Nebraska has attended the NCSL Opportunities for Working Families meeting six times since 2007. As a result, state legislators from the state have worked to better support the families in their state by spearheading financial savings initiatives and commissioning insightful research efforts to better understand the working families in Nebraska.
Studying Poverty Across Generations
In 2015, Nebraska Senator Heath Mello introduced a bill to create a task force to study the effectiveness of programs in the state that target those living in poverty across multiple generations (widely known as intergenerational poverty). The bill was enacted, resulting in a two-year study about why poverty in the state continues to exist despite efforts to address it.
The task force, comprised of state senators, leaders from key state agencies, and several advocacy groups that work with Nebraskans living in poverty revealed that Nebraska needs to pursue a “two-generation” approach to break the cycle of poverty. The task force concluded that this approach, which focuses on the needs of both children and parents, is being used across states and localities and is worthwhile for Nebraska to implement so the state can better interrupt the transmission of poverty across generations.
The task force’s reasoning is centered around the idea that “children can’t thrive in homes where parents struggle financially, and parents can’t succeed if their children aren’t doing well,” says Senator Kathy Campbell, who participated in the task force. So, by pairing high quality early education with education for parents to get better jobs, for example, programs may be structured more effectively to address poverty.
Senator Heath Mello, who enacted legislation to create and task force, referred to the report as “the most intense analysis of poverty in Nebraska in modern time.”
Findings from the report include recommendations to shape future programs and policies to address poverty across the generations. The full report can be accessed here.
Studies show that just over 40 percent of Americans do not have a savings account and half of them cannot come up with $2,000 within 30 days to cover an unexpected expense. That means that many people are a job loss, car repair or medical bill away from a financial crisis. Families can better weather unanticipated costs like these and more confidently invest in the future when they have savings.
Despite the fact that the positive effect of savings is often talked about, the fallout of the Great Recession of 2008 has made saving difficult, especially for those families who are trying to make ends meet as it is. With the intention of bolstering financial stability for families, some policymakers have been asking, “How do we persuade people to save?”
Nebraska legislators were among those asking this question these when they attended the NCSL Opportunities for Working Families meeting in 2010 and learned about several strategies to encourage families to save. One approach, called prize-linked savings (PLS), rewards people who make regular deposits in their savings accounts by adding a lottery-like feature to the accounts. This idea especially rang in their ears and after hearing about the success of this strategy in Michigan, legislators developed a plan to replicate the model in Nebraska in 2010.
The team talked with key stakeholders and educated their peers on this strategy to encourage savings. In 2011, Nebraska legislated and launched a statewide PLS account program that is still in use today. Read on to learn more about PLS and how Nebraska legislators worked to offer this in their state.
Getting Savings off the Ground
The idea for PLS began when a study showed that more than a third of people with incomes below $25,000 think that winning the lottery represents the most practical way for them to accumulate several hundred thousand dollars. Using this information, the Doorways to Dreams Fund (D2D) (which has since changed their name to Commonwealth), an organization that develops financial products for low-to-middle income populations, adapted an international model of PLS to test whether or not the thrill of the lottery could entice Americans to save. In 2009, they used Michigan as their pilot site to get the first PLS model off the ground.
So how did it all work? The Michigan Save to Win initiative allowed participants to earn a raffle entry for every $25 deposited into their PLS account. The initiative raffled off monthly prizes amounting to $415 and one annual prize of $100,000. People immediately took up the opportunity and in the first year of the program, eight credit unions in Michigan attracted more than 11,000 account holders that collectively saved $8.6 million.
This seemed promising to Nebraska legislators and in 2011, Senator McGill introduced legislation that would permit credit unions to offer PLS accounts. At the beginning of session, she organized an informational breakfast to explain the policy and its implications to legislators and other stakeholders. The bill advanced quickly out of committee, but she held the bill back from final debate to give the Nebraska Banking Association time to find a way around the federal restriction, which at that time limited banks from operating lotteries. After surveying states that considered this policy, the Association found that there wasn’t yet a way to include banks and decided to be neutral on the legislation. The bill received broad bi-partisan support and was signed by the governor in April 2011.
Before passage of the American Savings Promotion Act in 2014, federal regulations prohibited banks and depository institutions from operating lotteries, a restriction that did not apply to credit unions. With this in mind, Senator Amanda McGill reached out to state credit union and banking associations and invited their input on starting a Save to Win program in Nebraska. While banks in Nebraska would not be able to offer the product, Senator McGill wanted to ensure that they were part of the process and understood her goals in introducing the legislation. Since then, Nebraska has authorized prize linked savings in all financial institutions.
As of December 2015, Nebraska’s Save To Win program operated in 8 credit unions and served 1,236 people that collectively saved over $16 million. Participants need $25 to open a PLS account and earn one entry into the raffle for every $25 they deposit. All deposits are guaranteed and earn interest. The program, including monthly and yearly prizes, is paid for entirely by the credit unions and their league. Nebraska Save to Win program continues to attract customers who might have a harder time saving. A 2013 survey of members showed that:
- 55 percent had little to no “rainy day” fund
- 42 percent did not save regularly
- 36 percent made less than $40,000 annually
- 34 percent had less than $5,000 in financial assets
- 47 percent had above $10,000 in debt.
The program is retaining current accountholders and attracting new members with a chance to win and save. The average account balance was $2,021.77 by the end of 2015, which is almost a $400 increase from 2013.
Federal PLS Action
In 2013, Congressmen Derek Kilmer, former Washington state senator who sponsored PLS legislation, introduced the American Savings Promotions Act to remove the federal restriction that keeps banks from participating in PLS programs. This bill became law in December 2014 and as a result, financial institutions of all kinds can now offer PLS.
Of the 20 states that have PLS laws, six of them (Arizona, Indiana, Louisiana, Michigan, North Carolina and Rhode Island) have authorized programs solely in credit unions. The other 14 states (Arkansas, Connecticut, Illinois, Kansas, Maine, Maryland, Minnesota, Nebraska, New Jersey, New York, Oregon, South Carolina, Virginia and Washington) have authorized all financial institutions to offer prize linked savings.
Read more about prize linked savings in this policy brief on the topic.
Read Nebraska's State Profile for more notable legislation, state action plans and participants by year.
Hear It From Them
Q and A: Nebraska Senator Amanda McGill
Hear from lawmakers and others who have been intimately involved with their state’s efforts to create opportunities for low-income working families. Legislators explain why they feel these issues are important. They also discuss the factors that helped them be successful – both in the statehouse and at home in their district.
NCSL: As a state legislator, there are so many issues out there that you could focus on. Why is it important to you to encourage people to save?
McGill: It’s a huge mistake that people are getting into as much debt as they are today. It makes them more dependent upon fishy loans. I tried for several sessions to put better regulations into payday lending so that people wouldn’t be as susceptible to getting caught in the cycle of owing lenders. But I wasn't finding any luck in Nebraska making those changes.
So, I asked, what do people need to do to avoid dependence on payday lenders? They need to have savings, in case they do fall into a need. I've seen the value in my own life of having that financial cushion. It allows me to have better options. I want everybody to have that cushion.
When you see how much people are spending on lottery tickets in comparison to their necessities, you know this [prize-linked savings strategy] is a good opportunity. At least out here in Nebraska, we value personal responsibility and this allows people to take responsibility while still having some of that fun they have by participating in a lottery.
Read Full Q and A
About the Opportunities for Working Families Meeting
Since 2003, the NCSL/AECF Partnership on Family Economic Success has held a yearly meeting to give lawmakers a chance to convene with their colleagues and discuss solutions to the challenges faced by low-income working families. Legislative leadership from 10 states send small teams of legislators to the forum. Participants hear from leading experts and practitioners and develop an action plan that is relevant to their state.