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Staff #ALC2014 Picks: Katherine Lucas McKay

By Paul Day on 09/16/2014 @ 01:00 PM

Tags: ALC 2014

The 2014 Assets Learning Conference is only a few days away! We’re excited to share CFED’s ALC Staff Picks, representing different areas of our work and what we’re looking most forward to at the conference. We hope these picks will help you decide where to go and what to see!

Katherine Lucas McKay is CFED's Associate Director for Government Affairs & Senior Policy Analyst

Q: Which sessions are you looking forward to?

A: My session picks:

Wednesday:
Expanding retirement security for all workers
Financial education 2.0: What is the way forward?
Roundtable: Incorporating behavioral insights into financial product design OR Success Factors in Co-op Development

Thursday:
Blurred Lines: The Shifting Reality of Work and Self-employment

Friday:
I’ll be speaking in the session titled Using Alternative Credit Data Reporting to Expand Access to Credit. If I could be in two places at once, I’d also attend Alternative Small-dollar Lending: Connecting Policy and Product Development

Q: What are your most important takeaways from the conference?

A: My takeaways:

  • I’m looking forward to seeing partners and colleagues with whom I work and talk fairly often but haven’t actually seen since the last ALC.
  • ALC Hill visits will be especially exciting this year, as we have a record number of people attending, led by Assets & Opportunity Network Lead Organizations. I’m looking forward to spending an afternoon on Capitol Hill with about 400 ALC attendees, discussing asset-building policies and programs with Congressional staffers.
  • At every ALC I’ve been to so far, I learn about an entirely new subject that is so exciting that I have to find a way to get involved or incorporate it into my team’s work.

Q: For the folks who are traveling to DC, what are some things worth seeing?

A: My DC picks:

  1. The National Building Museum is one of my favorites. Although it’s one of the few that charge entry fees, but they’re pretty cheap. The building, which was originally the home of the Pension Bureau, is unique and beautiful.
  2. Walk (or run) around the Tidal Basin—see some monuments, enjoy great views of DC’s political institutions, and pretend all the trees are full of cherry blossoms.
  3. If you don’t get enough dessert at the conference, walk about a mile from the hotel to Mr. Yogato, which is my very favorite frozen yogurt (it’s the tangy kind).

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Staff #ALC2014 Picks: Kim Pate

By Paul Day on 09/16/2014 @ 09:30 AM

Tags: ALC 2014

The 2014 Assets Learning Conference is only a few days away! We’re excited to share CFED’s ALC Staff Picks, representing different areas of our work and what we’re looking most forward to at the conference. We hope these picks will help you decide where to go and what to see!

Kim Pate is CFED's Chief External Relations Officer

Q: Which sessions are you looking forward to?

A: My session picks:

Wednesday:
Bringing People Closer to Opportunity through Transportation Equity
Developing Successful Partnerships with Native Asset-Building
Programs Native Assets Assessment
Networking Reception/DC Street Fair

Thursday:
Citizenship as an Asset
Capitol Hill Visit Prep Luncheon, Native Nations caucus will have own tables
Capitol Hill Visits, including Native Nations caucus visits
Native opening of ALC Awards program with drum circle and remarks from Tanya Fiddler, Executive Director of Four Bands Community Fund on the state of native assets

Friday:
Community Wealth Building in Native Communities
Entrepreneurship as an Asset in Communities of Color
Closing Plenary with keynote by Gloria Steinem (because it will be so great!)

Q: What are your most important takeaways from the conference?

A: My takeaways:

  • Networking with old and new peers.
  • Some great new ideas to take home.
  • A way to engage in federal policy long-term, starting at the conference and moving forward.

Q: For the folks who are traveling to DC, what are some things worth seeing?

A: My DC picks:

  1. The Mansion at O
  2. The Aquatic Gardens

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Senator Cantwell Leading the Charge for Women-Owned Businesses

By Manny Hidalgo on 09/15/2014 @ 04:00 PM

Tags: Entreprenuership, Federal Policy

Last month we were thrilled to learn that Senator Maria Cantwell (D-WA) introduced legislation to increase federal resources to support women entrepreneurs throughout the country. The “Women’s Small Business Ownership Act of 2014” (S. 2693) would improve access to lending and increase business counseling and training services for women entrepreneurs, and give women-owned businesses the same level of access to federal contracts as other disadvantaged groups. It was crafted on the heels of a report issued by the US Senate Committee on Small Business and Entrepreneurship which is chaired by Senator Cantwell. Released on July 23rd the report is titled, “21st Century Barriers to Women’s Entrepreneurship.” The report starts with compelling data about the powerful impact women-owned businesses are having on the national economy:

In 2009, women-owned businesses had an economic impact of nearly $3 trillion – providing 23 million jobs, or 16% of all U.S. jobs.

The growth of women-owned firms outpaces that of all other firm types. Women-owned businesses added roughly 500,000 jobs between 1997 and 2007, while the rest of privately held firms lost jobs. African American women are starting businesses at a rate six times the national average. Their 2.7 million firms generate $226.8 billion in annual revenue and employ approximately 1.4 million people.

The report also describes the disadvantages women entrepreneurs face:

  • Women-owned businesses receive just 16% of all conventional small business loans, 4.4% of the total dollar value of these loans.
  • The U.S. Government has never met its goal of awarding 5% of federal contracts to women-owned businesses. The closest that federal agencies have come to meeting the contracting goal is 2.47%. If federal agencies met the contracting goal for women-owned businesses, it could increase their total revenues by as much as $4 billion per year.
  • Although Small Business Administration (SBA) funded Women Business Centers (WBCs) provide specialized counseling and training to women business owners nation-wide, the WBC program has not been re-authorized since the 1990s and funding has remained flat since then.
  • Women receive just 7 percent of venture funds – and the percent of female venture capitalists has actually declined from previous years.

The Women’s Small Business Ownership Act offers solutions to many of the problems described in the Senate report, including:

  • Making improvements to the SBA Microloan Program and Intermediary Lending Program to make sure that small businesses have access to credit from as little as $5,000 up to $250,000.
  • Allowing sole-source contracts to be awarded to women-owned small businesses through the WOSB (Women-Owned Small Business) Procurement Program.
  • Increasing funding for WBCs and raising the maximum grant each WBC can receive.

The Women’s Small Business Ownership Act is a sensible law that will help level the playing field for women business owners.  Women-owned businesses have a $3 trillion impact on the national economy, which means that federal investments in women entrepreneurs’ success pay off by strengthening the economy as a whole.  You can learn more about the Women’s Small Business Ownership Act and read the Act and the Small Business Committee’s report online. You can check whether your Senators support the act here.

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Staff #ALC2014 Picks: Doug Ryan

By Paul Day on 09/15/2014 @ 01:00 PM

Tags: ALC 2014

The 2014 Assets Learning Conference is only a few days away! We’re excited to share CFED’s ALC Staff Picks, representing different areas of our work and what we’re looking most forward to at the conference. We hope these picks will help you decide where to go and what to see!

Doug Ryan is CFED's Director of Affordable Housing Initiatives

Q: Which sessions are you looking forward to?

A: My session picks:

Wednesday:
Bringing People Closer to Opportunity through Transportation Equity
Where Health and Housing Intersect
Housing as an Asset-Building Strategy

Thursday:
The Power of Rental Payments for Credit Building

Friday:
Household Economic Well-Being and Mobility

Q: What are your most important takeaways from the conference?

A: My takeaways:

  • Meeting with leaders in the field.
  • Learning about new initiatives.

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Entrepreneurs Getting Tech-Savvy with Mobilize Your Business

By Isaac Roldan on 09/15/2014 @ 10:00 AM

Tags: Entreprenuership

In June, CFED launched an open call for solutions to discover and highlight strategies that address the key financial challenges facing microbusiness owners. We’re thrilled to recognize CAMBA as one of ten stellar submissions for their creative interventions and begin to explore opportunities to further their work. Each idea was evaluated to assess feasibility, viability, perceived propensity for scale, innovativeness and relevance, in terms of its potential to address financial challenges or expand financial capability of microbusiness owners.

You may not see it, but one simple truth is Tawana C.’s bread and butter: Brooklyn hipsters wear fancy underwear. When Tawana opened her business, Miss Sassy Boutique, in Brooklyn, NY, she did so with a good idea, desirable merchandise and a space from which to sell it. But here’s what Tawana didn’t have: the ability to accept credit cards, a formal process to record sales and a full understanding of her target market, which limited her ability to capitalize on the “New Brooklyn” transforming right before her eyes. A few months after opening, Miss Sassy Boutique was in the red. Without a significant change in operations, Tawana’s business was sure to fail.

For its first few months of operation, Miss Sassy Boutique was an unfortunate case in point: Small business owners like Tawana—in New York City and elsewhere—struggle to adopt the technology needed for business growth. This is due to cost, discomfort with technology and, most critically, because they underestimate the value of actionable business data.

A recent report from the Center for an Urban Future found that 80% of small business owners in New York City are not effectively capitalizing on technology.

This was true for Tawana, but it changed when she enrolled in the Mobilize Your Business course from CAMBA Small Business Services. First piloted in 2013, Mobilize Your Business is an easy, low-touch, high-impact course that equips small business owners to use low cost/free mobile technology to increase sales, reduce costs, improve operations and position themselves for bank financing. Tawana enrolled in the free nine-hour course and here’s how we saw the adoption of technology benefit her business almost overnight:

  • Sales Insights: Tawana learned to use a mobile accounting app that captured sales and expense data from her manual entries and linkEd directly to her business bank account. She immediately discovered that she was spending more money than she was making and operating at a loss.
  • Credit Card Processing: Tawana adopted a mobile Point Of Sales app and began accepting credit cards, which immediately increased her customer base and boosted sales.
  • Inventory Management: Tawana realized that increased sales alone cannot ensure profitability. She needed to control costs. Using mobile apps for inventory management, Tawana scaled back on merchandise that was not selling, while ramping up her inventory of top-selling items.

Not long after completing the course, Tawana had put Miss Sassy Boutique in the black and on the path to bankability. And Tawana’s success with Mobilize Your Business is not unique. Over the course’s first year, 70 aspiring and current immigrant entrepreneurs completed the course, with 75% adopting new technologies and 60% adopting credit card processing. Among those who began accepting cards, 80% saw sales rise.

Further, the course equipped these entrepreneurs with tools and data to go beyond the immediate boost: With automated sales tracking, for example, comes a better picture of available capital and the viability of future expansion; and through the use of free social media apps comes customer retention, brand loyalty and a long-term sales pipeline.

Now with its first year in the books, and with a cohort of newly tech-savvy business owners reaping the rewards, Mobilize Your Business can potentially help thousands of entrepreneurs leapfrog the digital divide and achieve profitability, sustainability and growth – we just need help getting the word out to the microbusinesses that help is within reach!

Want to learn more about CAMBA’s plans? Check them out at the Assets Learning Conference in September. They’ll be featured in the Shark Tank Small Business Challenge, a concurrent session from 10:15 to 11:45 AM on Wednesday, September 17, that will highlight a number of innovative approaches to microbusiness owners’ financial challenges and allow audience members to select a favorite.

About the Author

Isaac Roldan is Director of CAMBA Small Business Services. Mr. Roldan is responsible for the day-to-day management and oversight of all SBS programs, including Mobilize Your Business.

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Staff #ALC2014 Picks: Jocelyn Harmon

By Paul Day on 09/15/2014 @ 09:00 AM

Tags: ALC 2014

The 2014 Assets Learning Conference is only a few days away! We’re excited to share CFED’s ALC Staff Picks, representing different areas of our work and what we’re looking most forward to at the conference. We hope these picks will help you decide where to go and what to see!

Jocelyn Harmon is CFED's Chief Philanthropy Officer

Q: Which sessions are you looking forward to?

A: My session picks:

Wednesday:
Crowdfunding and Community Development
Dreaming Bigger: Designing a Large-Scale Children’s Savings Program
Technology as an Asset-Building Platform for Individuals and Entrepreneurs
Working with Community Foundations to Build Assets

Thursday:
Raising Assets for the Asset Building Field: Trends and Opportunities in Philanthropy

Friday:
Entrepreneurship as an Asset in Communities of Color or Community Wealth Building in Native American Communities – Very hard to choose!

Q: What are your most important takeaways from the conference?

A: My takeaways:

  • Networking and meeting with leaders in the field, especially funders.
  • Learn what “sells” in asset building. How do we best message our work/cause/movement to a broader audience?
  • What are some new and creative ways that we are raising money for the field?

Q: For the folks who are traveling to DC, what are some things worth seeing?

A: My DC picks:

  1. MLK, Jr. Memorial!

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Staff #ALC2014 Picks: Kasey Wiedrich

By Paul Day on 09/12/2014 @ 12:00 PM

Tags: ALC 2014

The 2014 Assets Learning Conference is only a few days away! We’re excited to share CFED’s ALC Staff Picks, representing different areas of our work and what we’re looking most forward to at the conference. We hope these picks will help you decide where to go and what to see!

Kasey Wiedrich is CFED's Senior Program Manager in Applied Research

Q: Which sessions are you looking forward to?

A: My session picks:

Wednesday:
Family Assets Count: Data-Driven Decision-Making at the Local Level
Financial Education 2.0: What is the Way Forward?
Roundtable: Rigorous Evaluation of Asset-Building Programs: What Does it Take?

Thursday:
How to Get People to Save

Friday:
Household Economic Well-Being and Mobility

Q: What are your most important takeaways from the conference?

A: My takeaways:

  • Getting re-energized by the enthusiasm of all of the attendees at the conference. Attending the ALC with the smart and dedicated people in the asset building field always reminds me why I chose to do this work.
  • Hearing about the innovative and exciting work happening around the country.

Q: For the folks who are traveling to DC, what are some things worth seeing?

A: My DC picks:

  1. The Portrait Gallery and American Art Museum, great museums close to the hotel.
  2. Go to U Street and eat at Ben’s Chili Bowl (if you look closely, you’ll see a photo of CFED’s Peep diorama of Ben’s on the wall).

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Asset Building News Roundup: September 12, 2014

Posted on 09/12/2014 @ 11:00 AM

Tags: News

Events

Check out these pre-ALC sessions next week hosted by the ABPN and CFPB.

Unfinished Business: Winning the Battle for Economic Opportunity
Tuesday, September 16, 2014, 12:30-5 pm (Reception to follow at 5 pm)

Washington Marriott Marquis, Washington, DC
This half-day event will address how low- and moderate-income individuals, families and communities of color are faring in today’s post-recession economy; the ways in which civil rights, advocacy, community development organizations and financial institutions are working to close the racial wealth gap; and federal policy’s potential to help low-income households save and invest in their long‐term economic security.

Your Money, Your Goals: A Financial Empowerment Toolkit for Social Services Programs (CFPB)
Tuesday, September 16, 2014, 8:30 am–5 pm
CFPB Headquarters, Washington, DC
This free, full-day session (to take place at the CFPB headquarters) will provide you with the tools you need to train case managers, social workers and other staff on ways to integrate financial empowerment into their day-to-day work with clients.

News

In a report released Tuesday, the College Savings Plans Network found that the average college savings or prepaid tuition account known as a "529" plan is now worth about $20,671 — almost double what these accounts were worth during the dog-days of the recession.

An old-fashioned banking product that has fallen on hard times may be making a comeback with school kids. Passbook savings accounts are the centerpiece of a pilot program being launched this fall by the Federal Deposit Insurance Corp., which is hoping to promote financial education and encourage children to save money. Read more here.

Income inequality must have become a mainstream concern because even business leaders worry about it. A newly released survey by the Harvard Business School of its alumni about American competitiveness shows that a “troubling divergence in the American economy” could ultimately sink the country’s prospects.

In this newly released issue brief, The Center for American Progress provides information about programs that provide renters the opportunity to save and build wealth offered through the federal government, a nonprofit organization and a for-profit company. They also provide a review of behavioral economics fundamentals to help inform the conversation about designing effective programs to put renters on a path toward financial security.

The recovery was a good time to be youngish. According to the Federal Reserve’s latest tri-annual survey on American finances, Gen Xers are finally coming of age, at least in economic terms. Slackers no more, their income and wealth have increased since the recession, although the wealthiest reaped much bigger gains and inequality got worse. Read more here.

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Save as you Spend: How an Innovative Approach to Saving Can Help Business Owners Save More Money

By Paul Sorokin on 09/12/2014 @ 09:30 AM

Tags: Entreprenuership

In June, CFED launched an open call for solutions to discover and highlight strategies that address the key financial challenges facing microbusiness owners. We’re thrilled to recognize SavedPlus as one of ten stellar submissions for their creative interventions and begin to explore opportunities to further their work. Each idea was evaluated to assess feasibility, viability, perceived propensity for scale, innovativeness and relevance, in terms of its potential to address financial challenges or expand financial capability of microbusiness owners.

When it comes to savings, the latest statistics show that Americans have a dismal record. According to the Center for Retirement Research at Boston College, 57% of American adults have less than $25,000 in total savings and investments. The difference between the total savings of Americans and the amount they will need when they retire is $6.6 trillion. This means that many Americans will have to continue to work after retirement.

The statistics make one thing very clear: spending, and not saving is the priority for many Americans. For the average person, savings is an afterthought after their spending is done, with little to no funds left to contribute. The problem is not that they do not want to save; it is that they simply do not make enough effort to save. To make matters worse, they are presented with too many distractions wherever they go.

This directly affects business owners – not only do they have to be good savers personally, but they also must compensate for the lack of typical corporate benefits such as 401K plans. For many, there is no simple solution. Small business owner face many conflicting priorities when it comes to money, and along with the unpredictability of monthly income, the task of allocating money for your own saving benefits is often neglected, resulting in many business owners not saving enough money and not contributing money to retirement.

With Americans spending a greater part of their earnings via credit cards, checks and direct debits of their checking accounts, SavedPlus came up with an innovative idea to help average Americans and business owners automatically contribute to their savings and retirement account every time they make a purchase or make a payment. The solution the company offers involves prioritizing savings alongside with spending, so that every qualified spending results in a small contribution to users' savings or retirement account.

The company's app SavedPlus automatically transfers a predetermined percentage of each qualified spending transaction from the user’s checking to the user's destination savings account. With this, users automatically contribute to their savings accounts every time they spend money - without making an effort. Of course, there are checks and balances included where users can set maximum qualifying dollar amount for spending transactions, and minimum checking account balance at which the application performs the savings transfer. The users can choose the savings rate between 5% and 20% according to their need; link to more than one spending account; and switch between the savings destinations whenever they want to. Thus, the app gives them full control over the flow of money and the dollar amount transferred.

The SavedPlus solution offers different benefits to different types of users depending on their needs. For some, it is its ability to minimize spending by automatically contributing funds that would otherwise be spent; for others, it is its ability to automatically deposit additional funds to their retirement accounts; and yet for others it offers an effortless way to save money for their kids' college tuition or simply save up money for various personal goals. Users can even use it to make regular contributions to their favorite charity.

The save-as-you-spend solution is truly unique and groundbreaking in both concept and design. It is the first and so far the only solution that directly addresses some of the difficulties Americans have with saving. Since its launch, it has already become a game changer and is sure to spawn many copycats in the future.

In today's increasingly challenging world, people have many conflicting priorities and they often do not have the time or desire to think about the future and do one of the most important things in their life - to make regular contributions to their savings and retirement accounts. Our users – both personal and business owners appreciate our solution because SavedPlus is an automatic tool that frees up their time for other things, while continuously building up their savings and retirement accounts.

About the Author

Paul Sorokin, the COO and co-founder of SavedPlus, has worked in various industries, always finding ingenious ways to make process and product improvements. He founded and co-founded several technology and internet startups. His endless entrepreneurship, creativity, leadership and vision were the cornerstone and inspiration for creating SavedPlus Inc.

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Financial Coaching Leads to Long-Term Financial Stability

By Alicia Atkinson on 09/11/2014 @ 06:30 PM

Tags: Federal Policy, Integrated Service Delivery, ALC 2014

As families struggle with new financial challenges, we need to provide new, impactful solutions. Financial coaching offers a high impact service to households and increases their long-term financial security. As the Federal government implements current policies and reauthorizes others, we need to think creatively how we can get this vital service to low- and moderate income families across the United States.

Our newest federal policy proposal, “Financial Coaching Leads to Long-Term Financial Stability,” focuses on helping the millions of Americans facing financial insecurity due to circumstances such as loss of housing wealth, long-term unemployment, high levels of debt or poor credit. Financial coaching can help these individuals and families regain their financial footing by helping them learn how to navigate our financial system more successfully and build confidence and habits that lead to financial security.

The fact is, people from every income level benefit from financial advice; but only high-income or high-wealth individuals can easily access financial advisory services. Low- to moderate income families generally cannot afford a financial planner or wealth manager, leading to a gap in financial knowledge, capability and confidence.

Financial coaching fills this gap.

Research has shown that financial coaching is high impact. The combination of financial education, personal and household budgeting, credit counseling and general money management can directly impact employment rates, employment retention, housing and savings.

Financial coaching presents a prime opportunity to help low- to moderate income families improve their financial capability and achieve financial security, but it has little funding support from large-scale federal, state or local programs. Our proposal outlines concrete steps Congress and federal agencies can take in order to support the growth of financial coaching and reach more vulnerable households.

Our recommendations seek to implement quality standards and outcome measures and create sustainable resources for organizations and government agencies that integrate financial coaching into the core services they offer. Our recommendations include:

  • Congress, the DOL and HHS need to adapt federal program outcome measures to encourage the adoption of financial coaching practices.
  • DOL should integrate financial coaching into adult and youth employment programs.
  • Congress and HUD should integrate financial coaching into federal housing programs.

Read our new proposal today and get ready to engage with other practitioners, researchers and advocates on this year’s Financial Coaching Intensive at the Assets Learning Conference. This intensive will be a great opportunity to learn the different models of providing financial coaching and learn about the extensive resources to help support your program.

Financial skills and knowledge helps families build financial security in the long-term. Financial coaching increases knowledge, capability and confidence giving families the tools to succeed on their own.

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Staff #ALC2014 Picks: Jennifer Brooks

By Paul Day on 09/11/2014 @ 04:00 PM

Tags: ALC 2014

The 2014 Assets Learning Conference is only a few days away! We’re excited to share CFED’s ALC Staff Picks, representing different areas of our work and what we’re looking most forward to at the conference. We hope these picks will help you decide where to go and what to see!

Jennifer Brooks is CFED’s Director of State & Local Policy

Q: Which sessions are you looking forward to?

A: My session picks:

Wednesday:
A&O Network Leadership Intensive
How to Scale Financial Capability Programs
In the Absence of a National Platform (Roundtable)

Thursday:
Integrating Asset Building into Head Start Programs

Friday:
Engaging Direct Service Providers as Constituents and Sensational Advocates

Q: What are your most important takeaways from the conference?

A: My takeaways:

  • Increased leadership, ownership and participation in the Assets & Opportunity Network
  • Hundreds of conference attendees feeling empowered to as advocates from their Hill Visits
  • Learn from session on engaging service providers as advocates and apply it to my work.

Q: For the folks who are traveling to DC, what are some things worth seeing?

A: My DC picks:

  1. The zoo. It’s FREE
  2. The Lincoln Memorial. It’s awesome in the true sense of the word.

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Unique Partnership Brings Lending Circles to Angelino Immigrants

By Fran Rosebush, Andrew Chang and Mohan Kanungo on 09/11/2014 @ 01:00 PM

Tags: Assets & Opportunity Initiative

In an effort to alleviate financially vulnerable Angelinos’ lack of access to safe and affordable financial products, the Center for Asset Building Opportunities (CABO) turned to CFED, the Assets & Opportunity Network and JPMorgan Chase for support through the JPMorgan Chase Technical Assistance Fund (TA Fund). In line with CABO’s mission to provide low- and moderate-income households with access to financial resources that build, strengthen and sustain wealth, they used the TA Fund support to introduce Lending Circles to the local community in partnership with two members of the Los Angeles Financial Coaching Network (LAFCN): Mexican American Opportunity Foundation and Central City Neighborhood Partners.

Developed by Mission Asset Fund—a San Francisco-based nonprofit and Lead Organization in the Assets & Opportunity Network—Lending Circles are an award-winning and socially responsible financial product innovation. At its most basic level, Lending Circles are a form of social loans where members from the community help each other access capital for asset purchases such as starting a business, immigrating to a new country or offsetting the cost of a funeral. Through the TA Fund, Mission Asset Fund worked with CABO to provide:

  • Webinar overview of Lending Circles for Los Angeles Financial Coaching Network (LAFCN) partner organizations
  • In-person workshop on the nuts and bolts of a Lending Circle program for LAFCN partners
  • On-site technical assistance for two LAFCN partners: Mexican American Opportunity Foundation and Central City Neighborhood Partners

Since the start of this work in May, Mexican American Opportunity Foundation has already launched their first Lending Circle program with seven participants which will run from August 2014 through February 2015. And MAOF is predicting to reach their goal of 50 loans made within the first year. Central City Neighborhood Partners is also expecting to launch a Lending Circle soon. Through the TA Fund, CABO has been able to expand financial products offered within their financial coaching network and work towards their goal of expanding access to financial capability services and products to low- to moderate-income households in the Los Angeles community.

More background on Lending Circles

Developed by Mission Asset Fund—a San Francisco-based nonprofit and Lead Organization in the Assets & Opportunity Network—Lending Circles are an award-winning and socially responsible financial product innovation. At its most basic level, Lending Circles are a form of social loans where members from the community help each other access capital for asset purchases such as starting a business, immigrating to a new country or offsetting the cost of a funeral. People all over the world have been using the Lending Circle method for quite some time. In fact, in parts of the world, there were Lending Circles well before there were banks or other financial institutions.

Mission Asset Fund’s Lending Circle model is unique in that it utilizes a process whereby everyone who participates is both a borrower and a lender. In this system, each member contributes the same amount into a communal fund. Then, participants have the option to borrow loans from the communal fund in regular intervals, and they pay back a fixed amount that goes back into the fund. For example, for an average loan amount of $1,000, 10 participants would each make a monthly payment of $100. Each participant would receive the $1,000 loan and pay back $100 until each person has had access to the capital.

Striking about Mission Asset Fund’s Lending Circle model is that individuals are able to build their credit without paying any interest. The loans are formalized with a promissory note and program agreement. Payments are then reported to the credit bureaus, giving each participant the ability to build their credit. Data from previous Lending Circles indicate that participants have seen an average FICO score increase of 168 points, as well as an average reduction of outstanding debt within a ten-month period of $1,000.

The lasting effect of these improvements in the financial lives of low- and moderate-income Californians is obvious: having established a positive credit history opens doors to other wealth-building opportunities, such as the ability to open a bank account, purchase a car or home, or even obtain a job. The Lending Circles program addresses the importance of having and building credit through its comprehensive approach combining financial education and coaching with a responsible financial product that also helps individuals develop positive financial behaviors and attitudes through social accountability.

Center for Asset Building Opportunities (CABO), Lead Local Organization in the Assets & Opportunity Network

CABO’s work with the TA Fund to introduce Lending Circles in Los Angeles is just one of many ways they’re expanding economic opportunity for financially vulnerable Californians. CABO is currently developing a portfolio of responsible financial products that community-based LAFCN organizations can offer to help individuals develop financial capability and upward mobility. The portfolio will consist of products and services—like Lending Circles—that encourage positive financial behaviors, support long-term financial stability and promote economic inclusion.

As the Assets & Opportunity Network Lead Local Organization in Los Angeles, CABO will continue to raise awareness of the dangers of predatory alternative financing, such as payday-lending, check-cashing and auto-title lending institutions. CABO looks forward to continuing its partnership with organizations like Mission Asset Fund, CFED and JPMorgan Chase to promote the need for more financially responsible products within the community.

Also in This Series

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Designing for Scarcity: A Behavioral Approach to Two-Generation Strategies with Poverty Interrupted

By ideas42 on 09/11/2014 @ 09:50 AM

Tags: ALC 2014, Behavioral Economics

It’s easy to agree that poverty is a problem, but explaining its causes and prescribing solutions is a far more difficult and complex task. What if children born into poverty were as likely to succeed as their wealthier peers? What if intergenerational poverty were not an unavoidable and enduring evil, but entirely tractable?

These are the challenging questions that ideas42, a unique social enterprise that uses insights from behavioral economics to address tough social problems, is seeking to answer with a new initiative called Poverty Interrupted. By combining effective program design with behavioral insights drawn from the cognitive effects of scarcity, Poverty Interrupted aims to end intergenerational poverty for families with young children. Currently in the research and design phase, Poverty Interrupted will identify behavioral barriers that are preventing better outcomes for people in poverty. Once identified, the findings of this research will be used to develop interventions designed to mitigate those obstacles.

Despite the efforts and expenditures of countless public and private organizations each year, poverty remains a severe problem in the United States. As of 2012, the relative poverty rate in America is 17.4%—well above the OECD average of 11.1% (OECD 2014). Beyond the inherent injustice of that statistic, it is also extremely expensive to society for low-income families to fail. The national cost of poverty—including both public spending and lost earnings—is estimated to be $500 billion per year, or nearly 4% of GDP (Holzer et al. 2007). Children are especially vulnerable; in 2012 more than 21% of Americans under 18 were living in poverty (OECD 2014). Most concerning of all, if current trends continue, many of these children will grow up to head low-income households of their own, and continue a cycle of intergenerational poverty.

Despite these disheartening facts and figures, ideas42 believes that emerging insights from behavioral economics offer hope. Central to the Poverty Interrupted initiative is the recognition that poverty presents inherent cognitive challenges that must be addressed before economic mobility can be achieved. Members of the project team will present initial findings and promising solutions at CFED’s 2014 Asset Learning Conference in an interactive round table session titled Designing for Scarcity: A Behavioral Approach to Two-Generation Strategies on Wednesday, September 17 at 4pm.

The session will be framed by the concept of scarcity – exploring how a shortage of money, time and other important resources taxes our ability to make decisions, pay attention and exert self-control. This cognitive effect has significant implications for programs and policies that serve and support low-income families whose lives are marked by chronic scarcity. The Poverty Interrupted team will discuss breakthrough research on scarcity in behavioral economics and will allow participants a chance to identify drivers of scarcity in their own organizations and communities.

Join the session to learn more about Poverty Interrupted and the unique opportunity to combine ideas42’s expertise in behaviorally-informed design with the existing knowledge in the poverty-fighting space to break the cycle of poverty for millions of people.

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Have Fun at the ALC (and Network, Too)!

By Paul Day on 09/10/2014 @ 05:30 PM

Tags: 2014 ALC, Just for Fun

The fast-approaching 2014 Assets Learning Conference is full of fun times. Check out the awesome receptions we have to offer!

Two Incredible Receptions

Wednesday, September 17

Evening Networking Reception / D.C. Street Fair (5–7:30 pm)
Attendees will mix and mingle at this D.C. street fair-themed evening reception with food carts, exhibit tables and games  from the 1:1 Fund and Assets & Opportunity Network, co-hosts of this fun evening. A photo booth will give attendees a chance to share their experiences, and if you show the bouncer that you've used hashtag #ALC2014, he'll let you into the ALC Speakeasy, where signature cocktails and a local beer tasting will take place. With all the food, drinks and fun you could need, this reception is the perfect place to connect with old friends and make new ones.

Thursday, September 18

ALC Awards Program (5:30-8 pm)
Join us as we honor the best in asset-building achievement. Winners from our Platforms for Prosperity Contest will be unviled and presented with $10,000 checks. We'll also recognize some of the individuals and organizations who have made significant investments in our field's work. And, with as much food and drink as is typical of a CFED reception, this one is not to be missed! (Rumor has it there might even be dancing afterwards. Just sayin'.)

Additional Networking Opportunities

Mobile App

Download the Official 2014 ALC Mobile App. With the app, you’ll get a ton of information about the conference, including a directory of attendees to make networking easy. From there, you can connect with those attendees via social media, including Facebook, Twitter  and LinkedIn.

Networking Lunch

Capitol Hill Visit Prep/Networking Luncheon (11:45 am-1 pm)
Unless you work for a federal agency and are attending the Capacity-Building Intensive for agency staff, then this is the lunch for you! Use this time to network with others and learn about the political climate in Washington as it pertains to asset-building policy.

Facebook Group

Want to coordinate transportation, networking happy hours or other fun evening activities? Be sure to join the ALC Facebook Group to connect with your fellow attendees. The Facebook Group is also the perfect place to share your best pics from the conference.

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Northern Initiatives: Keeping Pace by Going Virtual

By Amanda Blondeau on 09/10/2014 @ 01:00 PM

Tags: Entreprenuership

In June, CFED launched an open call for solutions to discover and highlight strategies that address the key financial challenges facing microbusiness owners. We’re thrilled to recognize Northern Initiatives as one of ten stellar submissions for their creative interventions and begin to explore opportunities to further their work. Each idea was evaluated to assess feasibility, viability, perceived propensity for scale, innovativeness and relevance, in terms of its potential to address financial challenges or expand financial capability of microbusiness owners.

The Call for Solutions award highlights Northern Initiatives’ plans to keep pace with its growing loan portfolio by scaling its technical assistance offerings, namely those that help microbusiness owners develop deeper knowledge and understanding of financial management concepts and practices. This is being done through the use of information technology, online tools and videos offered through a web-portal that will feature a customized plan for each loan customer. This project supports the necessity for a Community Development Financial Institution (CDFI) and microenterprise development organization (MDO) to firmly establish its differentiated model of capital combined with knowledge resources to support its customers to launch and grow.

The U.S. Small Business Administration estimates that 50% of all businesses last less than 5 years. That fact does not reflect the experience of CDFIs and MDOs who support economic vitality by building the systems to support the launch of new businesses, the means to transition a business to new owners and the means to work with all businesses who wish to grow. Stability and growth facilitated by organizations like Northern Initiatives translate into local jobs that help to support population stability (many of our counties experienced population loss and aging populations and so business and job creation do contribute to curbing downward demographic trends) and community sustainability.

Higher survival rates (loss rates among CDFI’s are usually in the 3-4% range) are attributable to our work that pairs capital and knowledge. The challenge becomes having a growing loan portfolio where growth does not quickly translate into more resources for technical assistance. And, the secondary financial challenge occurs in covering a large geographic area, where one-on-one in-person technical assistance is a luxury, due to the wide dispersion of customers.

This innovative training platform begins with two assessments: one for startup businesses and the other for existing businesses. The assessment identifies areas of need and interest for training, addressing their level of knowledge of the topic and use in their business. Results from the assessment are used to develop a training plan which recommends videos and resources included in an online portal. Microbusinesses log into the portal and get access to their growth plan (training plan). From there they can track progress towards their plan and access videos, articles, training resources and connect with peers and coaches to further their learning.

The initial set of training videos were developed based on the FDIC Money Smart for Small Business curriculum, which covers insurance, financial management, risk management, record keeping, banking services, time management, succession planning, credit reporting, tax planning and organizational types. These trainings are coupled with online interactive business tools teaching businesses how to calculate sales needed break-even and make a profit, develop a sales plan by product or service to reach sales and profit goals, understand mark-up versus margin to reach profit goals, and calculate financial ratios. The next round of videos and tools will be focused on Sales and Marketing and Cash Management.

The solution helps microbusinesses to increase financial literacy and business acumen to effectively run their business. Finally, it allows for a 24/7 partnership with customers to deliver technical assistance when it is convenient to the customer. CDFIs and MDOs believe that for many businesses the path to growth is supported through both access to appropriate capital and supporting the customer to gain business knowledge. This dynamic of capital and knowledge is our differentiator. The challenge for many in our field is to scale our knowledge delivery systems to complement growing loan volumes and portfolios. That is the nature of this innovation.

About the Author

Leveraging eleven years of community development experience, Amanda Blondeau became the inaugural Director of Northern Initiatives Business Advancement Center in 2010. As the Center Director, Ms. Blondeau is responsible for the development and implementation of services and resources for microenterprises in 46 counties of rural Michigan and five Wisconsin Counties.

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Bridging the Gap

By Erica Glenn and Bonnie Oliva on 09/09/2014 @ 06:30 PM

Tags: Entreprenuership

In June, CFED launched an open call for solutions to discover and highlight strategies that address the key financial challenges facing microbusiness owners. We’re thrilled to recognize InVenture LABS as one of ten stellar submissions for their creative interventions and begin to explore opportunities to further their work. Each idea was evaluated to assess feasibility, viability, perceived propensity for scale, innovativeness and relevance, in terms of its potential to address financial challenges or expand financial capability of microbusiness owners.

What’s your number? Don’t worry, I’m not asking to call you… maybe. I’m talking about your credit score. If you are as fortunate as I am, you have many numbers associated with your name: a social security number, a cell phone number, credit card numbers, and yes, a credit score. These all make up part of our financial identity and give us access to loans from formal financial institutions that can lead to furthering our education or getting a mortgage for our family home. However, as I write this, there are 4.5 billion individuals throughout the world who lack credit scores and 60 million within the United States who are underbanked. These numbers are staggering. I can’t imagine not having my company direct deposit my bi-monthly checks directly into my checking and savings accounts, a 401K set up for my retirement or the credit cards that I use for small and large purchases. This is why I chose to work for a company such as InVenture. Its overarching mission is to create a fair and transparent financial marketplace for all.

InVenture is a mobile technology company that aims to bridge the gap between the underbanked consumers and microentrepeneurs in underdeveloped economies and the businesses that want to reach them. We currently work in Kenya, India and South Africa but are looking to expand into the United States. The vast majority of the underbanked do not keep track of their finances and due to this lack of financial literacy, we have developed a solution to facilitate financial inclusion and connect people to the opportunities they deserve. InVenture’s services are best viewed as a suite of three different technologies working in concert: the mobile tool, algorithm and web dashboards. The mobile tool, InSight, works via SMS, Voice, Web and Android to help individuals in the informal economy perform daily money management. One of our users, the owner of Vinolas Fast Food in Johannesburg, South Africa said, “InSight makes me aware all the time of how things are going in my business in terms of revenue, expenses and profit. I used to have a bucket of receipts, now I have it all recorded on my phone.”

InSight’s dynamic algorithm uses the cash flow data to synthesize an individualized credit score for each user. This information is then shared with channel partners to help individuals qualify for affordable products such as business loans, housing, insurance, education and everyday essential products such as cookstoves. Channel partners view data in real-time on the InVision web dashboard to pre-approve customers and service new leads. A Branch Manager from Musoni Microfinance Kenya reported, “After seeing our data on InVision, we’ve been able to provide better service to our existing clients and now have more consistent repayments and less defaults.”

InSight is a low-cost mobile personal finance tool that provides low and moderate income individuals and microentrepreneurs an accessible way to track their finances, learn basic financial accounting, and develop responsible savings habits, all through their cell phones. InSight is a scalable solution that provides the underbanked access to essential products and services that can improve their quality of life. Maneesh Srivastava, CEO of Muthoot Housing Finance Company Limited in India said, “Through the InVenture Score, we were able to accept more clients in one day than ever before in the history of our organization.” By facilitating a more fair and efficient marketplace, we hope to empower microentrepreneurs and institutions with the resources to safely and securely connect in order to create lasting, systemic change in emerging market economies and within the United States.

Through our work abroad, we have found that a combination of using InSight, financial literacy training and access to direct financing, our users have greater financial access. To date, we have seen an average of a 12% increase in revenue and 25% increase in savings as a result of using InSight. Our users began to show a more steady stream of income after usage indicating a higher awareness of financial literacy. Regular InSight users lowered their spending on non-essential items indicated by a steady decrease in the Other category (based on our field research, this tends to include spending on festivals, gold jewelry, snack food, and so on). In the top 10% of users (those who use the tool most regularly) we saw an increase in inventory spending indicating that they were expanding their businesses. As one of our users, a woodcarving artisan from India said, “There has been a tremendous improvement in my business since I started using InSight. After using the tool, I began to realize how much I spend and earn. Before, I could not account for where I spent my money. I am now able to track my earnings, spending and savings, which I have never done before!”

We believe in providing a solution that not only builds a more efficient marketplace, but also educates and empowers those previously unbanked individuals to become influential consumers in the formal economy. We carry the unique expertise of understanding the mobile financial technology sector while also having a deep and meaningful understanding of the unbanked communities and their motivations, challenges and drive for financial growth and progress through technology. Leveraging the relationships of partner organizations on five different continents, we have interviewed hundreds of individuals in the informal, unbanked economy and tested their abilities and desires for using mobile technology to better their financial situations. Our product is distinctly different because we know the unbanked consumer better than anyone, and are constantly improving and developing our product based on their actual use and feedback. By building another dimension of information and transparency in the financial marketplace, we’re deepening the digital identity and footprint of individuals in the low-income community, allowing them greater visibility, access, and opportunity for entrance into the formal market economy.

About the Authors

Erica G. Glenn, InVenture LABS Program Manager, is a native New Yorker and a recent MBA graduate, her work at InVenture LABS includes grant writing, managing operations and representing InVenture at networking conferences and symposiums. While not at work, she enjoys traveling the world and attending musical and plays on Broadway.

Bonnie L. Oliva, Executive Director of InVenture LABS, has worked in microfinance and economic development for over 10 years and is passionate about building innovative solutions to alleviating poverty. She is currently a part-time MPA candidate at NYU and in her spare time, she likes to cook, travel and root for her hometown team, the New York Yankees!

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College Costs in Focus

By Charles Tilley on 09/09/2014 @ 11:15 AM

Tags: Federal Policy, Education

As the summer slowly winds down, colleges are dusting off their lecture halls once more. For many students across the country, though, this occasion is met with a lingering shred of doubt. The affordability of a college education—the traditional and much heralded mechanism of social mobility—is under question. While politicians often champion the virtues of higher education, this praise is always accompanied with a caveat: it must remain accessible.

The reasons for rising college costs are diverse. They include declining state support for public institutions, ambitious construction projects, and the availability of student loan financing among others. The increasing costs themselves are quite striking. Figures published by the National Center for Education Statistics (NCES) help explain the situation. In constant 2011-12 dollars, the annual cost to attend a four-year public institution was $6,942 for the 1981-82 school year. (This cost of attendance measure captures tuition, room and board, and other mandatory fees.) Using the same constant dollar measure, these costs rose to $16,789 for the 2011-12 school year. This amounts to a 142% increase over that thirty year time period—in constant dollars.

Impact of Elevating Costs

One of the most substantial repercussions of increased attendance costs is the nation’s ballooning student debt. In a recent briefing, the Consumer Financial Protection Bureau (CFPB) points out that student debt in the United States now approaches $1.2 trillion. In fact, research by the Federal Reserve Bank of New York shows that student loan debt currently exceeds both credit card and auto loan debt and is second only to mortgage debt amongst the largest sources of American consumer debt.

There are broader social concerns as well. Strapped with sizable student loans, young people face limited financial security following graduation and may be forced to postpone major life decisions such as getting married, having children, and purchasing a home. Also concerning is a recent Gallup-Purdue University survey which identified profound personal consequences for graduates with substantial debts. Using a random sample of approximately 30,000 individuals who graduated from a four-year institution between 1990 and 2014, researchers asked respondents to self-assess their personal well-being on a number of dimensions. Their findings associate high levels of student debt (defined as greater than $50,000) with a decreased sense of daily purpose, community engagement and even physical health.

Policy Work

For policymakers, the question is how to preserve and foster access to the higher education system. There has been progress in recent years. For instance, the Health Care and Education Reconciliation Act of 2010 expanded the Pell Grant program and replaced the federal program offering student loan guarantees with direct loans managed through the Department of Education. Additionally, the American Recovery and Reinvestment Act (ARRA) of 2009 created the American Opportunity Tax Credit (AOTC), building upon the Hope Scholarship Credit and extending eligibility from two years per qualifying student to four years. This credit offers a maximum of $2,500 per eligible student based on qualified educational expenses, 40% of which may be refundable. The AOTC has since been extended through 2017.

There is still much work to be done. While federal action has been promising, states are also equipped with an array of policy tools to begin to remedy the situation. The Assets & Opportunity Scorecard highlights many of these options. For instance, states can allocate larger portions of their budgets to public colleges and universities, expand and effectively target financial aid to the neediest students, and incentivize college savings through affordable and tax-advantaged 529 educational plans. The combination of federal and state efforts can help reverse the trend of rising college costs and student debt burdens to ensure the higher education system is a viable asset-building opportunity for all households.

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Helping Small Businesses Avoid Debt Traps: One Loan at a Time

By Gwendy Brown on 09/08/2014 @ 04:00 PM

Tags: Entreprenuership

In June, CFED launched an open call for solutions to discover and highlight strategies that address the key financial challenges facing microbusiness owners. We’re thrilled to recognize the Opportunity Fund as one of ten stellar submissions for their creative interventions and begin to explore opportunities to further their work. Each idea was evaluated to assess feasibility, viability, perceived propensity for scale, innovativeness and relevance, in terms of its potential to address financial challenges or expand financial capability of microbusiness owners.

What’s your favorite local business? Do they accept credit or debit cards? If the answer is yes then chances are that the business owner has been offered a merchant cash advance (MCA). MCAs are offered by unregulated, non-bank companies that offer quick money, but at a high cost. These alternative financing products ensure repayment by taking a fixed portion of up to 50% of every credit/debit card sale—with annualized interest rates reaching 170%. Because the portion of daily sales surrendered is so high, MCAs can choke a business of the cash it needs to survive. And because getting a bank loan is harder than ever, many small businesses think an MCA is their only option.

With state and federal regulators sitting back as the merchant cash advance industry rapidly expands, Opportunity Fund knew we had to create an affordable alternative. In 2013 we launched EasyPay, an innovative alternative loan product that functions just like a Merchant Cash Advance, with a few important differences. First, EasyPay is affordable – taking no more than 10% of total business cash flow, with interest rates starting at 8.5%. Second, EasyPay is flexible – giving business owners up to 36 months to pay back their loan, rather than the average 8 month payback period with MCAs (see image for an example). And last, EasyPay helps build credit – unlike cash advance lenders, Opportunity Fund reports payments to the credit bureaus so microbusiness owners can build their credit history and score.

With the extra security of automatic daily payments, EasyPay makes it possible to finance businesses who might not qualify based on our standard underwriting due to weak credit or collateral. As a result, Opportunity Fund is reaching harder-to-serve business owners whose only alternatives are high cost MCAs. Already, Opportunity Fund has lent $4 million in EasyPay loans to help 216 California entrepreneurs start-up or scale-up their businesses and we hope to serve at least 500 businesses annually by 2018.

While Opportunity Fund is also pushing for regulation of the subprime small business financing industry, we aren’t waiting around. We’re proactively reaching out to businesses around California to help them refinance their MCAs with an EasyPay loan. If you know a business that might benefit from EasyPay – let them know that affordable alternatives do exist.

Want to learn more about Opportunity Fund’s EasyPay Loan? Check them out at the Assets Learning Conference in September. They’ll be featured in the Shark Tank Small Business Challenge, a concurrent session from 10:15 to 11:45 AM on Wednesday, September 17, that will highlight a number of innovative approaches to microbusiness owners’ financial challenges and allow audience members to select a favorite.

About the Author

Gwendy Brown is Vice President of Research and Policy at Opportunity Fund, California’s leading microfinance organization. In addition to advocating for responsible business and consumer loans, Gwendy also works to advance college affordability and access to savings opportunities for all Californians.

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A Bold Policy Proposal: Convert Food Stamps into a Tax Deduction *

By Ezra Levin on 09/08/2014 @ 10:00 AM

Tags: Federal Policy, Homeownership

* Or, rather, a guide for fixing upside down homeownership tax programs

In the previous two blog posts on CFED’s new paper on homeownership tax programs, I explained how much the government spends on them (a ton), and who receives the benefits (not low- or moderate-income families). In this final post, I want to go over why these huge programs are upside down, and what we can do about it.

With that in mind, let’s try a thought experiment. Imagine a bold new reform to SNAP (formerly “Food Stamps”). We’re going to structure this government support for nutrition the same way we structure government support for homeownership. Specifically, let’s imagine replacing SNAP with a Supplemental Nutrition Tax Deduction.

Here’s how this plays out:

  • First, this new Supplemental Nutrition Tax Deduction would only be available to itemizers, effectively eliminating any benefit for 85% of households with income less than $50,000.
  • Second, the deduction would grow based on a household’s tax rate. A low-income family would receive $10 for every $100 spent on groceries; a high-income family would receive about $40 for every $100 spent on groceries.
  • Third, the more food bought on credit, the more support a family would get. A $20 dollar family pasta meal paid with cash translates into zero dollars of federal support. A FleurBurger with seared foie gras, truffle sauce, and a bottle of 1995 Château Petrus charged to a MasterCard could fetch hundreds of dollars of federal support.
  • Fourth, the benefits would not be made available for months—in some cases more than a year—after the food was purchased. A high-income family could of course tap their own income, savings, or credit to purchase the FleurBurger. A low-income family would perhaps just forego the pasta altogether.

Of course we wouldn’t think about providing federal nutrition assistance this way. And yet this is exactly how we provide federal homeownership assistance. The example above illustrates the four main problems with existing homeownership tax programs:

  1. They focus support on households that itemize deductions. Supporting homeownership through itemized deduction is a great way to exclude the vast majority of low- and moderate-income families from homeownership benefits. In recent years, 95% of taxpayers with income over $200,000 itemized; only 13% of those with income of $50,000 or less did so.
  2. The amount of support increases as the tax bracket increase. Imagine that the Henderson family (15% tax rate) and the Hampton family (39.6% tax rate) each buy a house costing 300,000 and deduct $1,252 in real estate taxes and mortgage interest. The Hendersons’ tax refund will be $188 bigger because of the deductions. The Hamptons’ refund will be $496 bigger. Both bought the same house and itemized the same deductions of the same amount. And yet, the Hamptons get more than 2.5 times as much help from homeownership tax programs as the Hendersons.
  3. They subsidize lots of debt and expensive homes. Neither the Mortgage Interest Deduction nor the Real Estate Tax Deduction directly encourages homeownership. The Mortgage Interest Deduction supports mortgage debt—the more debt, the more support. The Real Estate Tax Deduction supports buying more expensive homes—the more property tax, the more support. The Mortgage Interest Deduction is capped only for interest on the first $1 million of a mortgage. The Real Estate Tax Deduction is not capped at all.
  4. They time support poorly. Buying a home is expensive. For the median house sold in 2013, a 20% down payment would be over $50,000. Add to this the credit reports, loan origination, appraisals, inspections, title insurance, surveys, underwriting, recording fees—combined, the average closing costs are 2-5% of the purchase price of home. This adds as much as $13,445 to the up-front cost of purchasing the median home, for a total cost of around $65,000 -- an astronomical amount of savings for most families. Homeownership tax programs don’t tackle these up-front costs, nor do they help families save up to buy.

There’s no good reason for these flaws to remain. During the recession, Congress created the First-Time Homebuyer’s Tax Credit. As a macro-economic stimulus program, the credit got middling reviews. But as a homeownership program, it did a comparatively great job of focusing support on low- and moderate-income households.

Political figures called for reforming these programs for decades. The liberal Sen. Edward Kennedy called out the Mortgage Interest Deduction 40 years ago for reform. Conservative stalwart Sen. Tom Coburn called for sweeping reform in 2011. In fact, in the last decade, numerous analysts, task forces, and policymakers on both sides of the aisle have called for reform.

What should reform look like? The full paper goes into details, but in short here are the recommendations:

  • Create a permanent first-time homebuyer’s credit to help families pay for down payments and closing costs.
  • Help families save for a first home down payment with a matched account.
  • Replace a Mortgage Interest Deduction and Real Estate Tax Deduction with a simple, refundable homeownership credit.
  • Replace a Mortgage Interest Deduction and Real Estate Tax Deduction with a simple, refundable homeownership credit.

The $211 billion (and growing) spent on these homeownership tax programs represents an opportunity for Congress. Congress can significantly expand homeownership support for millions of Americans without spending a dollar more by turning these upside down tax programs right-side up.

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Asset Building News Roundup: September 5, 2014

By Paul Day on 09/05/2014 @ 03:00 PM

Tags: News

News

The Federal Reserve says that the rich have gotten richer from the economic recovery while the majority of Americans have been left behind “consistent with increasing income concentration during this period.” And those at the bottom of the heap are being pushed down further than ever, the Fed finds in a report published Wednesday.

The Chicago Community Land Trust (CCLT), which maintains the long-term affordability of 70 housing units constructed with City of Chicago subsidies, recently sponsored an “extreme room makeover” contest for its homeowners. Read more here.

This week, the Washington Post published a feature story on how municipalities in St. Louis County, Missouri profit from poverty.

The New Republic covered the release of CFED’s latest Upside Down report: Upside Down: Homeownership Tax Programs. The article discusses how homeowners collected $200 billion in 2013 from an assortment of different tax deductions, but the vast majority of those benefits accrued to the wealthy.

From the Assets & Opportunity Network

From the Coalition for a Prosperous Mississippi: This month, the Mississippi Economic Policy Center (MEPC) explores the topic of education in the state – a topic that not only benefits individuals, but also their families and communities alike. For an individual, education is a fundamental asset that significantly impacts his or her earning potential and ability to advance economic opportunity in the state. However, access to post-secondary education remains a major barrier for thousands of working families and their children. Read more here.

From Southern Bancorp Community Partners: The Earned Income Tax Credit (EITC) is a federal tax credit for low- and moderate-income working people, recognized for its success in promoting work and alleviating poverty as well as offsetting payroll and income taxes. Due to its success, federal policymakers over the last decade have made considerable progress in strengthening the EITC. The progress made at the federal level translates to nearly $2.5 million returned to 300,000 EITC recipients in Arkansas and $2.75 million back in the pockets of 392,000 Mississippians in 2012. Read more here.

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