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New Research Broadens Understandings of Microbusiness Financial Vulnerability

By Manny Hidalgo on 04/23/2014 @ 11:00 AM

Tags: Data and Research, Entrepreneurship

Take a minute to think about the last time you picked up your laundry, hired a landscaper to take care of your lawn or bought a sandwich at a local deli. It’s highly likely that the person you did business with owned a microbusiness: a business with five employees or fewer, including themselves. Of the 26 million microbusinesses in the US—which make up 92% of all businesses in the US—at least half earn an average adjusted gross income of $50,000 or less each year and are more financially vulnerable than any of us should be willing to accept.

Ultimately, though microbusinesses contribute significantly to nationwide economic activity and their owners’ household balance sheets, many still struggle to make ends meet or build long-term wealth. Still, little is known about how the typical microbusiness manages its finances, the major financial challenges they face or which components of financial capability lead them to business success. To begin to bridge this gap in understanding, CFED conducted a study with support from MasterCard’s Center for Inclusive Growth. We conducted online and phone surveys with microbusiness owners from across the United States to get a better picture of their financial lives, and we found that an alarming percentage of them lacked enough in savings to weather hard times, struggled to manage cash flow and experienced financial trouble at home.

Today, we are excited to share the findings from this study in the form of a full research report and brief, titled In Search of Solid Ground: Understanding the Financial Vulnerabilities of Microbusiness Owners. Here’s what we learned:

  • Savings is remarkably low across all microbusiness owners surveyed: 55% of online survey respondents could cover only one month or less of business expenses with their current business savings and 30% had no savings at all.
  • Only one in three phone survey respondents used loans or credit of any kind, including loans from family or friends, to finance their business.
  • Cash flow difficulty—namely, mismatches between the timing of accounts payable and receivable—was the most commonly reported challenge cited by online respondents (37%). These mismatches may cause owners to delay payments or forgo purchases necessary to grow their business: 66% reported skipping their own salary payment to cover cash flow problems, thus weakening their household’s financial position.

Not everything garnered from the survey is cause for alarm. For instance, we discovered that 51% of online survey respondents used business checking accounts and that those who do—compared to those who exclusively use personal banking products—are more likely to utilize an entire suite of more sophisticated financial products for their business. Although the financial capability of microbusiness owners is very much a work in progress, as it is for the vast majority of Americans, knowing more about the extent of the challenges they face helps us address the issue more comprehensively. With our partners in the public, private and nonprofit sectors, CFED will continue to dig deeper to identify how policy, program and product solutions can enhance the financial health of microbusiness owners. To get the ball rolling, we’ve already begun to conceptualize the policy implications of this study in a new federal policy brief, Cash Flow is King: Microbusinesses’ Greatest Financial Needs.

Download the research study and brief from CFED’s Resource Directory today!

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New Research Examines Financial Capability-Building Strategies for Low-Wage Workers

By Louisa Quittman, Guest Contributor on 04/22/2014 @ 02:30 PM

Tags: Economic Inclusion, Financial Empowerment, Integrated Service Delivery

At Treasury, we are working on many fronts to both increase financial access and promote the financial capability of American households. It is clear that these objectives are overlapping and interrelated—promoting financial capability through informed decision-making often requires individuals have access to safe and high quality financial products. Given this overlap, Treasury recently supported research on the effect of pairing increased financial access with financial counseling in order to test how these tools might inform financial decision-making.

With support from Treasury, the Corporation for Enterprise Development (CFED), the Center for Financial Security at the University of Wisconsin-Madison (CFS) and the New York City Department of Consumer Affairs Office of Financial Empowerment (OFE) developed a pilot program that paired access to a basic checking account with an average of one to two hours of financial counseling for a population of adults who were transitioning off of public benefits in New York City. All 1,034 study participants were offered safe, affordable bank accounts with direct deposit, and half were also offered free one-on-one financial counseling with trained providers through the City’s Financial Empowerment Centers.

The pilot allowed researchers to examine the impact of the financial counseling on participants’ financial capability, including credit history, financial behavior, and attitudes. Overall, the research found that participants who received the one-on-one counseling were more likely to stay current on debt payments at the six and 12-month follow-ups. Moreover, the results demonstrated that integrating access to accounts into the transitional workforce program dramatically increased the banked status of the population. Over the course of the study, the percentage of participants who reported being banked moved from one-third at baseline to almost 60 percent at six months, and more than half still reported being banked at 12 months.

The study also examined how financial empowerment services can effectively be integrated into an existing workforce program. For example, the pilot provided access to a checking account with no minimum monthly balance, and other features designed to be helpful to low-income workers; additionally, accounts could be opened at the job site by bank employees. There was a higher than expected level of take up and continued use of such accounts. Programs working with clients in financial transition such as transitional employment, welfare-to-work, youth aging out of foster care and prisoner re-entry programs might achieve stronger outcomes if their clients are given tools to better manage their money, improve their credit scores, and plan their financial futures. These findings may be useful to other employers of unbanked, low-wage workers.

Treasury will use the findings of the pilot as it considers policies to help people manage their money, transition back into the workforce, and move up the economic ladder. We also plan to share the findings with the President’s Advisory Council on Financial Capability for Young Americans, and our partner federal agencies in the Financial Literacy and Education Commission.

This new study offers a range of insights for both policy and practice. We hope it will continue to stimulate new research on best practices for pairing financial access and financial capability on the ground. To read the results of the study, please click here.

Louisa Quittman is the Director of Financial Education in the Office of Consumer Policy at the United States Department of the Treasury.

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Asset-Building News Roundup - April 18, 2014

By Veronica Weis on 04/18/2014 @ 11:30 AM

Tags: News

Events

Join The Aspen Institute's Ascend program for the launch of their new network of leading organizations applying two-generation approaches to disrupt poverty and create economic mobility. The webinar is on Tuesday, April 29.

The Center for Global Policy Solutions will host the 2014 Color of Wealth Summit on April 30-May 1 in Washington, DC.

Center for Financial Services Innovation and American Banker will host their annual conference, EMERGE: The Forum on Consumer Financial Services, on June 4-6 in Los Angeles, CA.

News

Connecticut Governor Malloy signed into law a bill that will incrementally raise the state’s minimum wage from $8.70 to $10.10 per hour by January 2017.

A bill to extend in-state tuition to undocumented students is moving through the Florida legislature and is awaiting a vote in the Senate Judiciary committee.

Under the leadership of Kentucky Attorney General Jack Conway, 32 states are working together to investigate for-profit colleges that fraudulently market subpar programs to veterans and low-income students. Additionally, U.S. Senators Dick Durbin of Illinois and Tom Harkin of Iowa introduced legislation that would establish a committee of federal entities, including the Departments of Education and Justice and the CFPB, to oversee for-profit colleges.

The Kansas House approved a bill that would require public school students to receive financial education, which would be taught in math classes or other appropriate courses and include topics such as savings, credit, and debt and budgeting. The bill is now under review by the Senate.

Indiana Governor Pence signed HEA 1235 into law in March, which allows credit unions to offer savings promotion raffles, or prize-linked savings accounts.

New York City Mayor De Blasio signed a bill that extends paid sick leave to the manufacturing sector and adds grandparents, grandchildren and siblings to the definition of family members for whom workers can legally care using paid sick time. This is the first bill the new mayor has signed into law.

Opportunities

The CFPB is asking for feedback on how prepaid card retail packaging discloses information. Take a look at the examples provided here and help inform the design of model disclosure forms.

Southwest Housing Solutions is hiring a Financial Coach on a part-time basis.

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Housing Finance Reform Doesn’t Need to Start with Congress

By Doug Ryan on 04/17/2014 @ 02:30 PM

Tags: Housing and Homeownership

EDITOR'S NOTE: This post originally appeared on the National Housing Institute's Rooflines blog here. Many thanks to them for letting us repost it here!

Later this month, as every reader no doubt knows, the Senate Banking committee will mark up the bipartisan housing finance reform bill put forward by Chairman Tim Johnson and Ranking Member Michael Crapo. There has been a lot of commentary on the bill in these pages and elsewhere by housing advocates, including some rather strong critics of the bill’s complexity, servicing regimes and perceived risk to the economy. As the bill is not, of course, the final word on housing finance, for manufactured housing there are some positive pieces that should be preserved or built upon as the process goes forward.

That the bill recognizes that manufactured housing plays an important role in the provision of affordable housing is a critical, and easily overlooked, milestone. As the Manufactured Housing Institute remarked when the text of the bill was released, manufactured housing loans have made up less than one percent of Fannie Mae and Freddie Mac’s secondary market efforts, which seems woefully inadequate in light of the outsized share the sector makes up as homeownership for low- and moderate-income Americans.

In its direction to the new Federal Mortgage Insurance Corporation (FMIC) to develop rules to support underserved markets, the bill cites manufactured housing as an example. The mandate sounds a bit like the yet-to-be-adopted Duty to Serve (DTS) regulations that Congress required the GSEs’ regulator to issue to support manufactured housing, rural markets and housing preservation. So while the paucity of GSE activity on manufactured housing in the past and the fact that proposed DTS rules have lingered for four years should give us pause, we should be hopeful that the secondary market will at some point more fully embrace manufactured homes and their long-ignored owners.

The committee and staff did tremendous work on the bill, regardless of the criticisms of it. Specifically, CFED commends the staff for including manufactured housing advocates and others in its discussions in the run up to the bill’s release. One noteworthy mention is that manufactured housing is explicitly cited as eligible for the Market Access Fund (MAF).

The MAF should be more than just a pool for funding any type of manufactured home loan. The bill specifically states that the fund can offer “grants and loans, including through the use of pilot programs of sufficient scale, to support the research and development of sustainable homeownership and affordable rental programs, which programs shall include manufactured homes.”

Sustainable homeownership is what CFED’s Innovations in Manufactured Homes (I’M HOME) is all about, and we’re optimistic that the MAF could help support innovative pilots to site new, high-quality homes through high-quality, safe mortgage lending. Furthermore, the fund could be used to provide credit enhancement, something that is desperately needed to help transform the market. Fannie Mae and Freddie Mac currently have authority to do these things, but the uncertain environment gives them unnecessary pause. The fund’s potential support for manufactured home lending research also holds promise.

Despite the obvious progress that the proposed legislation offers manufactured homebuyers, regulators and other stakeholders do not have to wait for President Obama’s signature before real progress in lending can occur.

Housing Finance Reform Now

The Federal Housing Finance Agency still has an opportunity to revisit DTS rulemaking, likely by issuing new proposed rules, which may vary from the ones issued in 2010 in the wake of the housing crisis. Advocates, including CFED, who are working to improve the liquidity market the three underserved segments identified in 2008, see that finalized DTS rules could go a long way to support manufactured home lending. FHFA should recognize that the housing and regulatory environments are not what they were in 2010. CFED view has also evolved based how the market has developed.

The 2010 proposal states that “chattel loans on manufactured homes not be considered towards the duty to serve the manufactured housing market as these loans are inconsistent with Enterprise conservatorship,” which began in 2008. Therefore, FHFA proposed limiting DTS to fee-simple, real estate mortgages for manufactured homes. But because the FHFA has not finalized even these very narrow rules, the GSEs have had little reason to invest in or support this small but important part of the affordable housing market. Had the FHFA done so, even in just the small segment of the loans that are fee-simple transactions, it could have furthered the housing recovery, especially for low- and moderate-income borrowers. FHFA should retain the eligibility of fee-simple mortgages, but enhance DTS though a careful review of the personal property loan market.

By excluding all chattel loans, the FHFA would remove about 75 percent of manufactured home loans from GSE consideration. Clearly not all or even most of today’s chattel loans should qualify for government support, tacit or otherwise. In many cases, these loans have high fees and rates and the homeowners’ lack of security on the land, if not owned outright, jeopardizes the stability of their housing. Developments in the manufactured housing market offer regulators some guidance on how the GSEs, and their successors, can support chattel loans for low- and moderate-income homeowners.

Titling reform, as proposed by the Uniform Law Commission, would likely spur interest by lenders, like what has happened in New Hampshire, where all homes are titled as real estate. Private lenders in New Hampshire are making mortgages in resident-owned communities, with the support of a Fannie Mae pilot. Resident-owned communities across the country offer a perfect opportunity for the GSEs to pilot chattel investment in an environment that fosters affordability and long-term security. Long-term leases, which are rare in investor-owned communities but are supported by some industry players, would also hasten interest by originators and investors.

Finally, the Consumer Finance Protection Bureau’s Qualified Mortgage rule also provides some assurance. QM already defines what safe and good quality chattel loans are, and also takes into account the lot rent in a family’s ability to repay a mortgage.

The possibility of wholesale housing finance reform doesn’t mean we have to stop working on the options we have now. In fact, a final DTS rule, substantive pilots and new thinking in the housing market could set the table for transformative innovation when a new system is finally in place.

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Addressing Financial Barriers to Help Clients Find Jobs

By Kori Hattemer and Matt Garlipp on 04/16/2014 @ 11:00 AM

Tags: Financial Empowerment, Integrated Service Delivery, Jobs

Photo by Lance Cheung, USDA

Over the past two weeks, we introduced the Housing and Emergency Assistance cohorts of our Integration Learning Cluster. As we mentioned in those posts, the Integration Learning Cluster is comprised of 11 social service organizations from three sectors—Housing, Emergency Assistance and Workforce Development—that are incorporating financial capability services to help their clients achieve lasting stability and independence.

The members of the Workforce Development Cohort provide various job training and placement services. Their typical client:

  • Is receiving some form of income.
  • Is goal-oriented.
  • Has competing priorities, such as trying to find reliable transportation and child care.

Given the priorities of this population and the goals of the organizations, the Workforce Development cohort members are trying to answer:

  • What are the financial barriers to finding and keeping a job?
  • What is the right combination of services that will help our clients overcome those financial barriers?
  • What is the right point in time to offer different financial capability services?
  • When our clients are focused solely on finding a job and securing a stable income, how do we motivate them to also improve their financial lives through activities such as credit repair and saving?
  • What is the measurable effect on employment outcomes of integrating financial capability services?

Four workforce development organizations were selected to address these critical questions as members of the Integration Learning Cluster:

FEGS is a health and human services agency in New York City that serves 100,000 people per year. FEGS participated in our previous Integration Learning Cluster, during which they prepared job retention counselors to refer clients in their welfare-to-work program to a starter savings account and financial coaching. During this Learning Cluster, they plan to expand financial empowerment to five additional workforce development programs that serve adults and youth, including a second welfare-to-work program.

Goodwill Industries of Sacramento and Northern Nevada (Goodwill SAC) operates 23 retail stores and 70 collection sites across California and Nevada. Goodwill SAC has funding from United Way to implement a Financial Coaching Program in partnership with five other community partners. Goodwill is the lead organization and will be integrating financial coaching into its existing workforce development program. They are using an innovative household assessment tool, the “Labor Market and Financial Capability Outcome Scale Matrix,” to assess clients and track progress over time.

IMPACT Community Action in Columbus, OH, offers three service branches: emergency services, home weatherization and empowerment services (including workforce development and financial services). While the organization already implements some financial empowerment services, they have identified a need to better integrate these into their “Employment Plus” program to help clients develop the financial capabilities they need to be successful in either postsecondary education or employment.

Primavera Foundation offers a continuum of housing and workforce development services to address homelessness, poverty and neighborhood destabilization throughout the greater Tucson, AZ, area. Primavera wants to incorporate their existing financial education and savings program into their Primavera Works program, which provides day-labor opportunities for people enrolled in a Primavera housing program or shelter. They want to leverage the time when a person is working and earning money to give them the tools and skills they need to manage their income and save.

As these organizations and the other members of the Integration Learning Cluster develop innovative strategies for helping their clients achieve financial security, we will continue to update you on their progress and the challenges they face along the way through additional blog posts and briefs.

In the meantime, check out some of our other resources about integrating asset building into social service delivery:

Interested in learning more? Tomorrow, CFED and the Center for Financial Security at the University of Wisconsin-Madison are hosting a free webinar on the findings from the Assessing Financial Capability Outcomes pilot, which tested the integration of financial coaching and account access into a workforce development program in New York City. Click here to register.

This Learning Cluster is generously supported by the Bank of America Charitable Foundation.

Also in This Series

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Lessons from the Field: Connecting School-Based Financial Education and Account Access in Amarillo, TX

By Kasey Wiedrich on 04/15/2014 @ 02:15 PM

Tags: Children's Savings Accounts, Data and Research, Economic Inclusion, Matched Savings

Last Thursday, the U.S. Department of the Treasury and CFED released the findings of a first-of-its-kind study on the impact of financial education and financial access on elementary students. With funding from Treasury, CFED partnered with the Center for Financial Security at the University of Wisconsin-Madison (CFS) and OpportunityTexas—an initiative of the Center for Public Policy Priorities and RAISE Texas—to test the impact of approximately five hours of classroom-based financial education and access to a bank or credit union branch in school on 4th and 5th grade students’ financial knowledge, behavior and attitudes. Overall the research found improved outcomes for students from the approach, including improved financial knowledge, more positive attitudes towards savings and financial institutions, and higher rates of being banked if students had access to accounts in school. For more information about the study, read the full report or the research brief.

Beyond the research findings, the project also offers new insights into the process of launching and operating an in-school banking program and connecting such a program to a school-based financial education curriculum. Lessons from the Field: Connecting School-Based Financial Education and Account Access in Amarillo, TX is a brief from CFED and OpportunityTexas with lessons learned and observations from the implementation of the financial education and in-school banking in Amarillo, Texas, one of the two pilot sites. The brief contains information on:

  • The financial education curriculum used in the study.
  • The training classroom teachers received on the curriculum.
  • The in-school banking program (Happy State Bank’s Kids’ Bank Program).
  • Factors associated with higher participation in the banking program.
  • Promising ways to connect in-school banking to financial education curriculum.

To download the brief, click here.

To view resources used in the implementation, click here.

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The Assets & Opportunity Network Kicks Off Second Round of Technical Assistance Fund

By Fran Rosebush on 04/14/2014 @ 03:30 PM

Tags: Assets & Opportunity Initiative

This week, the Assets & Opportunity Network kicks off the second round of targeted technical assistance available through the JPMorgan Chase-funded Technical Assistance Fund. The TA Fund is designed to leverage expertise within the Network to help organizations address their critical issues, strengthen their work and explore new avenues to increase their impact. The TA Fund is designed to demonstrate how the Network can spread knowledge, share tools and assist organizations with achieving their goals.

More than 50 Lead Organizations in the JPMorgan Chase footprint were invited to apply. Four projects have been selected for the second round:

  • Alameda County Community Asset Network will receive guidance on creating a communications plan that integrates their three online tools and improves their web interface in order to better facilitate communication with members.
  • Maryland CASH Campaign will receive assistance analyzing and evaluating their current data collection efforts, as well as guidance on identifying administrative policy steps necessary to successfully implement adopted policies.
  • Florida Prosperity Partnership will receive assistance through a pre-conference workshop for attendees at their annual state-wide asset-building conference.
  • The Center for Asset Building Opportunities will receive assistance implementing a peer lending circle in the Los Angeles community.

In addition, the TA Fund is supporting a new virtual training series that will be open to all Network Lead Organizations. The five-part virtual training series will focus on effectively leveraging technology and communications strategies to enhance asset-building work.

The first round of technical assistance projects with the Minnesota Asset Building Coalition, Oregon IDA Initiative, Women’s Opportunity Resource Center and the Connecticut Asset Building Collaborative are currently in progress. The third and final round of the Technical Assistance Fund will run June 23–August 30.

We will keep you posted on the progress and lessons gleaned from the Technical Assistance Fund!

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The Policy Imperative to Address the Racial Wealth Gap

By Inemesit Imoh, Guest Contributor on 04/11/2014 @ 12:45 PM

Tags: Economic Inclusion, Events, Financial Empowerment, Housing and Homeownership

We have reached a powerful moment in our nation. Everyone from policymakers to advocates to practitioners and even regular Americans are discussing income inequality and the importance of economic mobility. The national dialogue has moved from merely supporting policies that help low-income households simply “get by” to lifting families up with the tools they need to “get ahead.” This is a moment we in the field have long worked for and of which we should all be proud.

However, the national conversation remains incomplete. Discussions of economic mobility are shortsighted without bringing up assets or wealth as the key to improving a household’s economic stability. Even worse, the discussion of racial and ethnic wealth inequality is largely absent in the media. For every dollar in wealth held by the typical white family in 2009, the typical Latino and African-American families only own six and five cents, respectively. This vast and deep wealth disparity has a devastating impact on households of color, and, if left unchecked, will have profound implications for the U.S. economy as the nation's demographics shift over the next few decades.

While there have been solid efforts considered and implemented by some, there is still much work to do. The Closing the Racial Wealth Gap Initiative hopes to move the conversation forward with our 2014 Color of Wealth Summit on April 30 & May 1, 2014.

The event is free to attend! Click here to register.

Our Summit, Shared Prosperity for All: The Policy Imperative for Closing the Racial Wealth Gap, seeks to engage Members of Congress, Congressional staff, the media and the public in a dialogue about the racial wealth gap, its effect on marginalized households, and its impact on the U.S. economy. Also explored will be possible solutions for closing the gap.

Featured speakers include:

  • The Honorable Ben Cardin (D-MD)
    U.S. Senate
  • The Honorable Barbara Lee (D-CA)
    U.S. House of Representatives
  • The Honorable Elijah Cummings (D-MD)
    U.S. House of Representatives
  • William Bynum
    President and CEO, Hope Enterprise Corporation

Join us on the evening of April 30 at the Hyatt Regency Washington to highlight and acknowledge the efforts of champions in the asset-building field that has contributed significantly to national progress in addressing racial wealth disparities.

Then, on May 1, at the U.S. Capitol Visitors Center Visitors’ Auditorium, our panelists from various sectors of the American economy (financial services, philanthropy, media, academia, etc.) will come together to speak on the following panels highlighting policies and issues that directly affect communities of color:

  • The War on Poverty and the Inclusive Economy: Building an Agenda for an Inclusive Society
  • Protect this House: Communities of Color, Mortgage Safety and the Future of Homeownership
  • Pension Peril for the People: How Retirement Insecurity Affects Racial Wealth Disparity
  • Banking on Success: Innovations in Financial Access and Inclusion for Underserved Communities

Despite our history and our differences, the United States has made significant progress to improve the well being of vulnerable communities. Now is the time to advance progress yet again and improve the economic security and mobility of all Americans, including households of color.

We hope our Summit is one step of many towards that goal.

See you at the Summit!


The Center for Global Policy Solutions manages the Closing the Racial Wealth Gap Initiative in collaboration with the Insight Center for Community Economic Development and with generous support from the Ford Foundation.

Inemesit Imoh is the Program Associate for Economic Security at the Center for Global Policy Solutions. Once upon a time she worked for a lovely national organization called CFED, where she provided support to the Government Affairs team.

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Asset-Building News Roundup - April 11, 2014

By Veronica Weis on 04/11/2014 @ 11:30 AM

Tags: News

Events

The sixth biennial Reinventing Older Communities conference, Bridging Growth & Opportunity, will be held May 12–14, at the Loews Philadelphia Hotel. We encourage you to register here.

The deadline for the 2014 Children's Savings Conference in Washington, DC is fast approaching! Be sure to register here ahead of the April 15 deadline.

Just in time for National Financial Capability Month, we've released findings from the Assessing Financial Capability Outcomes (AFCO) project, sponsored by the U.S. Department of the Treasury and a collaborative effort between CFED and the Center for Financial Security at the University of Wisconsin-Madison. Two webinars discussing the reports will take place in April, one on the 17th and another on the 23rd.

News

What are cities doing to fight rising inequality across the country? Annie Lowrey of The New York Times covers state-level initiatives around the United States in an article here.

NeighborWorks America released results from a consumer finance study showing that 29 percent of adult Americans have no emergency savings in place. To see the full report with highlights, click here.

Resources

We’re very excited to share the new road map for families to teach their kids about financial responsibility created by CFED and the American Bankers Association. Please be sure to use it and share it!

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New Research Points to Promising Hands-on Financial Education Strategy

By Louisa Quittman, Guest Contributor on 04/10/2014 @ 12:00 PM

Tags: Children's Savings Accounts, Data and Research, Financial Empowerment, Matched Savings

At Treasury, our efforts in recent years to promote greater levels of financial capability have focused on young Americans—and for good reason. Starting financial education at an early age can prepare young people to make informed financial decisions as they enter adulthood, and for the rest of their lives. That, in turn, has positive consequences for the broader U.S. economy. As Treasury Secretary Jacob J. Lew said last month, “helping young Americans build a sound financial foundation is not only important for their futures, it can also strengthen our economy for generations to come.”

But while interest in youth financial capability has continued to grow, existing research on the efficacy of financial education is limited, especially on approaches for elementary and middle school children. That is why Treasury commissioned the Corporation for Enterprise Development (CFED) and the Center for Financial Security at the University of Wisconsin-Madison (CFS) to conduct a first-of-its kind examination of the combination of classroom financial education and in-school savings account access, which could be a promising approach for driving measurable improvements in financial capability.

CFED and CFS designed the research to test the effect of approximately five hours of classroom-based financial education and access to a bank or credit union branch in school, alone and in combination, on three primary measures of financial capability: financial knowledge; financial behavior, such as opening and using accounts; and attitudes towards saving and financial institutions. The research took place in elementary school classrooms in two school districts—Eau Claire, Wisconsin, and Amarillo, Texas—during the 2011-2012 and 2012-2013 school years.

Overall, the research found improved outcomes from the hands-on financial education approach. Even relatively short classroom financial education significantly improved student financial knowledge, the effects of which persisted through the end of the study period. Both the financial education and access to in-school savings accounts were found to improve students’ attitudes toward saving and about financial institutions. A student with access to banking in his or her school also was more likely to have a savings account than a student who did not.

Beyond the research findings, the research also offers new insights into the process of launching and operating an in-school banking program and connecting such a program to a school-based financial education curriculum. In Amarillo, Happy State Bank (HSB), a Texas-based community bank with 31 locations, expanded its Kids’ Bank program to 15 randomly selected schools as part of the study. HSB’s Kids’ Bank offers students interest-bearing savings accounts with no monthly fees, no minimum balance and no minimum opening deposit. During the study period, half of students in schools with Kids’ Banks were randomly selected to receive a $25 “seed” deposit* if they opened an account in order to encourage students to participate and save. The incentive had significant results: it increased the likelihood of a student opening an account by 18 percent. There were other lessons learned beyond the controlled study experiment. HSB and Amarillo school officials found that marketing strategies geared toward parents and students, such as public address announcements, hallway posters and presentations at PTA meetings, were also a key factor in boosting Kids’ Bank participation.

Teachers administering the financial education instruction also reported back on their experiences, which could inform future classroom efforts. For example, the Amarillo Independent School District has a large number of economically disadvantaged students (68% qualify for free and reduced price lunch) and teachers found that the curriculum needed to be relevant to students of all income levels in order to increase understanding. These insights also reflected on parent feelings about the program. One school principal reported that a high percentage of economically disadvantaged parents seemed proud that their children had access to the program. Some parents even accompanied their children to the bank when they made deposits into their savings accounts after school.

Going forward, Treasury plans to share the research with schools, community leaders and financial institutions, as well as encourage more research on the implementation of similar activities in more school districts and at different grade levels. This study could also inform the work of both the President’s Advisory Council on Financial Capability for Young Americans and the Financial Literacy and Education Commission as they look for approaches to building the financial capability of young Americans that can be implemented widely.

To view the full study, click here.

To view a study brief, click here.

Louisa Quittman is the Director for Financial Education in the U.S. Department of the Treasury’s Office of Consumer Policy.


* The “seed” deposits for savings accounts at the Amarillo, Texas study site were provided through private funds raised by the Center for Public Policy Priorities through the Amarillo Community Foundation.

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Moving Clients from Crisis to Financial Stability

By Kori Hattemer and Matt Garlipp on 04/09/2014 @ 05:00 PM

Tags: Financial Empowerment, Integrated Service Delivery

Last week, we introduced you to the Housing Cohort working on CFED’s Integration Learning Cluster. As we mentioned then, the Learning Cluster is comprised of 11 social service organizations that are trying to help their clients build financial capability. Three of these organizations provide emergency assistance, such as food pantries, emergency shelter, and utility assistance.

The Emergency Assistance Cohort serves a unique population of people who are typically:

  • In transition or crisis.
  • Need help meeting basic needs, such as hunger and housing.
  • Come in for services at the time of crisis but do not come back for additional or long-term services.

Since the Emergency Assistance cohort members serve people in crisis with a specific set of services, they are trying to determine:

  • How can we assess whether clients are ready for financial empowerment services and can think beyond the immediate crisis?
  • How can we engage clients in a sensitive and meaningful discussion about their financial capability and long-term financial stability?
  • What are the most appropriate financial capability services to offer to people in crisis? How can we tailor services so they are relevant, timely and actionable?

The following three organizations have been selected to help discover the answers to these challenging questions during the 18-month Integration Learning Cluster.

  • Catholic Charities Wichita provides an array of services, including food and shelter, to those in need in over two dozen counties in Kansas. During the Learning Cluster, Catholic Charities plans to provide financial empowerment services to clients accessing the food pantry with the overall objective of identifying, addressing and resolving the root causes of food shortages.
  • Community Empowerment Fund (CEF) offers matched savings accounts, workforce development, financial education and other supports to those experiencing or at-risk of homelessness in Durham, NC. Throughout the Learning Cluster, CEF will be partnering with Urban Ministries Durham (UMD), a nonprofit organization providing food, shelter and re-housing assistance. CEF’s trained financial coaches will be working with UMD clients on site through the pilot.
  • Paul’s Place provides food assistance, utility shut-off prevention, eviction prevention, transportation assistance, job readiness training and other services in Baltimore, MD. The organization is interested in implementing financial capability services for clients requesting utility, rental and eviction assistance, as well as tailored case management support around financial issues.

As these Emergency Assistance organizations work to create a pathway to financial security for their clients in crisis, we will continue to update you on their progress and the challenges they face along the way.

Next Wednesday, tune in to read about the organizations in the Workforce Development Cohort of the Integration Learning Cluster and their plans to help clients increase their financial capability so that they can secure stable employment and achieve lasting financial security.

For additional information about organizations integrating asset building into social service delivery, see:

This Learning Cluster is generously supported by the Bank of America Charitable Foundation.

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Housing Finance Reform Can Help Families Build Wealth Through Homeownership

By Katherine Lucas McKay and Alicia Atkinson on 04/08/2014 @ 03:00 PM

Tags: Federal Policy, Housing and Homeownership, Policy Alerts

The Great Recession was devastating to millions of families from all income levels, largely due to the trillions of dollars lost in homeownership. In the aftermath, policymakers, consumers and advocates recognized the need for housing finance reform.

In March, Senate Banking Committee Chairperson Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) introduced the Housing Finance Reform and Taxpayer Protection Act of 2014, which proposed a framework for housing finance reform. As this legislation is considered, it is important that the Senate ensures that homeownership continues to be the leading source of household wealth and a foundation for family financial security.

Source: CBPP, 2013

One of CFED’s biggest concerns in current federal housing polices is that they are skewed towards supporting wealthy households build wealth but do little to support low- and moderate-income and middle-class families. CFED’s report, Upside Down: The $400 Billion Federal Asset-Building Budget, found that the federal government spent $137.6 billion to support homeownership in 2009, but the vast majority of this support went to high-income households in the form of tax expenditures. For instance, of the nearly $100 billion spent on Home Mortgage Interest Deduction every year, 77% goes to homeowners with incomes greater than $100,000.

CFED’s new Federal Policy Brief, “The Role of Asset-Building in Housing Finance Reform,” paints a blueprint for legislators to follow to ensure the benefits of homeownership are available to all while mitigating the risk for the public and private markets.

In short, Congress should support three policy strategies that create widespread access to homeownership, creating pathways out of poverty and strengthening the middle class.

  1. Help first-time homebuyers get a foot in the door by keeping minimum downpayments low, expanding support for downpayment savings through tax incentives and matched savings, and expanding downpayment assistance funds and homebuyer education resources.
  2. Recognize the unique and important role that manufactured housing plays in homeownership for low- and moderate-income households. Open up the secondary market to high-quality chattel loans by creating standards for them to be eligible for securitization. Encourage competition in the manufactured home finance market by incenting lenders to offer conventional mortgage financing to borrowers citing homes on land they already own as well as in resident-owned cooperatives.
  3. Provide incentives for the private sector to invest affordable homeownership. The Johnson-Crapo proposal offers securitization fee discounts for lenders providing high-quality loans to underserved markets and borrowers is a strong approach. This could also be paired with a new Duty to Serve rule that establishes minimum standards.

There are encouraging signs that the Johnson-Crapo legislation incorporates some of these strategies, though many questions remain. Moving forward, policymakers need to continue to ensure that all families at all income levels have supportive policies to build assets through homeownership.

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Asset-Building News Roundup - April 4, 2014

By Veronica Weis on 04/04/2014 @ 11:30 AM

Tags: News

Events

On Thursday, April 10 at 2pm EDT, the Economic Policy Institute (EPI) and The Century Foundation will hold a discussion on the long-term and devastating impact growing up in high-poverty neighborhoods has on children, with leading experts Paul Jargowsky (professor, Rutgers University and Century Foundation Fellow) and Patrick Sharkey (professor, New York University). They will be joined by Ta-Nehisi Coates of The Atlantic and Sherrilyn Ifill of the NAACP Legal Defense and Educational Fund. Click here to RSVP.

News

The CFPB's latest data point report provides an interesting analysis of consumers’ use of payday loans with a focus on loan sequences, the series of loans borrowers often take out following a new loan. Take a look at the findings here.

Could you get by on a low-wage job? Marketplace’s Wealth & Poverty Desk has developed an interactive tool so you can see how difficult it is to make ends meet in your state for working families.

Saving for retirement is challenging for most Americans. A new report by CBS News explores the changing nature of retirement in our country and highlights the extremely low percentage of workers saving for retirement. An article by NPR tries to pinpoint reasons for why saving is so difficult. For our thoughts on this issue, check out our February retirement savings event recap here.

Resources

Former CFEDer Anne Kim recently launched a new website, Republic 3.0, offering political and policy analysis from leading thinkers and practical ideas for smarter governance and cutting-edge policy innovation.

Opportunities

For those interested in attending the EMERGE: The Forum on Consumer Financial Services Innovation conference, CFSI is offering a scholarship to waive the conference registration fee and provide a travel stipend, valued at more than $3,000. Click here to apply ahead of the April 8 deadline.

Working on a project that provides or encourages safe and fair financial services for underserved communities? Check out the 2014 Promontory Empowerment Awards.

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CFED, Partners Featured as Experts in Community Development Investment Review

By Sean Luechtefeld on 04/03/2014 @ 03:30 PM

Tags: Housing and Homeownership, Recommended Reading

Did you see that the latest issue of Community Investment Development Review, which hit shelves last week, features two of CFED's experts in affordable housing as an asset-building strategy? President Andrea Levere's introduction to the issue framed the relationship between energy-efficient housing and asset building for low- and moderate-income (LMI) families, while Director of Affordable Homeownership Initiatives Doug Ryan co-authored a piece with Next Step CEO Stacey Epperson about manufactured housing as a viable homeownership option for LMI families. You can read Andrea's article here and Stacey & Doug's article here.

Community Development Investment Review, the journal of the Federal Reserve Bank of San Francisco's Center for Community Development Investments, aims to "bridge the gap between theory and practice and to enlist as many viewpoints as possible" while covering community development investment topics. This vital publication for the asset-building and financial empowerment fields is critical in bringing the issues you care about to new audiences, so we hope you will circulate the latest issue among your networks.

Have feedback for Andrea or Doug? Leave your comments below!

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Helping Affordable Housing Residents Achieve Lasting Financial Security

By Kori Hattemer and Matt Garlipp on 04/03/2014 @ 09:00 AM

Tags: Integrated Service Delivery, Financial Empowerment, Housing and Homeownership

In February, CFED introduced a new 18-month Learning Cluster of social service organizations that are trying to help their clients achieve financial security by integrating financial capability services. Eleven organizations from three sectors—housing, emergency assistance and workforce development—were selected to participate.

The specific approaches of the organizations in each cohort vary due to the differences in the populations they serve and the types of services they provide. Today we are pleased to share with you the learning goals of the organizations in the Housing Cohort.

Three of the four organizations in the Housing Cohort provide resident services. Their clients:

  • Are very diverse and differ in age, income level, parental status, marital status, substance abuse history and employment history.
  • Stay in affordable housing for extended periods of time, so they have a long period of interaction with resident service providers.
  • Are worried about losing their housing if they increase their income or assets.

Given these unique characteristics of their clients and the organizations’ roles as resident service providers, the focus of the Housing Cohort is to determine:

  • How to overcome clients’ fears of losing their housing if they save and build assets.
  • How to partner with property management companies to help clients overcome financial problems such as the inability to pay their rent or poor credit histories.
  • What combination of services will best meet the needs of a diverse population with different financial needs and goals.

The four organizations in this cohort bring a unique perspective to this work and are sharing what they learn to support one another during the Learning Cluster.

  • Jubilee Housing is a nonprofit affordable housing organization operating 280 housing units in Washington, DC. They provide an array of supportive services, such as an employment program, health services, youth services and family programming. Jubilee is currently operating a financial literacy course for residents and wants to build internal capacity and leverage community partnerships to deliver financial capability services not already offered on-site.
  • Mercy Housing Lakefront is a nonprofit affordable housing developer in Chicago that provides housing for working families, formerly homeless adults and seniors. During the Learning Cluster, Mercy Housing plans to redesign and streamline its existing Financial Empowerment Initiative and offer it to over 2,500 adults across 24 properties. Mercy Housing envisions a significant expansion of this program by better training case managers to offer services such as financial literacy and guidance on financial products.
  • Resident Services Corporation of DeKalb (RSCD) serves affordable housing clients and is extending its outreach efforts to approximately 5,000 participants in the Section 8 Housing program of DeKalb County, near Atlanta, GA. During the Learning Cluster, RSCD plans to launch their Family Self-Sufficiency (FSS) program to 500 residents who are preparing to move from affordable housing to the Section 8 program. FSS is a U.S. Department of Housing and Urban Development program aimed at helping families—including Housing Choice Voucher recipients and Public Housing residents—increase their independence by providing interest-bearing escrow accounts and supportive services such as child care, transportation, education, job training, financial literacy and homeownership counseling.
  • Solid Ground is a Community Action Agency in Seattle that provides housing services, a hunger action center, and other community services. Solid Ground participated in our previous Integration Learning Cluster, in which they defined and implemented a range of financial empowerment strategies within their housing programs. They have also implemented a financial coaching model within their homelessness prevention program through work with the City of Seattle and Living Cities. During this Learning Cluster, Solid Ground plans to expand financial empowerment services agency-wide.

CFED’s Learning Cluster model is designed to create new connections and collaborations between these organizations as they address similar challenges. Throughout the next year and a half, CFED will organize regular meetings among members to share best practices from experts and facilitate peer learning. CFED will also provide technical assistance as each organization designs, launches and evaluates an intervention, and will work with them to share findings and lessons learned.

We are excited to be working with each of these innovative organizations as they develop new strategies to help their clients achieve financial stability, and we look forward to sharing their progress and lessons learned over the next 12 months.

Next Wednesday, we will introduce the three organizations in the Emergency Assistance Cohort of the Integration Learning Cluster, which are grappling with how to help their clients in crisis start to think about and work toward long-term financial security.

For additional information about organizations integrating asset building into social service delivery, see:

This Learning Cluster is generously supported by the Bank of America Charitable Foundation.

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Alternative Data Credit Reporting Can Expand Access to Affordable Credit- and Wealth-Building Opportunities

By Katherine Lucas McKay on 04/01/2014 @ 05:00 PM

Tags: Federal Policy

In today’s economy, it takes credit to get credit. Need to buy a car? Ready to buy a house? You don’t just need a downpayment, you also need a good credit score and a solid repayment history regarding previous loans.

Despite the importance of credit reports and scores, 35-54 million Americans have such limited credit history that their records are sparse or nonexistent. Credit bureaus and lenders refer to these individuals as “thin file” consumers because their credit records lack sufficient loan repayment records to generate a credit score.

Plenty of thin-file consumers would be deemed low-risk if the credit reporting system were able to evaluate them. Instead, these consumers are often exposed to significant risks because they lack access to affordable credit. They frequently cannot leverage savings to get loans for major asset purchases, and when they can get loans, they pay higher interest rates. They have fewer resources to help manage periods of financial difficulty. They may even have trouble finding employment or an apartment to rent, because employers and landlords frequently screen credit reports before making a job offer or finalizing a lease.

Luckily, there is a low-cost way to improve the system so that thin-file consumers have the opportunity to build credit fairly and responsibly: alternative data credit reporting. “Alternative data” refers to financial information that’s not usually included in credit reports, such as rent, utilities and phone bills. These types of payments are often only reflected in credit reports when someone pays late. However, by including all such payments—both on time and late—credit bureaus could bring millions of thin-file consumers into the financial mainstream.

CFED’s latest Federal Policy Brief, “Alternative Data Helps Families Build Credit and Wealth,” explores the role that alternative credit data reporting can play in helping millions of thin-file consumers establish credit, access more affordable mainstream financial products, increase their financial security and purchase wealth-building assets.

Our Policy Brief lays out several options for policymakers seeking to support alternative data credit reporting:

  • Congress can provide incentives for consumer credit bureaus to use alternative data. The Credit Access and Inclusion Act (H.R. 2538, S. 1613) offers one example of how this can be accomplished, by promoting the use of full payment data for utilities and telecommunications payments.
  • The Consumer Financial Protection Bureau (CFPB) can clearly address how to report, collect and use alternative data under current law. CFPB has regulatory and supervisory authority over the credit reporting industry and could offer guidance to credit reporting agencies and data providers.
  • CFPB and Congress can improve dispute-resolution policies and help consumers better understand their rights. With more data in the credit reporting system comes the possibility that some data is inaccurate. Consumers would benefit from additional resources to help them correct inaccuracies related to alternative data included in their credit reports, and more effectively dispute errors that remain uncorrected.

Research shows that incorporating alternative data into credit reports helps thin-file consumers establish credit scores and largely benefits financially vulnerable groups. The Policy and Economic Research Council (PERC) and the Brookings Institution, for example, determined that adding full utility bill payment history to credit reports led to a 21% increase in low-income households qualifying for access to mainstream credit.

Some consumer advocates have expressed concern that alternative data credit reporting could cause more harm than good, but research from nonprofit experts indicates otherwise. A recent Credit Builders Alliance report, for example, found that among low-income participants in its rent reporting pilot program, for every one person whose credit score was damaged by including all rent payment information, 27 others gained access to mainstream credit.

It is rare that a single (no cost) policy can lead to such large and meaningful impact on millions of American families, making alternative data credit reporting a critical strategy for policymakers seeking to expand financial security and opportunity.

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Kindergarten to College Bank Days a Hit!

By Annie Liu on 03/31/2014 @ 04:30 PM

Tags: Children's Savings Accounts, Education

EDITOR'S NOTE: This guest post was written by Annie Liu, the Outreach Coordinator for Kindergarten to College, and originally appeared on the 1:1 Fund blog here

On a sunny Saturday afternoon in February 2014, families in San Francisco participated in a Kindergarten to College (K2C) Bank Day at their local Citibank branch. The Kindergarten to College program automatically opens a college savings account for every child when they enter kindergarten in San Francisco Unified School District. K2C Bank Days are one of the many ways that the K2C program connects with families about their K2C college savings accounts.

K2C students who attended this event enjoyed a fun-filled day of activities and games related to the importance of saving. By visiting their local bank, students also learned about how a bank works and how to save money in a bank account. Many students who attended this event were able to make their first contribution to their K2C accounts by visiting the bank teller with their parents. Students were excited to hear as well that each of their accounts already had $50 deposited by the City of San Francisco to help them start saving for college.

At each of the Bank Days, parents met with K2C staff from the San Francisco Treasurer’s Office of Financial Empowerment and learned more about contributing to their children’s K2C college savings account. In addition, Treasurer Jose Cisneros visited the Bank Day in the Inner Sunset district of San Francisco and was able to connect with families in San Francisco about the importance of saving with K2C.

Children left the event with excitement and aspiration for college and learned that saving money can be fun! As an added bonus, each child also took home a K2C savings kit with a piggy bank as well as other fun savings activities to encourage them to save and to bring them one step closer to making the dream of college a reality.

To date, K2C families have saved over $500,000 of their own funds into their K2C college savings accounts! For more information on K2C, please visit www.mysavingsaccount.com/k2c, and to help encourage K2C families to save for college you can visit our K2C page here on the 1:1 Fund website.

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Asset-Building News Roundup - March 28, 2014

By Veronica Weis on 03/28/2014 @ 11:30 AM

Tags: News

Events

Next Tuesday, The Annie E. Casey Foundation is hosting a launch event for the Race for Results report from 11:00am-1:30pm EDT in Washington, DC. Click here for more information.

On April 4, The Greenlining Institute will host its 21st Annual Economic Summit, The 21st Century Majority: Empowering a New Nation, which will discuss ways to ensure that all of our communities have a clear pathway to full participation in American prosperity. Click here for more information.

News

Economic inequality garnered a lot of attention in the news this week following the release of Thomas Piketty’s new book, Capital in the Twenty-First Century. John Cassidy at The New Yorker reviewed the book here.

Resources

FIELD at the Aspen Institute launched a new report and microsite this week with lots of data about microenterprise jobs. For the full report, check out the Downloads section.

The New America Foundation proudly announced that Reid Cramer of the Asset Building Program recently published, The Assets Perspective: The Rise of Asset Building and it Impact on Social Policy. The book presents a multi-dimensional exploration of how the concept of asset building has taken shape over the last two decades.

Job Opportunities

The Illinois Asset Building Group (IABG) and Heartland Alliance are hiring for a Policy Associate to help advance their policy agenda at the state level. The individual would work on issues related to retirement security, children’s savings accounts, consumer protections and other policies that aim to close the racial wealth gap. You can find the complete job description here.

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Levere Featured as Expert in One Crisis Away Series

By Kristin Lawton on 03/27/2014 @ 11:30 AM

Tags: Featured Stories

Last month, CFED President Andrea Levere was a featured expert on KERA-TV Dallas’ One Crisis Away, a multi-part series following North Texas families living on the financial edge. Her hour-long segment, in which she discusses the complex ways in which asset poverty affects low- and moderate-income families, airs tonight.

If you’re in the Dallas-Fort Worth area, we hope you’ll tune in tonight at 7 pm CDT. Not in the Metroplex? Watch online!

CFED applauds KERA’s use of public television to tell the story of asset poverty in America. By bringing together experts, curating resources and telling the stories of typical North Texas families, KERA is raising awareness about asset poverty in an unprecedented way, and we’re grateful for their dedication to covering the issues that matter to you the most.

For more on One Crisis Away or other KERA programming, check your local listings.

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Saving for the Next Generation: How Save to Win is Impacting Financially Vulnerable Families

By Amanda Hahnel, Guest Contributor on 03/26/2014 @ 11:15 AM

Tags: Financial Empowerment, Innovation

Creating savings is hard, especially for low-to-moderate income populations. Saving for financial emergencies such as unexpected trips to the doctor and expected costs such as yearly school supplies may seem out of reach. Saving for longer-term goals like retirement or future educational costs can feel impossible to realize for many families living on the financial edge. As the cost of raising children continues to climb, the financial burden for families only grows. Yet, the benefits of savings are clear.

To help shift the rewards of saving from the future to the present, Doorways to Dreams (D2D) Fund has been exploring prize-linked savings (PLS) products. At the most basic level, PLS products encourage savings by making it fun. By rewarding smart savings behavior with chances to win prizes, they can motivate individuals to start to save and save over time. Importantly, this can help consumers experience the benefits of saving for the future in the present as they begin to set aside savings and aspire to more financially secure futures.

Save to Win™ (STW), the nation’s first large-scale PLS product, launched five years ago in Michigan. STW is a balance-building share certificate (i.e., certificate of deposit) in which every $25 saved is an entry to win a prize. Accountholders are committing to build savings for a year-long term with deposits for the chance to win monthly prizes. It has now been used by more than 70,000 Americans who have saved more than $40 million in the accounts.

Excitingly, as D2D has continued to evaluate the success of STW since its launch, it has become clear that it is effective at encouraging savings and reaching underserved populations. Importantly, Save to Win has impacted financially vulnerable families in four primary ways: (1) Increasing membership at credit unions through the STW account and inspiring use of committed savings products, (2) Providing a product geared to help start and build financial reserves, (3) Helping families take action to reach their financial aspirations of long-term investments in their children and (4) Providing a financial cushion to draw on when financial emergencies threaten financial security.

Incredibly, of the over 70,000 STW accountholders since 2009, approximately one-third have children. D2D estimates that about 23,000 families have opened a prize-linked savings product since Save to Win launched. As D2D has previously detailed, the majority of Save to Win members report having some aspect of financial vulnerability (they may be asset poor, low- or moderate-income, or non-savers). In 2013, this percentage ranged from 62% (Nebraska) to 81% (Washington). Families with Save to Win accounts are no exception. Here are the numbers broken down by state:

  • Overall, 66-85% of families with Save to Win accounts were financially vulnerable, which accounts for 21-29% of all accountholders.
  • In Michigan, 66% of families are financially vulnerable.
  • In Nebraska, 76% of families are financially vulnerable.
  • In North Carolina, 79% of families are financially vulnerable.
  • In Washington, 85% of families are financially vulnerable.
  • If we expand the definition of financial vulnerability to include high debt and insufficient emergency savings, a full 100% of families in Nebraska are financially vulnerable.

If we use the most conservative estimate above, that about 66% of families are financially vulnerable, over 15,000 families have moved towards financial security through building savings in their Save to Win accounts. They have done this without guarantees of a match or additional resources and yet have been able to set aside savings in a committed savings vehicle.

While prize-linked savings has been effective at bringing consumers into financial institutions, approximately 10% of Save to Win members have said they joined their credit union because of Save to Win. Even more excitingly, between 14-26% of these members are financially vulnerable families. Creating a new relationship with a financial institution based on savings can be an important step towards financial security. Participating credit unions have stated that as members build up savings, they are eligible for lower-cost debt instruments such as secured credit cards. This shift has the potential to have a huge impact on families’ balance sheets.

While opening an account is a crucial first step, the importance of continuing to deposit to it and build financial reserves cannot be understated. While D2D does not track account balances for all members with families, a subset of Michigan accountholders have been tracked since 2009 with several key findings: single parents are able to build accounts year over year with an average 11% increase in account balance from January to December 2012. Additionally, these families stay in accounts at similar rates between years: single parents were just as likely to keep their Save to Win accounts open for an additional year as non-financially vulnerable members (92% for single parents vs. 94% for other members).

That Save to Win is attracting significant numbers of financially vulnerable families is exciting because of the enormous positive impact savings has been shown to have on children. For example, research done by Pew has shown that among children from low-income families, those with high-saving parents are more likely to experience upward income mobility. Unsurprisingly, families with Save to Win accounts report that their children are a big reason they are saving: approximately half of all STW members with children respond in surveys that they are either saving specifically for their children’s futures or they are saving for educational opportunities.

The combination of aspiration for future needs and access to a financial cushion is an important offering of prize-linked savings products. D2D research has revealed trends in increased withdrawal rates in the summer from single parents. This may mean that they are using their accounts to cover unexpected costs or smooth income consumption, possibly to cover increased childcare costs. Save to Win accounts, in other words, may be a crucial reserve, with huge implications for vulnerable children’s well-being. Recent research shows that reducing the stress associated with not having enough financial slack can have impacts in every facet of a family’s life and that the development of a financial cushion is key to increasing outcomes in many areas.

Financial vulnerability represents a unique challenge for families: building both emergency savings and long-term reserves are important for families’ health and welfare, yet the ability to build those savings is often compromised by pressing day-to-day concerns. It is exciting to see evidence that Save to Win can help bring the rewards of creating saving to the present through strategic use of prizes and product design with important results. Families are opening committed savings products, joining financial institutions to save, continuing to build savings year over year, actively affirming the importance of the long-term educational opportunities of their children, and using the account when they need financial slack. PLS products are creating opportunities for saving and winning for everyone.

Amanda Hahnel is Innovation Manager at the Doorways to Dreams (D2D) Fund.

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