Glossary of Terms: Working Families Policy
This document contains definitions of terms used in working families policy.
Key Terms Definitions
Assets: Includes savings, retirement accounts, home and business property and other financial holdings.
Asset Building Strategies: A wide range of policies fall under the umbrella of asset building strategies, including, but not limited to, the Child Savings Accounts (CSA), Earned Income Tax Credit (EITC), Educational Savings Accounts, Financial Education, Individual Development Accounts (IDAs), Micro-enterprise and Predatory Lending protection.
Asset Deficiency: Generally defined as a measure of whether a household can support itself for 12 weeks at a poverty-level income using savings or other available assets.
Child Care Subsidy: Child care subsidies are provided by states to low-income families, families that receive temporary public assistance, and those making the transition from public assistance to help them obtain child care so they can work or attend training or other classes. The federal government provides funding to states through the Child Care and Development Fund (CCDF). States also may use federal TANF block grant funds and general revenues.
Child Savings Accounts (CSAs): A savings account established with public funds for every child at birth.
Earned Income Tax Credit (EITC):
The federal EITC is available to those who earn low wages. The credit is refundable; the amount above a person’s liability is returned as a refund. To claim the EITC, eligible families must file a tax return and include the proper schedule. The amount of credit depends on the number of children in the family and the family’s annual earned income.
Almost all state EITCs are based on the federal EITC, using federal eligibility rules and setting their credit as a percentage of the federal credit. Some state EITCs are refundable; families receive the full amount of the credit even if it is greater than the family’s tax liability. Other state EITCs are nonrefundable; the credit can be used only to offset a family’s income tax.
There are at least three local jurisdictions, New York City, San Francisco and Montgomery County, Md., that have established local EITCs.
Economic Gardening: An economic development strategy that supports local businesses to boost economic activity and create jobs within a community. The three main components of economic gardening are:
- Market information—Giving local businesses access to sophisticated information about markets, customers and competitors that historically was available only to larger firms.
- Connectivity—Improving the quality of interaction among business owners and critical resource providers (e.g., industry trade groups, public sector supporters and academic institutions).
- Infrastructure—Building and supporting development of community assets essential to commerce and overall quality of life (e.g., roads, education and cultural amenities).
Educational Savings Accounts (ESAs): A trust or custodial account created or organized to pay the qualified education expenses of the designated account beneficiary.
Federal Poverty Guidelines: The poverty guidelines are the version of the federal poverty measure used for administrative purposes such as determining program eligibility. Issued annually by the U.S. Department of Health and Human Services, they represent a simplification of the poverty thresholds and are adjusted for various family sizes. For example, for a four-person family with two children, the 2010 poverty guideline was $22,050. The amount was $27,570 in Alaska and $25,360 in Hawaii.
Financial Literacy: This term usually refers to a person’s ability to make informed judgments and effective decisions about money and management. An alternative term is financial education.
Individual Development Accounts (IDAs) These are special savings accounts in which deposits made by an account holder are matched—usually at a rate of two to one or higher—by public and private funds. Currently, all 50 states have some type of IDA initiative. Eligibility guidelines vary by program.
Income: The resources a person or household receives from earnings, unemployment compensation, workers’ compensation, social security, supplemental security income, public assistance, veterans’ payments, survivor benefits, disability benefits, pension or retirement income, interest, dividends, rents, royalties, estates and trusts, educational assistance, alimony, child support, financial assistance from outside the household, and other income.
Living Wage: Living wage laws require businesses that have government contracts or receive government financial assistance to pay wages that enable a worker to provide for a family’s basic needs.
Low-income Working Family: There is no single income threshold for determining whether a family is “low-income.” A commonly accepted definition is a working family with income less than 200 percent of the federal poverty guidelines.
Micro-enterprise: The definition of microenterprise can vary, but the majority of microenterprise development organizations generally deal with businesses that employ fewer than five people and require no more than $35,000 in start-up capitol. Many state now view microenterprise both as legitimate strategy to spur economic development and to decrease unemployment, especially among lover income populations.
Minimum Wage: The federal minimum wage currently is $7.25 an hour (effective July 24, 2009). Several state laws require employers to pay more than the federal minimum wage. Information about individual state minimum wage laws is available from the U.S. Department of Labor.
Payday Loan: The FDIC describes payday loans as “small-dollar, short-term, unsecured loans that borrowers promise to repay out of their next paycheck or regular income payment. Payday loans are usually priced at a fixed-dollar fee, which represents the finance charge to the borrower. Because these loans have such short terms to maturity, the cost of borrowing, expressed as an annual percentage rate, can range from 300 percent to 1,000 percent, or more.” Information about payday loans is available on the FDIC website.
Predatory Lending: This refers to abusive lending practices, including providing mortgage loans with unreasonable interest rates or prepayments or with unreasonable or unwarranted charges. Predatory practices also include repeated refinancing of a loan, charging higher interest and fees each time.
Split Refund A split refund allows federal tax refund recipients to divide their refund, in any proportion, and deposit the funds directly in up to three different accounts with U.S. financial institutions or to purchase a Series I U.S Savings Bond. Some states provide a split refund only to bank accounts.