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When it comes to getting ahead in the world, a lack of savings can be a big obstacle, especially for low income families. Most don't have money set aside for emergencies, let alone to pay for college or a house. Some groups think the answer is to make saving more fun. Well, NPR's Pam Fessler reports on an idea that's starting to catch on. It's called prize-linked savings.
UNIDENTIFIED MAN: There you go. Get a few in there. Lovely. I love it, I love it.
PAM FESSLER, BYLINE: Who knew that filing your taxes could be this much fun? But at this tax preparation site in Baltimore, Maryland, volunteers are trying to make it that way, at least for those who decide to save rather than spend some of their refund. Here, you not only get bells and cheers, but believe it or not, a chance to win a $25,000 grand prize or one of 10 weekly $100 prizes.
It's part of a new national program called SaveYourRefund, launched by a nonprofit, Doorways to Dreams.
Joanna Smith-Ramani is with the group. She says a little savings can make a big difference for those living on the edge.
JOANNA SMITH-RAMANI: At a basic level, people need savings to get them through even the smallest of financial shocks or their life just goes into total chaos and catastrophe.
FESSLER: And just one unexpected bill, she says, can set things off.
SMITH-RAMANI: Your car breaks down. You can't pay for it. You can't access other credit. Your family can't help you. How are you going to get to work?
FESSLER: Then the big question: Can you keep your job? So her group and others have been trying low and moderate income people to save more, especially at tax time when some people get the biggest check they'll see all year: their tax refund. But it's not an easy sell.
WILBERT BRAXTON: I need every penny. I need every penny.
FESSLER: Just ask truck driver Wilbert Braxton who's waiting for free tax help here from the Baltimore CASH Campaign. He says he tries to save money, but he always needs it before too long.
What do you need the money for?
BRAXTON: Bills, bills and bills, you know, that's my life. I work and pay bills. And, you know, I got two kids in college. They need everything. You know, loans have to be paid back. All of this, you know?
MAYA GAINES: How do you guys go and (unintelligible)?
CARLOS JORDAN: Alright.
GAINES: I'm good. So my name is Maya. Have you thought about what you're going to do with your tax refund?
FESSLER: Still research shows that low-income people, who might think they can't save, do spend a disproportionate share of income on lottery tickets on the off chance they'll hit it big. So wealth advocate Maya Gaines tells her clients that they can do both - save and maybe win - if they split off some of their tax refund into savings.
GAINES: If you split it, you get entered to win this contest, this amazing contest, over $25,000. I mean who doesn't want to enter a chance to win $25,000?
JORDAN: I don't think I'm interested at this time.
FESSLER: Initially, 62-year-old Carlos Jordan is skeptical. But then, about an hour later, he's changed his mind. His tax preparer has convinced Jordan that it makes sense to use $50 of his refund to buy a U.S. savings bond.
JORDAN: Well you know, money grows and the savings bonds are where it's at, for now. I just thought it was a good thing.
FESSLER: And others seem to think so too, especially if there's a possible prize involved. The Baltimore CASH Campaign says tax-time savings jumped almost 500 percent, to $34,000, the first year it offered cash awards. And in Michigan, almost three dozen credit unions have seen a big growth in savings since offering prizes. Now credit unions in three are doing the same.
Lori Wesp, a single mother in Rochester, New York, says these awards make a difference to low-income people like her.
LORI WESP: It's hard, paycheck to paycheck, paying everything. You know, when you get a little incentive like this, it helps out tremendously.
FESSLER: She was thrilled recently to win a hundred dollars, after setting aside half of her tax refund in a savings account to help pay for her daughter's summer camp. The prize isn't much, but Wesp already knows how she's going to spend it.
WESP: At least half of it on a bill and then spend half of it. Maybe take my daughter or my dad out to a nice dinner or something.
FESSLER: And on the off chance that she wins that $25,000 grand prize later this year.
WESP: Pay off my van so I don't have that stress of that hanging over me. And I would probably take my kids to Disneyland. And then, I really would like to go back to school.
FESSLER: Just the kind of long-term investment that groups like Doorways to Dreams hopes people like Wesp will make.
Pam Fessler, NPR News.
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