NorState Federal Credit Union’s financial literacy coordinator, Danielle Hebert, showcases a short lesson on needs versus wants with students at Dr. Levesque Elementary School in Frenchville. Credit: Courtesy of NorState Federal Credit

As fall blows in, many Maine families look toward the end of the year, anticipating the filing of their taxes. For many low-income earners, this means receiving a sizeable tax refund in the early spring. These funds make up for the inadequacy of low wages by allowing working families to build assets, pay down debt and avoid financial crisis created by car trouble, high heating bills and overdue rent.

In 2017 the median household income in Maine was $56,277; thus a large percentage of Maine families were eligible to pursue the Earned Income Tax Credit and take advantage of sizeable refunds. According to the Prosperity Now Scorecard, Maine has some significant challenges. They show that more than 20 percent of Maine households live in “liquid asset” poverty. This means that they don’t have enough savings to cover a sudden job loss, a medical emergency or another financial setback leading to a loss of stable income. This missing safety net for households across Maine has an impact on people’s ability to manage a crisis, which can easily spark a downward spiral rather than a stable recovery.

Earlier this year, the Maine Legislature took a huge leap forward and increased the amount of the state-level Earned Income Tax Credit. Maine raised the state’s credit from 5 percent of the federal tax credit to 12 percent for families with children in the home, and to 25 percent of the federal credit for families without children in the home, who receive a much smaller federal credit. The Earned Income Tax Credit plays a significant role in the budgets of low-income families. It is seen as a reward for work and as a resource that will move a family socially, building their sense of belonging and connectedness to their community. It is also credited with lifting more children out of poverty than any other government program.

This boost provides much needed resources for hard-working Maine families. Yet, like many who receive a lump sum “windfall” they may struggle to invest that money with a comprehensive strategy. We need to enhance financial literacy resources to ensure that families maximize the full potential of EITC returns.

Understanding how people perceive their windfall becomes critical when looking at ways to change behavior and leverage new dollars in a lower income household.

People desire the ability to be self sufficient, take pride in their ability to contribute meaningfully, and desire to continue to build their social standing. While the state has made progress in providing financial benefits, Maine still lags behind in providing access to financial literacy to these consumers. With the increased cash, an emphasis on spending tools and setting financial goals for independence could guide them toward organizations such as CA$H Maine, New Ventures, or other agencies that promote Family Development Accounts and money management classes. As a focal point for many countries, there have been specific efforts to educate people who are disadvantaged, particularly women. Studies have revealed that people with higher financial literacy were more likely to have savings or own their own home. Those with lower financial literacy knowledge were more likely to have more debt-related financials, suggesting that promoting financial literacy products along with these important cash benefits is essential to moving families towards independence.

Maine is clearly headed in a positive direction through policies to direct more financial resources toward working families. Increases in wage income, tax credits, affordable housing options and access to affordable health care are essential. Soon, though, these families will need accessible support to learn how to manage their household finances in a new way. If we aren’t providing these supports, the protections that the additional funds offer to buffer against crises may not be fully realized, and the boost we hope to give these families may not reach its full potential.

Robyn Young is a graduate student at the University of Maine, and a research assistant at Dartmouth College. Co-investigator SarahJoy Chaples is a graduate student in the the College of Education and Human Development at the University of Maine.This column reflects their views and expertise and does not speak on behalf of the university. Young is a member of the Maine chapter of the national Scholars Strategy Network, which brings together scholars across the country to address public challenges and their policy implications. Members’ columns appear in the BDN every other week.