NH Earned Income Tax Credit

This report summarizes the results of the Financial Asset Building Survey conducted by the UNH Cooperative Extension’s Family Resource Management Program in the Spring of 2005. The survey was a component of a statewide project assessing the needs of low and moderate income workers in New Hampshire and was an extension of focus group research conducted in 2004. The previous study revealed that lack of knowledge could be a significant barrier to those who do not have access to professional financial assistance. Another finding was that free tax preparation sites, as well as clear information and instruction, was a critical need for many of the participants. The present survey was designed to further explore the financial habits, obstacles, and opportunities of EITC (Earned Income Tax Credit) eligibles in New Hampshire. The overall research question for the project is: How do families and individuals with limited resources manage their financial resources and learn about maximizing those resources? The aim of the project is to strengthen family financial security for New Hampshire residents.

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Methods and Sample

The survey was administered to EITC eligibles at seven different sites in Manchester, Franklin, Gorham, Keene, Boscawen, and two in Nashua. Five of the locations were free tax preparation sites. Subjects were approached when they came to have their taxes prepared and asked if they would volunteer to fill out an anonymous survey. The other two locations were workplaces where volunteers were solicited during special sessions arranged for staff eligible for EITC. The purpose of the survey was explained to all participants. They were assured that the survey was voluntary and anonymous. An IRB-approved cover letter was also provided and a $5.00 Wal-Mart gift card was given to subjects for their participation. All completed surveys were then collected by the Project Director.

The survey asked questions about specific money management practices, their experience filing for taxes, how they used their refunds, what financial topics they would be most interested in learning more about, and what methods would be most appropriate and/or desirable for them in learning more about money management. The sample consisted of seventy (70) low to moderate income workers. Forty-one percent (41%) were from metropolitan sites, 42% from non-metropolitan, and 17% from rural locations.

The majority of the sample were females (79%). About one-third were 30 years or younger, 51% were between 31 and 46 years of age, 12% were between 47-62, and 3% were 63 or older. Over half were single (56%) and about ¾ were white (73%). The remainder were Hispanic (13%), African American (7%), Asian (6%), and East Indian (1%). Most of the diversity was in the metropolitan sites. About 91% spoke English at home; 6% spoke Spanish, and another 10% spoke other languages, including Serbo-Croatian (1), Somali (1), Russian (1), Vietnamese (2), French (1), and Nepali-Hindi (1).

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Findings*

Money Management Practices:

Over ¾ (77%) of the sample had a checking account. Of those who did not, more than l/3 (38%) said they had a credit rating problem. Half had had a checking account in the past but had been overdrawn or bounced too many checks. About 31% used only money orders and 19% used only cash. Other responses among those without checking accounts was the cost of a checking account, thinking it not necessary, not having transportation to get to a bank or credit union, or being unemployed. Rural respondents were less likely to have a checking account (58% of rural compared to 85% metro and 81 of non-metro).

Sixty-four percent (64%) had a Savings Account. Of those who did not, most had no money for savings (79%). Other less frequent responses were not knowing how to open one (2), thinking it was not needed (2), not having transportation, using two checking accounts (one for checking and one for savings), filing for bankruptcy, or owing another bank. Four mentioned that they were in subsidized housing.

Most people paid their bills with checks (69%) but half also paid with cash. Twenty-seven percent (27%) use money orders and 27% used credit cards. Other less frequent responses were borrowing money (3), using a debit card (2), paying on-line (2), and pawning things (1).

Most of the sample (84%) used cash to buy things other than food. Half also used debit cards, and 43% used checks. Less frequent methods mentioned were rent-to-own (4), borrowing money (4), credit cards (4), and money orders (1).

When seeking advice about money matters, most (77%) consulted family. About l/3 consulted a friend, and 9% went to a bank or credit union. A few spoke with social service agency personnel (4) or a counselor (1).

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Filing Taxes:

Thirty percent (30%) of the sample paid a tax preparer to file their taxes last year. The average cost was $200.00. Twenty-six percent came to free tax preparation sites. Seventeen percent (17%) had a family member help them, and 16% did their own. Eleven percent (11%) did not file taxes last year.

Only 17% opted for a rapid refund for EITC last year. Of those who got rapid refunds, the majority (92%) did so to speed up their returns. Forty-two percent (42%)

*Not all percentages will equal 100% because on some questions respondents were asked to check off as many responses as they felt applied to them.
had used experienced tax preparers for a median cost of $175.00. Two people did not
know where to go to get their taxes done for free. Seventeen percent (17%) of the sample received a Refund Anticipation Loan last year. About 28% got their tax refund by direct deposit last year but 40% said they would receive it that way this year.

Forty-one percent (41%) said they planned to use this year’s tax refund to pay current bills, 34% wanted to pay off outstanding bills or debts, 31% wanted to put the money towards repairing or buying a vehicle, 19% said they would save for an emergency, 17% said they would spend it on education, 7% saving for retirement, 4% on house repairs. Only 3% said “other,” such as taking a vacation or spending it on a computer, clothes, or school expenses.

Most people had heard about VITA sites through word-of-mouth (37%), through social service agencies (18%) or at work (16%). Others heard about them through the media (10%) (radio, newspaper, or television), 6% had heard through their child’s school or daycare, and 3% through the LEAP program.

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Money Management Needs:

While no one in the sample had participated in any Extension financial literacy programs in the past, 23% had attended some type of money management workshop. Forty percent (40%) learned about money management services through a friend or family member, 29% from a newspaper, 27% from television ads, 20% from radio, 21% from an agency employee, and l4% from a free paper. Seventeen percent (17%) listed other sources such as e-mail(1), mail(3), bank(1), at work(4), welfare(1), and the IRS(1). Of those who had never attended one (n=52), the most frequent response was that they were unaware of them (44%) or did not think they needed them (42%). More metropolitan clients felt they did not need workshops (60%, compared to about 25% in other areas). Others needed child care (6) or transportation (1). Some did not want to admit they did not understand financial matters (3), were too embarrassed (1), or did not want to go alone (1).

The topics people were interested in learning more about were making ends meet (50%), community resources (30%), credit cards (23%), Rent-to-Own (20%), IDAs (17%), Savings Accounts (10%), and Checking Accounts (7%). Only one person checked Pay Day Loans, one person wanted to get their credit rating in order, and one wanted to learn how to budget, save for college and retirement, as well as how to repay college loans. Another mentioned getting the most out of your money.

Only 54 responses were received on the question of how they would like to learn about money management. The most frequent response was by attending workshops (35%), followed by consulting family (19%) or friends (11%). Fifteen percent (15%) said brochures, 7% said videos, 4% said television. Other less frequent preferences were by computer(3), mail(1) or free newspapers(1).

Of those who selected attending a workshop, close to half (47%) preferred a two-hour session; 42% preferred one hour; and 11% wanted 1 ½ hours or 1-2 hours. One person suggested a one-half hour session.

Most of the sample thought the workshops should be held at libraries (43%) or other community sites such as churches or schools (33%). Another 24% said at work. To learn about the workshops, the most frequent suggestion was through the newspaper (44%), followed by an agency newsletter, personal contact, or mail (37%). Others mentioned radio announcements (13%) on 95.7 or 107.9 or television (WB56) (6%).

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Conclusions: An Assessment of Needs

About one quarter of the sample had trouble managing a checking account. In addition, many people (whether they have a checking account or not) use cash to pay bills and most use it to buy things other than food, indicating that they are unable to take advantage of more convenient money management methods, such as checks, debit cards, on-line payment, or automatic withdrawals. This indicates a need for education on how to set up and maintain an affordable checking account.
About 27% use credit cards to pay bills which can be a dangerous practice leading to increased debt. On the other hand, few reported using them for items other than food.
About one-third of the sample could not afford a savings account. Most people needed their tax refunds to pay for current and past bills. Many expressed the desire to put extra money into a car, but very few were able to plan to use their refunds for savings or anything other than necessities. This is consistent with findings from the focus group sessions, reinforcing the need for money management strategies to avoid debt and promote savings.
Most people sought financial advice from family or friends, rather than seek outside assistance. It is unclear whether this is out of preference or necessity. Financial matters are very personal and it may be uncomfortable for people to seek outside advice, especially when resources are limited and/or credit information has to be shared. This indicates a need for sensitivity and opportunities for confidential advice when needed. On the other hand, when asked where they would like to get financial advice, the most frequent response was workshops.
Thirty percent of the sample paid a professional tax preparer last year at an average cost of $200. About 1/4 used VITA sites and 17% got help from a family member. Many (42%) who got a rapid refund used a professional tax preparer at a median cost of $175.00. About 17% got a Refund Anticipation Loan last year. Some used direct deposit for their refunds but this would not be possible for those who did not have bank accounts. Use of VITA sites would decrease the numbers of people paying for a professional tax preparer. Although some had heard about VITA sites through the workplace or social service agencies, most heard by word-of-mouth, and fewer people heard through the media. Increasing dissemination of information about VITA sites, as well as EITC/AEITC, could assist people in getting tax returns prepared at lower cost and increasing their refunds.
Not many people had attended previous workshops. Again, most heard about any workshops through family or friends but also from the media. Most who never attended had had no knowledge of them. Others expressed embarrassment. Despite indications that people discuss money matters with and get info from family and friends, there seems to be interest in attending workshops if they are made aware of them and if they are conducted in convenient locations. The benefits of objective advice might outweigh embarrassment about seeking financial information.
People wanted to know more about budgeting and making ends meet, community resources, credit cards, Rent-to-Own, IDAs, and checking and savings accounts.
Workshops should be held at community sites (libraries, churches, or schools) or in the workplace. Sessions should be about one to two hours long and should be advertised in local newspapers or through the workplace.
Although most respondents were white and English-speaking, there were a variety of other ethnic groups represented in metropolitan regions.

Recommendations

Education on how to set up and maintain checking and savings accounts.
Education on budgeting, money-saving ideas, how to minimize debt, and how to save, no matter how small the amount.
Education on EITC/AEITC with lists of free tax preparation sites.
Education on community resources for financial planning.
Offering workshops in convenient community locations or in workplaces for one-hour sessions with optional fifteen-minute time blocks afterwards for answering confidential questions.
Advertising workshops through newspapers, postings at VITA sites, and notices to social service agencies and workplaces.
Awareness of language and/or cultural barriers among those in metropolitan regions when planning workshops.

Sample Demographics (PDF)

Money Management Practices (PDF)

Workshop Preferences (PDF)

*Will not add up to 100% because respondents were asked to check as many responses as applied to them.