The Check Is In The Mail

How can you help members make wise use of their tax refund?


Tax day has come and gone, and if you are owed a refund, your check should be coming soon if it hasn’t already arrived. According to an article in The Sacramento Bee, the average tax refund in 2012 was $2,803. Receiving a lump sum of money can be tempting for most Americans, but there are some things credit unions should encourage members to consider before those individuals head straight to the mall with their mini-windfall.

The first thing that most Americans don’t realize is that their tax refund isn’t a gracious gift from the government; it is their hard earned money that was loaned to Uncle Sam interest-free as a result of their tax withholding status. Simply changing their withholding can result in members taking home bigger paychecks throughout the year.

More importantly, it seems that a growing number of Americans are becoming concerned about the balances in their retirement accounts. According to a report from the Employee Benefit Research Institute, 28% of working Americans are not at all confident that they will have enough money for a comfortable retirement. This is up from 23% in 2011.

While it is true that a $2,800 tax refund won’t fund a yearly cruise to the Mediterranean when you retire, directing that money to a traditional or Roth IRA can deliver a much needed boost to retirement accounts. If a member is 40 years old, that $2,800 would be worth $19,200 by the age of 65, assuming an 8% annual rate of return and no additional contributions. If they are 30, their retirement account would be $41,400 higher when they retire, assuming the same criteria.

Along with having insufficient retirement funds, many members are lacking the necessary emergency funds to cover themselves in the event of a job loss, medical emergency, or car repair. The Employee Benefit Research Institute also reports that 38% of the people they surveyed would have trouble coming up with $2,000 for an unexpected emergency in the next 30 days. A full 28% percent of people had less than $1,000 saved, and another 18% had less than $10,000 in personal savings. The generally accepted rule of thumb is to have 6-8 months of expenses saved for a rainy day, and a tax refund is a great way for members to get started towards that goal.

Stashing that return away in their retirement or savings accounts are probably the best options, but paying down high interest debt is another good choice. Among households that carry a credit card balance every month, the average balance was a staggering $15,204. Remind members that their tax refund can help make a significant dent in their credit card debt, saving hundreds of dollars in interest charges over the repayment duration.


April 24, 2013



No comments have been posted yet. Be the first one.