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Downing: Senate Advances Financial Empowerment Bill
June 29, 2016

BOSTON State Senator Benjamin B. Downing (D - Pittsfield), announces that the Senate today voted unanimously to pass S. 2374 – An Act to promote personal savings.

The bill, filed by Senator Downing, authorizes banks and credit unions in Massachusetts to offer prize linked savings accounts (PLSA). Unlike traditional savings accounts which accrue a small percentage of interest over time, the interest in PLSAs is pooled across all such accounts and distributed through a lottery as a cash prize to account holders. Each qualified deposit an accountholder makes is another entry in the raffle.

“Creating incentives to encourage savings is a simple step to help hardworking families develop the assets they need to meet life's challenges,” said Senator Downing. “The success of PLSAs across the country in attracting new and non-traditional savers suggests this bill will do just that”.    

If the bill is signed into law, Massachusetts would join 15 states that allow such products. In each state that has implemented them, PLSAs have resulted in new savings accounts totaling over $100 million. Most promisingly, the largest gains have been in populations of non-traditional savers – low income families who would not otherwise have the safety net of a savings account. PLSAs are particularly effective at attracting new savers, as they eliminate the concept of savings as self-denial with a creative twist.

Save to Win Michigan was the first PLSA program in the United States. In its first year of operation, 11,600 residents opened accounts totaling $8.6 million. 39% of participants in the inaugural year were considered asset poor (having less than $5,000 in non-home assets), 44% earned less than $40,000 per year, and the majority had not been savers prior to the program. Since the Michigan pilot, 5 other states have joined Save to Win, distributing $300,000 in prizes in 2014 to 3,233 account holders. In this cohort, up to 91% of account holders indicated at least one measure of financial vulnerability and nearly all of them maintain their accounts year after year.

Maintaining a savings account is a key part of financial literacy and a necessary fiscal safety net to avoid what a 2014 Crittendon Women’s Union report called “the credit trap”. The report details the struggles of low-income families who regularly borrow for basic expenses through credit cards, short-term bank loans, or expensive payday advances. The resulting debt creates cycles of generational poverty.  Saving for unexpected expenses or long-term investments can help families avoid this trap and build their assets.  

The bill now goes to the House of Representatives for consideration.

It is a busy week for Senator Downing’s agenda, as the Senate on Monday engrossed S. 2378 – An Act relative to the licensure of insurance adjusters in the Commonwealth, requiring adjusters employed by private insurance companies to have education and training comparable to that of public adjusters. Downing filed the bill on behalf of a constituent who experienced a major loss when ice damaged her home - an experience made more difficult by a years-long struggle to get restitution from her insurance company. 

Finally, the Senate intends to take up yet another Downing-authored bill this week, as the body is set to debate S. 2372 – An Act relative to energy diversity in Thursday’s formal session. The bill is a response to energy legislation passed earlier this month in the House and proposes to diversity the Commonwealth’s energy portfolio by procuring additional clean energy resources to replace aging power plants that are going offline and move the Commonwealth closer to its emissions reduction goals under the Global Warming Solutions Act.  

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