% of those who bought savings bonds in 2007 said they were very happy with their purchase!

43

“Savings is hard. Bonds make it easy”

Multiple dimensions: ● National vs. Local● Offline vs. Online

National media coverage of the campaign Potential national launch in D.C. Boston and Philadelphia are our “launch” or

“demo” cities● Lots of outreach into the communities

(consumers, gatekeepers, tax preparers)● Support of elected officials● Local media coverage; PSAs, etc.

Social media and campaign web site

44

Multiple delivery mechanisms for training, marketing materials (if you’d like them)

Social Media

■ Facebook, Twitter

■ Slide Share (for collaborative development, comments)

Download via web site

Call to action (Join our campaign)

■ Let us know what assistance you need (marketing, training)

Technical Assistance Delivery

45

Join our Campaign

46

Thank you!

For more information:

■ visit:Doorways to Dreams (D2D) Fund at www.d2dfund.org

● Preeti Mehta

pmehta@d2dfund.org

(617)-541-9065

■ about Series I U.S. Savings Bonds, visit:● The Bureau of Public Debt at

www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm