US Poor Punished For Saving Money

As if the American poor don’t suffer enough, now it turns out trying to get a leg up may only backfire. Yesterday, the National Center For Policy Analysis warned of catastrophic financial problems for poor people who save money. The Los Angeles Times story on the study explained that “each $1 saved by a single mother earning $15,000 a year would cost her $2.60 in higher taxes and lost government benefits.”

Among other things, “putting a few dollars aside in a retirement plan can disqualify families for food stamps, healthcare benefits, and assistance given to poor families with children.” —BRIAN FAIRBANKS

Poor In US Punished For Saving Money [Boston Globe]
(Photo: Getty)

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  1. dbeahn says:

    And this is actually “news”? I thought everyone already knew this. I constantly feel punished for making what I do – because I don’t make little enough to qualify for assistance, I live in a smaller place, pay more taxes, drive a car that’s years older with more miles, and have less “going out” money than some of my friends that make less but get lots of help (subsidized housing, etc etc)

    When I ask why they don’t go to school or get a better job, they laugh and say cause if they did, they’d have to live like I do – which isn’t as nice a lifestyle. *sigh*

  2. r81984 says:

    Thats how it works, to qualify as poor you have to sell everything, spend everything, and even sell your soul.

    When they determine you have nothing left worth of value they will status you as poor and then give you benefits.

    It just does not make sense, you could have $5,000 in savings for a specific purpose like buying a house in a few years, but they will want you to spend that before they will say you are poor even though you have no job and no income.

  3. slowinthefastlane says:

    Not only that, but students are punished for being employed, too. I worked like hell during high school in order to save up enough money for college. My reward? Qualifying for less in aid. Because I qualified for less in aid, I had to get a job and work though college. The more I worked, the more I was punished, since my income was higher, and the government deemed that I could pay more. However, it was just enough most of the time to pay for tuition, rent, books, and have a little left over for pizza and rides home.

    I was truely a wicked cycle.

  4. hop says:

    back in the 70′s i was a balto city police sgt and legally qualified for food stamps…so we signed up for them and used them for about 3 months….then the generous city gave the police a raise…we realized about 4 dollars a week, but that net amount of the raise disqualified us for the stamps…..we made it anyway, but i can see how the saving bit can punish someone…..

  5. r81984 says:

    @slowinthefastlane:

    The college thing does suck.

    You could be getting $15,000 for your freshman year in finacial aid. Then you get a job and make $5,000 extra because you want to party, buy clothes, buy food, etc. You then quit that job because you decide you need more time for studying and cannot get good grades working so much.

    Then in your sophmore year you see you will only be getting $10,000 in financial aid. Yes thats right, you have no job, no income, but because last year you made $5,000 for extra money that you already spent, they want to use that imaginary money for your sophmore year.

    So you already quit your job because you found you have too much college work to do to be able to have a life let alone work and now you find yourself being forced to work or no longer be able to be in college.

    It just doesn’t make sense.

  6. bowersst says:

    This is one more reason to buy “off the radar” investments like silver coins.

  7. Jon Mason says:

    @r81984: I understand it is a vicious cycle, but from the government and (non-poor) taxpayer’s point of view – their money is being paid to the very poor to help them out, if you have $5000 of savings, why do you need my help?

  8. roothorick says:

    I had a hunch about working over the summer. I guess I was right. Thanks r81984, slowinthefastlane.

  9. SkyeBlue says:

    We thought we were moving up a bit in this world when my husband started a new job that offered health insurance at what I was told is a good rate of $35.00 a week. I had to go into the ER and our total bill after insurance paid came to about $500.00. With having to pay the hospital bill on a weekly basis, plus pay the health insurance premium bill we decided to get rid of the insurance. We cannot afford to pay both plus all of our regular bills! We were basically paying for the health insurance not to pay! I know people would say it was crazy to get rid of the insurance, that something catastrophic might happen and we would need it. But it is a reality a lot of people in this country face, do we buy food, pay the electric bill or get the medical care we need? I know many people who say they pay HUNDREDS of $$$ a month for their health insurance.

  10. RandomHookup says:

    I knew a single mom who received government assistance while she went to school. Whenever she got tuition assistance from the state under a special program (her dad died in Vietnam), she lost her state medical assistance. Fortunately she was smart enough to be going for her RN and pulled herself out of poverty pretty quickly after that.

  11. Jon Mason says:

    @SkyeBlue: Ur… unless im misunderstanding something, you are making a huge mistake – $500 for an insured ER visit is a lot better than the $1000s you will pay the next time you have to go there now you dont have insurance…

  12. adamondi says:

    So trying to be more self-sufficient disqualifies you for government assistance….. Hmmmm. Isn’t that the point?

    Being self-sufficient is hard. It means that you won’t be able to take government hand outs. Good. You should learn to either live within your means or increase your means. You shouldn’t immediately look to a government hand out. When people always have a “big brother” to fall back on that will take care of them and give them money, they will be less motivated to get ahead in life.

  13. superlayne says:

    @slowinthefastlane: Alright. Summer job plans aborted. God, that sucks. Good thing I might get some academic money.

    I like what Australia’s job. You only get money if you have a job. Also, they fine you if you don’t vote.

    Yay! Everyone stays poor and gets more stuff! Whoo!

  14. Anitra says:

    @adamondi: The whole point is that there is no motivation to work/save to get off gov’t assistance. If you edge yourself up above the “poverty” line, you are suddenly worse off than you were before. See the example from hop above: He started making $4/week more, and suddenly had to find a way to pay for all his family’s food out of that $4.

  15. mikeycav says:

    “each $1 saved by a single mother earning $15,000 a year would cost her $2.60 in higher taxes and lost government benefits.”

    Here’s a thought:
    If a critical mass of poor saved $1 regularly, then the government would dole out LESS benefits AND taxes would decrease, thereby affording the said poor a closer $1:$1 ratio.

    I know it is a little far fetched and naive, but just a thought…

  16. cgmaetc says:

    @adamondi: The disparity between the income for getting assistance and begin self-sufficient is what’s the problem. The jump is to small and benefits aren’t simply weaned, they are completely cut off. Imagine getting a 5% pay increase and then your basic living expenses multiplying by 2. There are many people who abuse the system, yes, but many more who want to get out and do better, but can’t.

    And I hope anyone complaining about hand-outs has enough cash saved for their kids college education.

  17. Sauerball says:

    I don’t have time to RTFA, but this sounds more like an assault on the EITC and similar programs which are there to help the working poor. There should be incentives for people to work over simply receiving benefits and the EITC is one of the best ones there is.

  18. bohemian says:

    I don’t know why they don’t have a sliding scale to wean people off benefits. The current system doesn’t work because it puts dis-incentives on getting off the system. The current system encourages the life long poverty so many people blame on the poor for being lazy.

  19. huadpe says:

    As an economist in training, I can tell you this is one of those eternal problems of perverse incentives. Sliding scales are a possible solution, but they don’t really work all that well unless there’s almost no falloff in benefits for a significant amount of income, well past where we currently cut you off entirely. What you find, either with a simple cutoff or a sliding scale is that you encounter a “corner” at the point of 0 work and max benefit for no work. With no sliding scale the angle of the corner (on a graph of leisure v $) is 90 degrees and almost everyone lands on it. Sliding scales make the slope steeper, but only people with very strong preference for cash over leisure.

  20. zolielo says:

    This is one more reason to buy “off the radar” investments like silver coins.

    @bowersst: Have you tried to liquidate any of the coins to see how readily they could be converted to cash?

    I am a skilled economist and have tried to give back to society by helping the poor in my home town through volunteer work with the local government. The paperwork for various programs is often complex and convoluted… I can definately see how some that need aid could be overwhelmed.

  21. slowinthefastlane says:

    @masonreloaded

    Why should the govenment be subsidizing students whose income is $0 and have no savings in their name but have all of their expenses paid by their parents? This is what happens because the way the formula works out “expected student contributions” count against you more than the “expected parent contributions”. Furthermore, if your parents remove you as a tax dependent, their income counts for nothing. You can claim yourself as being totally independent in this case – despite the fact that your parents can give you all the money that you need under the table.

    These are the folks that the govenment is truely subsidizing. Don’t punish those who need to work.

    My parents pretty much made me cover all of my own college expenses. Don’t get me wrong, I think it’s one of the best things they ever did for me. Not only did all of the work experience help me get a good job when I graduated, but it also made me value my college education a lot more. I only missed 3 classes in my entire 4.5 years there due to the fact that I wanted to get my money’s worth. :-)

  22. SOhp101 says:

    Everyone already knows this… even people in welfare or in governmental assistance programs know this.

  23. Last February, I got into an accident that ripped the skin from my leg. I spent a month in the hospital and had 7 operations to try and save it. Thankfully, they were able to.

    After that episode, I found myself out of work (They fired me when I didn’t show up. I have no malice towards them for that) and without income. My wife and son (4) and I got on food stamps and welfare figuring that once my leg healed up enough, I could find a job.

    It’s now the middle of June. I get enough to handle rent and family is helping out with electricity and such. I’m on a state health plan that I’ll need to be on for about another year (assuming I want to have medicines).

    If I got a job, I would lose it all. I’d have at least 2 months of no medical (and I would have serious complications without medicine) and if the family gets those, I lose food and electricity.

    Even if I get something minimum wage, if I make more then $200 a month, I lose the $400 in food stamps and $500 in rent.

    Suffice it to say, even though I hate being on welfare and government aid (I’m a libertarian), I have to and will not be able to get out of the trap until another 9 months or so.

  24. zolielo says:

    That is often how it is. You seem to know what you are doing… Best of luck.

  25. Oh.. I know. :) I was just pointing out to those who just say, “Why not just get off welfare” that it’s not easy to do so even if you DON’T want to take it.

  26. Brazell says:

    “Suffice it to say, even though I hate being on welfare and government aid (I’m a libertarian), I have to and will not be able to get out of the trap until another 9 months or so.”

    This isn’t a ‘trap,’ it is the inevitable and predicted outcome of creating an unbrella-state welfare society.

  27. I work for DPW in PA. I know that certain resources are exempt for Food Stamps, and they are fully exempt for medical for households with children. The elderly have slightly higher resource limits as well.

    The Food Stamps limit is $2,000 for anyone not considered elderly or disabled(3K for them). It’s incredibly low, and I’ve seen first-hand how it can be a catch-22 for many people. Work more to lose benefits and end up with less in your pocket, or keep the status quo and never improve one’s lot in life. It’s a tough situation.

    The only solution is better job training and more available schooling. Community colleges are great resources for everyone, but access to 4yr schools needs to be easier for those who didn’t have the same opportunities as many of us. However, a lot of people only care about how much their taxes are, and don’t care about anybody else’s plight.