Department of Education Announces Plans for Children's Savings Accounts Through GEAR UP
By Leigh Tivol on 06/01/2012 @ 04:30 PM
CFED is delighted to share an exciting new announcement from our friends and colleagues at the U.S. Department of Education. For the past several years, CFED and others have been working closely with the Department to explore the potential of linking children’s savings and financial education with efforts to help more students get to and through college. One particular effort the Department supports is the GEAR UP program, a federal initiative that helps low-income middle- and high-school students prepare for college.
Yesterday, at an event hosted by the New America Foundation, the Department of Education took the idea to a thrilling new level with the announcement of a College Savings Account Research Demonstration (click here for a summary), which will offer savings accounts and financial education to 10,000 students in GEAR UP programs across the country. The project will include a robust research component that will compare educational outcomes for these students with similar students who do not receive accounts. Not only will this project offer the opportunity for matched savings to thousands of low-income students – it also represents the largest research effort to date on children’s savings accounts in the U.S., and will provide important new insights into the power and impact of college savings.
The demonstration will leverage the extensive network of GEAR UP grantees across the country, which are already providing high-quality, comprehensive support, information and encouragement to low-income children and families to prepare them for college. GEAR UP is an ideal delivery system for children’s savings; by linking the two, the Department of Education has created a perfect marriage of college readiness and asset building.
The Department of Education has asked for public comment on the proposed demonstration. CFED will offer comments through this process, and we welcome your input; please share your thoughts and ideas with us at email@example.com. Of course, we also encourage interested stakeholders to submit comments on your own. Please note that the comment period closes on July 2, 2012.
Policymakers Can Help Low-Income Families and Score Political Points
By Andrea Levere on 06/01/2012 @ 10:30 AM
EDITOR'S NOTE: Andrea's post below originally appeared on the Huffington Post on Wednesday.
In the current polarized political environment, many people assume that more government intervention equals more spending which in turn leads to an ever-expanding federal deficit. This assumption has infiltrated debates over the federal budget and contributed to legislative gridlock.
But let us imagine an alternative scenario where members of Congress could improve government programs that grow our economy and support struggling families without adding to the federal deficit or jeopardizing their political standing. Wouldn't they all be lining up to cast their "yea" votes?
My organization, the Corporation for Enterprise Development (CFED), has identified 20 inexpensive policies that would allow our representatives in Washington to pull off this seemingly impossible feat. We call them "stroke of the pen" policies because they are easy to implement and cost little or nothing. Each policy is a political winner, offering a concrete and positive step forward in a nation hungry for good news about what government leaders are doing to improve the lives of ordinary Americans.
We identified these policies according to how meaningful they are to vulnerable families; how moveable they are in the current climate considering factors such as cost and political will; and whether they seem manageable when it comes to actual implementation. Each supports families by giving them the tools they need to build a financial cushion and create long-term economic opportunity. Here are a few examples:
- Enact no-cost legislation to curb foreclosures through mandatory mediation. Congress should enact legislation requiring in-person mediation between lenders and homeowners prior to eviction and sale of a home in foreclosure. Mediation programs are inexpensive because they rely on existing systems, such as local courts. They require officials to simply add a step to their management of the foreclosure process rather than costly additional interventions.
- Build credit through your phone bill. As many as 70 million Americans face the risk of not being able to find a place to live or work simply because they lack credit scores. Including telecommunications payment history in credit files is a straightforward solution that would enhance credit access for millions of households. Congress should pass legislation that allows telecommunications companies to report all payment history to the "big three" consumer credit bureaus. Such legislation would provide a no-cost solution to a problem that currently limits financial options for millions of families.
- Integrate saving and asset-building initiatives into programs aimed at low-income families. Adding initiatives such as financial education, access to mainstream banking products and services, and credit and debt management into existing public social service programs will help more families move out of poverty. For example, strategies could be put in place to improve the financial literacy of Head Start parents and teachers, with a focus on saving for their children's education. These actions do not require new legislation and can be implemented directly by the responsible agency.
- Eliminate or reform public benefits programs that place a limit on family assets. Asset limits are a relic of entitlement policies, many of which no longer exist. Personal savings and assets are precisely the kind of resources that allow families to move off public benefit programs and should be embraced. For little or no cost, Congress can eliminate asset limits or significantly raise the savings threshold in the Temporary Assistance for Needy Families and Supplemental Social Security Insurance programs, no longer penalizing families who save to buy a home, invest in a child's education or start a business.
These policy changes alone will never substitute for greater investment in programs that address systemic income and wealth inequality in our nation. But they are a practical step forward with the potential to help millions of vulnerable families achieve economic stability - while allowing policymakers to score political points.
CFED Launches Child Savings Accounts Program in Michigan
By Stephanie Halligan on 05/31/2012 @ 10:00 AM
CFED is pleased to announce the launch of the LINC Future Fund: Scholarship and Accounts Program in Grand Rapids, MI, on May 31, 2012 at four elementary schools in the Grand Rapids Public School District. LINC Community Revitalization Inc. is joining CFED and Huntington Bank to bring scholarships and college savings accounts to kindergarteners enrolled at Campus, Campau, Martin Luther King, Jr. and Caesar Chavez elementary schools in Grand Rapids.
The program will launch with a press conference Thursday, May 31 at 10:30am at Campus Elementary. Grand Rapids Mayor George Heartwell, Interim-Superintendent Teresa Weatherall Neal, Renee Williams of Huntington Bank, and LINC’s Co-Executive Directors Jeremy DeRoo and Darel Ross will share remarks. Three-hundred LINC Future Fund Scholarships & Accounts will be made available to current GRPS kindergartners at Martin Luther King Leadership Academy, Campus, Campau and César E. Chávez Elementary schools. Next year’s enrolling kindergartners at these schools will also receive a scholarship.
Developed in partnership with CFED and with support from the W.K. Kellogg Foundation, the Future Fund will the program will establish a scholarship fund linked to a college-savings account at Huntington Bank for each participating child. LINC will offer financial coaching and support to families through their Opportunity Center and Huntington will be providing in class educational supports, teaching children the importance of saving and offering tools to use in saving money.
“We have a model with a place to start and hope that this is just the beginning for future collaboration around our children’s education,” says Jeremy DeRoo, LINC’s Co-Director. Research shows that children with savings accounts in their own name are six times more likely to attend college than their peers. Through this pilot program, the partnership seeks to expand opportunities for low-income children and families to accumulate assets and increase children’s college-going aspirations.
Each school will host a Scholarship Party to celebrate with kindergartners and their families, the first will be held at Campus Elementary following the press conference on May 31.
The Future Fund seeks to address the gap in higher educational attainment affecting low income students in Michigan, and to incentivize the recruitment and retention of children in the Grand Rapids Public School system. The program will help children create a financial nest egg, increase economic opportunity, and transform their aspirations for their own futures, including plans for college.
CFED Announces 2012 Assets Learning Conference Sponsors
By Sean Luechtefeld on 05/30/2012 @ 03:00 PM
CFED wishes to extend deep gratitude to the Sponsors of the 2012 Assets Learning Conference. Their generosity makes it possible for us to convene the largest group of assets advocates to identify clear ways of translating ideas into action.
New Resource: FDIC Model Safe Accounts Pilot Final Report
By Sean Luechtefeld on 05/30/2012 @ 11:30 AM
Last month, FDIC released the final report from its Model Safe Accounts Pilot, a one-year exploration into the costs and sustainability of lower-cost, electronic transaction and savings accounts. The final report is now available online and it’s an excellent read for anyone interested in financial access.
“Safe Accounts,” according to the report, have limited maintenance costs because they focus on electronic payments and do not come with paper checks. This isn’t only a win for the financial institutions offering the accounts, though; they prevent overdraft or nonsufficient funds fees, meaning that accountholders can save a great deal of money while still having easy access to their money. During the yearlong pilot, 662 transaction accounts and 2,883 savings accounts were opened.
The findings of the pilot suggest that among the over 3,500 Safe Accounts opened, retention rates were particularly high, especially when compared with other financial products. Further, individuals with transaction accounts maintained an average balance of $243, while average monthly balances for savings accounts varied according to account design. These findings and others lead FDIC to the conclusion that “opportunities exist for financial institutions to offer save, low-cost transaction and savings accounts to underserved and LMI consumers.”
Full data on participating institutions and account structure, along with more detailed findings, are available in the report, which is available for download here.
Can Crowdfunding Accelerate Economic Development?
By Jimmy Crowell on 05/25/2012 @ 03:00 PM
EDITOR'S NOTE: This is the third and final installment in our self-employment blog series celebrating National Small Business Week 2012. Click the links at the bottom of this page to check out the first two blog posts and use the comments to let us know what you think about the potential of crowdfunding. CFED gratefully acknowledges the support of Sam's Club for their support of small business owners and of National Small Business Week.
With Obama’s recent signature on the Jumpstart Our Business Startups (JOBS) Act, crowdfunding has been receiving a lot of buzz lately. But, can crowdfunding really accelerate the growth of entrepreneurship and economic development?
Prior to the JOBS Act, businesses couldn’t rely on crowdfunding for capital because of government restrictions and red tape. Often times, small business owners had to finance their enterprises through loans, sometimes backed by the value of their homes. This is a dangerous game, especially for low income entrepreneurs who have trouble accessing fair and secure lines of credit. Other options for obtaining capital, such as from venture capitalists, are few and far between and not a possibility for microbusinesses operated by low to moderate income entrepreneurs. Although 65% of all jobs are created by small businesses, only 17% receive business financing from venture capitalists, angel investors or bank loans.
Existing laws and regulations put in place by the Securities and Exchange Commission (SEC) prohibited unaccredited investors looking to spend small amounts of money to capitalize small businesses. With the JOBS Act, Main Street will have access to capital from small time investors who could previously only invest in giant public companies on Wall Street. Small businesses can raise as much as $1 million a year without having to do a public offering, a process that can cost thousands of dollars.
But still, what type of an impact will crowdfunding have on microbusinesses operated by low income entrepreneurs? Microfinancing, or giving small loans to low-income entrepreneurs who have no access to credit, has helped many microbusinesses. Crowdfunding essentially does the same thing; it circumvents traditional funding mechanisms to open up capital to a larger market. With the internet and social networks as the main platform for crowdfunding, funding opportunities can reach many more people.
Donation-based crowdfunding, from websites like Kickstarter.com, may be the best option for low income entrepreneurs who may not make enough profit from initial investments to offer a return on loans made. However, there are other unique ways to incentivize loaning small amounts of money to microbusinesses. LuckyAnt.com reminds funders of the important service they are providing their communities but also allows businesses to offer coupons and special deals for small time funders.
Will crowdfunding have the same impact microfinancing has had on low income entrepreneurs? Only time will tell, but the potential of crowdfunding is definitely exciting.
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CFED Awarded $350,000 to Support Small Business Owners
By Jimmy Crowell on 05/25/2012 @ 10:00 AM
On May 23rd, Greg Cathey, Vice President and Regional General Manager of Sam’s Club in the Northeast, and Sam’s Club regional representative Bill Witt, visited the CFED national offices to present a grant award to support our small business development strategy, the Self-Employment Tax Initiative (SETI). The award, totaling $349,545, will enable CFED to continue advancing SETI, which takes advantage of the tax code to help low-income, self-employed individuals formalize and grow their businesses, create jobs and access tax-based asset-building opportunities.
Specifically, this grant will enable us to intervene during tax time and connect small business owners who are filing taxes with microenterprise organizations and other business development services. Throughout the 2012 and 2013 tax seasons, we will continue working with partners like Brooklyn Cooperative Federal Credit Union and Mission Economic Development Agency to provide support, catalogue best practices, share them with the field and catalyze improvements in small business tax service provision. We’ll also explore ways to leverage behavioral insights to improve practice techniques and tools at tax assistance programs and microenterprise development organizations. Finally, this grant will help CFED stage a media campaign that highlights the importance of entrepreneurship and microbusiness as engines of economic development and job creation.
Sam's Club has a strong history of charitable giving, with more than $101.3 million in cash and in-kind contributions made in 2011. The Sam’s Club Giving Program, which focuses on preventative health and wellness and small business support, pledged more than $2 million this year to help micro lenders and others to grow small businesses in the U.S.. As part of the program, leading nonprofits were awarded grants to continue their work. The organizations include ACCIÓN in the US, CFED, Count Me In For Women’s Economic Independence and the National Association for Latino Community Asset Builders.
Sam's Club President and CEO Rosalind Brewer reaffirmed the company's commitment to supporting American small business. At the Dream Big Small Business of the Year awards luncheon, part of the annual U.S. Chamber of Commerce Small Business Summit, Brewer spoke to over 800 small business owners in the country.
"At Sam's Club our small business owners are our partners, and we want to put our money where our mission is – which is to be agents for and support our members and the small business community," Brewer said. "I realize that I have an incredible opportunity to lead Sam's Club and to be an advocate for our small business owners in America. You are the heart and soul of our economy, and no one takes more risks and works harder every single day than those of you who are out there following your dreams and running your own businesses."
Cathey echoed Brewer’s words at the CFED offices and voiced his excitement for our partnership. He reminded us that Walmart founder Sam Walton created Sam’s Club to “be in business for small business” and to help small business get access to products and services at prices traditionally only available to big business.” Sam's Club has more than 600 clubs across the US and serves around 600,000 Business Members daily. In addition to stocking products for work or home, Sam's Club also offers Business Members access to microloans and health plans through third-party providers.
A Major Breakthrough Looms for Owners of Manufactured Homes
By Ignatius MacLellan, Guest Contributor on 05/24/2012 @ 11:00 AM
A two-year long effort is about to reach a climax in July, when the Uniform Law Commission (ULC) will consider passage of a Uniform Act on Manufactured Homes. The Uniform Act to be presented by the drafting committee to the full commission will improve the ability of most owners of manufactured homes to title their homes as real property – like site-built homes – and to access long-term, fixed rate residential mortgages – also like site-built homes.
Why is this a big deal? First of all, you need to appreciate that manufactured homes (MH) constitute the largest source of affordable housing in the United States. The median sale price for new MH in a recent year was one-fourth the price of a site-built, detached house. Modern MH is safe, factory-built to a national building code, and more energy-efficient than most homes and apartments.
Only my state of New Hampshire automatically gives MH owners the same legal rights as other homeowners, by titling MH as real property. Outside New Hampshire, most MH is titled as personal property – like an automobile – rather than as real property like a house. The ULC’s action in July will make a giant step forward by publishing a Uniform Act for states to adopt that will rectify this situation by allowing owners to choose to title their manufactured homes as real property in a simple and consistent manner.
From my vantage point, I can unequivocally state that improving the ability of manufactured homes to be titled as real estate will improve the access of homeowners to a greater range of affordable home finance options.
Real estate mortgages, including those purchased by both Fannie Mae and Freddie Mac, are already available to manufactured homes titled as real estate. While Fannie Mae and Freddie Mac are significant investors in home mortgages, they are not the only ones. They are joined by the Federal Housing Administration (FHA), State Housing Finance Agencies, USDA, Veterans Administration and many other capital sources and investors that support millions of dollars of real estate mortgage lending for manufactured homes.
The Uniform Act which will emerge from the Uniform Law Commission’s efforts has the potential to make it possible for more manufactured home owners to title their homes as real property. Real property titling can and should benefit homeowners who own the land beneath their home (fee simple) as well as those who lease the land in a community such as a resident-owned community (ROC) or other types of community. Real estate mortgages offer borrowers many advantages compared to chattel loans or personal property loans, including longer loan terms up to 30 years, the option of fixed or variable interest rates and typically lower interest rates compared to chattel/personal loans. The lower costs and lower monthly payments of real estate mortgages are especially important to low- and moderate-income households.
Titling manufactured housing as real estate is an essential step to ensure fair access to credit for low- to moderate-income people who happen to live in manufactured housing. While titling manufactured housing as real estate will not solve all of the issues related to manufactured housing finance, such a step will solve a major initial barrier. If MH is more generally titled as real estate, existing financial institutions such as Fannie Mae and Freddie Mac, mortgage lenders and housing finance agencies would collectively work to improve the manufactured housing finance system.
The ULC’s action in July will not be the end of the road. States will to adopt the Model Act in order to benefit their residents. But it will be a major milestone that will eventually improve access of millions of households to affordable, long-term financing.
Ignatius MacLellan is Managing Director of Homeownership for New Hampshire Housing Finance Authority, the state’s housing finance agency, which helps finance home loans including loans on manufactured homes. Previously, he was Director of Fannie Mae’s Northern New England Community Business Center where, as part of his mandate, he helped advance manufactured home finance and designed a program of real estate lending for manufactured homes on leased land in resident-owned communities in New Hampshire.
Entrepreneurship Opportunities for the Recent College Grad
By Jimmy Crowell on 05/23/2012 @ 01:00 PM
EDITOR’S NOTE: Jimmy’s blog post is the first of a three-part series focused on entrepreneurship in commemoration of National Small Business Week 2012. Check back tomorrow and Friday for the second and third installments in this series
As a wide-eyed 20-something American, I have watched my peers struggle to prove their worth, build their skillsets and find employment in today’s tight job market. I considered myself one of the lucky ones; I had the opportunity to leave my small town in Massachusetts, attend a large university and gain employment in Washington, DC. Now, when I look back at my town and my old high school classmates, most of them, including my peers that attended college, are struggling to start their careers. Today, half of college graduates under 25 are either jobless or underemployed and college debt and defaults are at their highest levels in history. Fortunately, another trend has developed that could be the solution to these epidemics: the growth of youth entrepreneurship.
The labor market is slowly recovering, but prospects for recent high school and college graduates will continue to remain grim for quite some time. With opportunities hard to come by, young adults need to create their own opportunities. Entrepreneurship is one way to do this. However, young adults with little collateral and fledgling credit scores have very restricted access to start-up capital. Not only do aspiring entrepreneurs face these obstacles when trying to obtain capital from traditional financial institutions, there are few alternatives. Microloan programs do not currently reach the vast amount of young Americans trying to develop their entrepreneurial skills. Help from family and friends, as my father relied on when he began his 40 year career as a self-employed commercial fisherman, is no longer a viable option for many young Americans. Family and friends struggling with their own financial problems are less likely to invest in young entrepreneurs. There needs to be a better support system for eager, unemployed Americans with innovative ideas.
One resource that young workers who are receiving unemployment insurance compensation need to know about is the Self-Employment Assistance (SEA) Program. SEA is an optional federal program that states can opt into; it has a more than 20-year history of connecting unemployed workers to entrepreneurship training and development services. Currently, seven states have active programs. In 2011, Senator Wyden’s (D-OR) START UP Act proposed an expansion of SEA so it would be easier for states to start their own programs. Most aspects of this bill were included in unemployment insurance reforms that became law in February 2012. The law allows states to offer SEA to unemployed workers who are receiving Emergency Unemployment Compensation (EUC), the extended benefits available to the long-term unemployed. Workers can participate for up to 26 weeks and can receive between $10,000 and $13,000 in benefits that can be used as start-up capital. Most simple service-based and technical ventures cost a few thousand dollars to get off the ground and to operate, so these funds could help aspiring entrepreneurs usher their ideas to fruition while supporting their basic living expenses. Unfortunately, SEA can’t reach many of the youngest unemployed Americans because they are not eligible for unemployment insurance unless they have been laid off from a job they previously worked at least half-time. We also need additional policies to reach the many high school and college graduates who enter the workforce and are unable to land that first job.
Another option for aspiring entrepreneurs to access capital would be to turn to the emerging field of microlending and microenterprise development. Very common abroad, the popularity of microlending has been growing in the U.S. in recent years. Organizations like ACCIÓN Texas , Grameen Bank, Community Reinvestment Fund and Self-Help offer loans from $1,000 to $50,000 along with other business development services. These organizations often look at the big picture and take into account passion and opportunity, not just credit scores and experience. Programs and organizations that support entrepreneurship, particularly youth entrepreneurship, need to be expanded and taken more seriously as a method for combatting unemployment. For example, the Small Business Administration could make more funding available for microlending via intermediary organizations and establish a funding priority for those who target training opportunities to youth entrepreneurs.
I know first-hand from watching my father that self-employment is a fulfilling career option. Young Americans with good work ethics and an entrepreneurial spirit should be afforded the opportunity to start their own businesses. This entrepreneurial spirit should be fostered from an early age in the U.S. education system with a stronger financial education curriculum. When given the tools and knowledge to succeed, young entrepreneurs can rebuild the American economy. Not only will youth entrepreneurship reduce joblessness among the under-25 age group, it will also help the American economy to recover and prosper.
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Upcoming Events @ CFED
By Sean Luechtefeld on 05/18/2012 @ 12:00 PM
We’ve got a couple events coming up in the next few weeks, and we wanted to make sure all of our readers were in-the-know. Note that the events below are online events. For these, advanced registration is free, but required. If you have questions, don’t hesitate to shoot us an email at firstname.lastname@example.org.
- Opening Doors to New Funding Streams
A free webinar co-presented with NeighborWorks America
This webinar will discuss how two housing organizations, CASA of Oregon and Beyond Housing, have cultivated new funding streams for programs to expand their work into other areas of asset building such as financial education and college savings. Register here.
- State & Local Frameworks for Federal Funding: Manufactured Housing in Consolidated Plans
This free webinar will explore how consolidated planning can serve as a powerful tool for leveraging federal resources for affordable manufactured housing preservation, replacement and development. Register here.
We hope that you’ll be able to join us for some or all of the events above!
Budget Cuts Threaten Critical Source of Data on U.S. Households Via the American Community Survey
Last week, the House of Representatives approved appropriations legislation that would eliminate the American Community Survey (ACS), a Census Bureau product that provides much of the best data on American families' income and finances, as well as demographic and socioeconomic characteristics. Losing this tool would significantly impede our ability to understand communities and states.
Without the ACS, federal agencies would not know how to distribute nearly a third of federal funding for low-income families and communities; block grant funds such as Medicaid, Temporary Aid to Needy Families (TANF) and Community Development Block Grants (CDBG) are allocated based on the needs of each state’s population. Researchers, such as the Urban Institute, would not be able to analyze the relationships between poverty and educational attainment, family structure, and race and ethnicity. Businesses that rely on ACS data to determine where to locate new stores or make major investments would be left “flying blind.”
If the ACS is eliminated, the asset-building field will also lose access to critical information about people’s savings and wealth. Examples include:
- The Assets & Opportunity Scorecard relies on ACS data to paint a picture of financial security at the state level, providing data like cost-burdened homeowners, high school attainment and asset poverty.
- The unbanked population data tool available at www.joinbankon.org was built using Census tract-level information from the ACS. It provides estimates of un- and underbanked households for every city and county in the nation.
- Our research team uses ACS data to understand aspects of wealth in the communities featured in Local Profiles.
- ACS data was also instrumental in developing Upside Down: The $400 Billion Federal Asset-Building Budget, CFED’s analysis of federal support of asset building.
Insights from these publications and resources inform our program offerings and policy advocacy efforts, and they help us identify specific needs and trends in the states and local areas we work in across the country. The American Community Survey is integrated into nearly every aspect of CFED’s work.
CFED has joined The Census Project and more than 450 organizations to urge the Senate to support the ACS when it debates and votes on its version of the House bill. We have also shared this information with our partners across the United States, in sectors ranging from manufactured housing, to financial access, to matched savings. The diversity of organizations and firms that have joined this effort demonstrates that federal funding for high-quality data that describes American households, communities and states is not a partisan issue. We hope that members of the Senate agree and prevent the elimination of the American Community Survey.
If you value the ACS, help protect it! Email your senators, or call their offices and speak with the Appropriations staff. As the Senate moves forward with its bill, we will keep you informed.
Curbing Predatory Lending: State & Local Legislative Updates
By Ethan Geiling on 05/16/2012 @ 04:00 PM
Predatory small dollar lending strips wealth from financially vulnerable families and leaves them with fewer resources to devote to building assets and climbing the economic ladder.
A number of cities and states have recently enacted or are currently considering policies to curb predatory small dollar lending, and in particular, payday lending. At the local level, county supervisors in Santa Clara County, California recently approved a ban on new payday lending operations. The San Jose City Council approved a similar ban at a meeting on Tuesday. This recent victory makes San Jose the largest U.S. city to limit payday lenders and the first city to prohibit them from opening in low-income areas.
At the state level, the Delaware legislature is considering HB 289 – a bill that would limit borrowers to no more than five payday loans in a 12-month period and create a statewide payday loan database. The Rhode Island Payday Lending Reform Coalition is supporting legislation that would cap interest rates at 36% APR. Similarly, Missourians for Responsible Lending submitted 180,000 signatures to the Secretary of State for a ballot initiative that would cap payday loans at 36% APR. In late 2010, advocates in Montana were able to successfully cap predatory loans at 36% APR through a statewide ballot initiative, demonstrating that the power of ballot initiatives to create policy change.
Moving in the opposite direction is Pennsylvania, which currently caps payday loans, but is considering a bill to raise the cap. A group of advocates, led by STOP Predatory Payday Loans in PA, is actively opposing the measure.
Many states have already recognized the negative impact of predatory small dollar lending. The majority of states regulate these practices in some way, although laws offer varying degrees of protection. CFED's Assets & Opportunity Scorecard examines states' policies on three predatory small dollar lending products: payday loans, car-title loans and abusive installment loans. The Scorecard also looks at whether states include predatory lending in basic consumer protection laws.
Ten states have prohibited or capped all three types of predatory loan products and include short-term lending in basic consumer protection laws. Fourteen states do not effectively regulate any of the three predatory loan products, although nine of these states include short-term lending in basic consumer protection laws. All other states protect consumers against some, but not all, predatory short-term loan products. Below is a map showing the strength of states' policies across the country.
Strength of State Policies: Predatory Small Dollar Lending
By Sean Luechtefeld on 05/16/2012 @ 12:30 PM
Yesterday, DCist indicated that world-renowned Manhattan chef and talk show host Mario Batali announced he is taking the “Food Stamp Challenge.” In short, the Food Stamp Challenge involves people – typically of greater-than-average means – subsisting on the $31 that would be provided to low-income families by SNAP, the Supplemental Nutrition Assistance Program. To be sure, Batali isn’t the first well-known figure to take the Challenge.
In the DCist piece, Batali shares (in rather gruff terms) the struggles that he has had subsisting for a week on what a single meal costs in his own restaurant. These problems go well beyond having to give up free-range chicken. “I’m [freaking] starving,” Batali notes.
The good news for Batali and others who take the Food Stamp Challenge is twofold. First, the Challenge only lasts seven days. For the low-income families that rely on SNAP every week, there’s no end to the lack of nutritious (or altogether lack of) food. Second, and more importantly, folks taking the Challenge don’t need to worry about qualifying for food stamps; they simply need to budget based on what they would earn if they did need food stamps.
Low- and moderate-income families, on the other hand, aren’t so lucky, and their ability to qualify for food stamps might be in further jeopardy given a recent proposal to eliminate Broad-Based Categorical Eligibility. In short, such a policy would reinstate asset tests for SNAP, meaning that up to three million people would lose their food stamp benefits altogether. While $31 per week isn’t much, it’s still better than the $0 that could be coming to the families who acquire enough assets to make them “just not quite poor enough” to be eligible.
While this is bad news for these families, there’s good news for you: there are things you can do to help that don’t require you to take the Food Stamp Challenge. First, visit CFED’s Advocacy Center to send a message to your legislators. Second, share this blog post on your Facebook and Twitter feeds to encourage your friends and colleagues to let Congress know that it’s not okay to strip hardworking individuals of these important benefits.
Sustainability in Manufactured Home Communities
By Jimmy Crowell on 05/15/2012 @ 10:30 AM
Last week, ROC USA® and Enterprise Community Partners released a report titled “Sustainability in Manufactured Home Communities: Cost Effective Energy, Water and Community Infrastructure Strategies to Maximize Long-Term Value.” The report challenges many of the stereotypes associated with manufactured homes and presents manufactured housing, when installed properly, as more cost and energy efficient than site-built homes and condominiums. Several sustainability strategies are presented which include; a cost-benefit analysis of replacing manufactured homes with EnergyStar homes, approaches to retrofitting and weatherizing individual manufactured homes, and community infrastructure improvements.
The report provides a compelling case study that quantifies the energy performance of manufactured homes versus site-built homes. The report identified a manufactured housing community in California located near different types of site-built homes and used a set of sustainability indicators to compare energy and cost efficiencies. The analysis demonstrates that manufactured homes can be more sustainable and have less of an environmental impact than single family site-built homes and condominiums.
With approximately 6% of the total U.S. housing stock being manufactured homes (and with more than 17 million Americans living in manufactured homes), these findings carry great implications for the industry. Based on the key findings of the report, recommendations are made to maximize the potential of manufactured homes as affordable, energy efficient housing. The report recommends the replacement of manufactured homes built before the U.S. Department of Housing and Urban Development enforced building codes for manufactured homes in 1976. When these homes are replaced with EnergyStar rated manufactured homes, homeowners have a payback period of less than 20 years. The report also recommends several weatherizing and retrofitting strategies costing $2,500 or less that have payback periods ranging from a few months to seven years. Finally, community-wide recommendations are offered on how to improve electrical, plumbing and heating infrastructures to optimize water and energy savings.
This report only helps to prove that, when certain issues such as energy efficiency are addressed properly, manufactured housing can be a viable affordable housing strategy. Responsibly built and financed manufactured homes can provide economic security and stability for thousands of American families.
Making Programs Pay for Themselves
By Lauren Williams on 05/14/2012 @ 04:30 PM
New Ways to Monetize Entrepreneur Services
Over the past couple years, SETI has worked with the Brooklyn Cooperative Federal Credit Union to help them develop a way to make their small business tax assistance program pay for itself by offering this service for a fee below market-rate. Countless other small business development organizations are exploring ways to improve the financial sustainability of their own business models as well. I got a glimpse into the strategies being used by microenterprise development organizations to do this at the Association for Enterprise Opportunity’s 2012 National Conference, The Power of Microbusiness two weeks ago.
I attended a session on “New Ways to Monetize Entrepreneurship Services,” where two high-performing microenterprise development organizations shared the creative ways they’ve identified to start generating more revenue. Angie Hawk-Maiden, President of the Appalachian Center for Economic Networks (ACEnet) shared a compelling story of the strategy she’s helped devise to raise the percentage of self-generated revenue at ACEnet from 25% in 2006 to 72% in 2012. ACEnet serves small business from 67 of Ohio’s 80 counties and some from other states as well; many of their clients are food manufacturers, so their expertise lies in developing the infrastructures and business strategies to help these microenterprises succeed. The strategies they employed to increase their self-generated revenue included offering more services in exchange for a fee:
- Technical assistance for business owners
- Infrastructure development
- Access to capital services
- Capacity building through product innovation, branding and adoption of technology
The technical assistance line of service they built includes working for loan funds with struggling business clients; ACEnet offers technical assistance to those business owners to create a win-win situation where loans can be salvaged and business owners can retain access to capital. They also deliver entrepreneurship for business owners through regional banks and universities. By consulting with other agencies, ACEnet has launched a new line of business around preparing economic assessments, value chain mapping and developing the infrastructures necessary for food production in other regions. The shared use of their incubator spaces and shared kitchens for food production have allowed them to drive their overhead costs down and encourage business owners to reinvest the savings they get from using communal spaces. ACEnet developed a group brand—“Food We Love”—to help their clients market collaboratively and more easily enter into specialty food producer markets. They also developed an incubator focused on wellness services, an easy fit for the region given the local market—many of the consumers buying their food producers’ products are interested in healthy, organic foods and holistic health services.
Another practitioner, Kathy Keeley from the Northeast Entrepreneur Fund, shared her story of a loan fund that underwent an extreme makeover—cutting staff and reorganizing programs—in order to survive in the midst of a recession and ultimately generate enough earned income to support at least 50% of its operations. Within three years, they reached this goal and grew the loan fund to their target amount—$5 million.
Naturally, the audience wanted to know they could reach the same level of self-sufficiency as these two outstanding organizations. Here’s their advice to the microenterprise field:
- It’s increasingly more challenging (nearly impossible) to get funding to support entrepreneurs in the “thinking” stage. Refer these very early stage entrepreneurs to SBDCs that have access to resources to support this type of activity.
- Other organizations seeking to generate more revenue have to make realistic projections about their costs, identify clear and realistic long-term goals, and get serious about downsizing if necessary.
- Always under-promise and over-deliver.
- Don’t continue programs that aren’t funded and always refuse grants that don’t cover 100% of your operating costs.
- Build your public value by communicating to your community what you have to offer, increase your organizational capacity and leverage political capacity where possible.
- Specialize, specialize, specialize! Don’t duplicate other organizations services, and if you see another organization duplicating yours, stop offering them.
Thank you, Jack Litzenberg!
Last week, we had the chance to attend the Jack A. Litzenberg Lifetime Achievement Award Luncheon at the Association for Enterprise Opportunity’s 2012 National Conference “The Power of Microbusiness.” As newcomers to the field of microbusiness, we did not know much about Jack’s legacy or how much he contributed to the creation of the field. However, after attending the luncheon, meeting Jack and listening to the touching testimonials to his leadership, creativity and dedication, we feel indebted to Jack. For nearly thirty years, Jack Litzenberg’s grant making at the Charles Stewart Mott Foundation played a fundamental role in the development of a movement to empower low-income entrepreneurs to start their own businesses and move up the economic ladder.
Leaders from all across the field of microenterprise, including CFED’s founder Bob Friedman, gave passionate remarks about Jack and his many years of work with the Mott Foundation funding amazing projects. Bob Friedman’s words especially resonated with us. The poem below, “Jack’s Hands,” written by Bob, expresses the awe-inspiring nature of Jack Litzenberg’s work:
Calloused and rough,
Brave and bold,
Pointing to promise --
The product of reality’s sanding.
Cramped crafting the script,
Now piercing the sky,
Dancing with imagined possibility
That leaves millions more standing.
Too big for his chest:
Present and future.
Kids who deserve more,
Entrepreneurs but for lack of a seed,
Skilled workers but for a path,
Social entrepreneurs, imagining better:
To all, an encouraging and gentle lift,
That rarest and most valuable of gifts.
Brimming with ideas
Of a better world
And the ways there.
A furrowed, full and expansive brow,
A generous world to plow.
In Jack’s hands, heart and head,
We have been shaped and bred,
Taught, nourished, loved and fed
Freed, calmed, centered, led.
We are in the best of company.
Thank you, Jack.
March 30, 2012
The field that Jack helped build is the field in which we are now building our careers. Jack retired in January from the Mott Foundation, and as new entrants to the microenterprise field, we’re excited to have inherited a legacy as monumental, unique and celebrated as Jack’s.
Coming Full Circle
By Jimmy Crowell on 05/10/2012 @ 03:00 PM
Last week, I attended the Association for Enterprise Opportunity’s 2012 National Conference “The Power of Microbusiness.” The conference brought together over 400 executives, investors, industry partners, practitioners, policymakers and Administration Officials to discuss the potential of microbusinesses to create jobs and grow America’s economy. There were many concurrent sessions that focused on the transformative power of microbusinesses and their current limitations. One major hurdle that weakens the power of microbusinesses is a lack of access to capital for low-income entrepreneurs. ‘Cracking the Code on Bringing Low-Wealth Immigrant Entrepreneurs into the U.S. Financial Mainstream’ was one of the many sessions at this year’s conference that offered a resolution to this problem. Presenters in this group discussed their innovative use of lending circles to help low-income entrepreneurs access capital and build credit
José Quiñonez, Executive Director of Mission Asset Fund (MAF), gave the audience a bit of background information about lending circles to start the conversation. Lending circles are commonly practiced abroad and among immigrant communities in the United States. A lending circle is formed when a group of people come together and agree on weekly payments that are manageable by everyone in the group. For example, if 12 people form a lending circle and each agree to pay $50 every Friday, the group will collect $600 every week. Every week the $600 is given to a different member of the group. Thus, the lending circle has two functions; on one end, it presents a zero-interest loan to the first recipient of the $600 and, on the other end, it is a savings program for the last recipient of the $600. Quiñonez pointed out that low-income immigrants usually do not trust financial institutions, but with this program he is bringing the unbanked into the financial mainstream.
Quiñonez then explained that a lending circle is a financial service that is invisible to the U.S. financial mainstream. MAF formalized this process and brought the benefits of lending circles to light. Thus far, they have administered 99 lending circles and have a 0% default rate. Not only is MAF helping low income entrepreneurs access capital and save funds, the organization is also helping to improve clients’ credit scores by reporting weekly payments to credit agencies. Within 6 to 7 months of joining a lending circle with MAF, participants saw their credit scores increase 20-36 points on average. In this way, MAF graduates people to responsible mainstream borrowers.
Another organization, Finanta, has also implemented lending circles to provide access to capital, banking services and credit building services to low-income entrepreneurs. Their model differs from MAF’s in that they provide the capital to the group. The group is co-responsible for the loan and collectively decides how much to pay and when to meet. Finanta then reports payments to credit agencies to help improve participants’ credit scores.
Lending circles are just one of the innovative solutions to strengthen the collective power of microbusinesses and create jobs. I’m looking forward to next year’s conference to learn more about innovative strategies to support the proliferation of microbusinesses.
How to Sell Lawn Seed. Or, The Importance of the Client Perspective
By Sean Luechtefeld on 05/09/2012 @ 01:15 PM
This is a re-post of a piece that CFED's Chief Program Officer, Ida Rademacher, wrote for ACCION International's Center for Financial Inclusion's Expert Exchange. CFED is honored that Ida was invited to join CFI's conversation and wishes to extend special thanks to Sonja Kelly.
A mentor of mine once told me, “If you want to sell a man lawn seed, talk about his lawn, not your seed.” It’s not hard to see how this applies to financial inclusion. To state the obvious, “If you want to sell a woman financial services, talk about her needs, not your products.” What are her risks? What products does she need at various points in her life? What does she need to know in order to be able to choose the options that best meet her needs?
We often fall into the trap of thinking about banking from the perspective of the banks. Especially now, having come through a financial crisis in which banks maintained a starring role, we frequently hear people equating financial stability with fiscally responsible bank action. But in the end, markets are about people. So an additional part of the product development equation has got to be based on solid consumer-facing research —their lawns, not our seed.
And here are some figures from recent surveys about the “financial lawns” of families in the US:
- Over half of the population in the US with a credit score has what can be considered a subprime score. In some states, that number closes in on 70%.
- One in four Americans either have no bank account, or are considered “underbanked,” meaning even though they have an account, they still use alternative and largely unregulated financial products and services that are often very costly. In the African-American community, the number of un- and underbanked households rises to one in two, or 50%.
- Nearly half the population isn’t confident they could find a way to scrape together $2,000 if they had an emergency.
- Less than half of American workers participate in any form of employer-based retirement plan.
These statistics are evidence of a broken system. That is why CFED advocates for an approach to financial inclusion in the U.S. that incorporates the transaction, credit and savings needs of low- and moderate-income individuals over their life course as a critical part of the input that informs the offerings of the financial services sector. A similar understanding should inform policy solutions so that every individual has an opportunity to save and invest in a better life for themselves and their children. The good news is that if we focus our efforts on meeting these needs of individuals – allowing them to fully participate in and contribute to the mainstream economy – our financial systems around the world will be far more stable as well.
Behavioral Economics and IDAs
By Stephanie Halligan on 05/08/2012 @ 12:00 PM
In February, CFED hosted a webinar Behavioral Strategies for Successful Individual Development Account (IDA) Programs. The webinar was presented on behalf of the Assets for Independence (AFI) program, the largest source of federal funding for IDAs and featured former CFED Innovator-in-Residence, Mindy Hernandez. Mindy, one of the leaders in the field of applying behavioral economics research to real world challenges, Mindy presented on findings from behavioral research and provided strategies for asset building and IDA programs to improve program outcomes (for a recording of the webinar, please visit the IDA Resources website).
Applying Behavioral Economics to the Asset Building Field:
But how exactly can behavioral economic strategies help asset building programs? We all know about the benefits of opening a bank account, making regular deposits and saving for the future. Yet getting clients through the door and enrolled in an asset building program – like an IDA program or free tax prep – and follow through with their intentions to save money is often surprisingly challenging.
That’s where behavioral economics comes in. Research and experimentation from the field are continuously finding new ways to help people act on their intentions and form good savings habits. Program “tweaks” can help:
- Improve program enrollment and retention;
- Promote better participation through automation, reminders, and simplified processes; and
- Enhance clients’ capacity to follow through on their intentions.
During the webinar, CFED also announced the release of the Behavioral Strategies for Successful IDA Programs guide, developed in partnership with behavioral economist Mindy on behalf of the Assets for Independence (AFI) IDA Resource Center. The guide outlines easy, cost-effective tactics for improving IDA program recruitment, enrollment and retention.
Examples of Behavioral Economics and Asset Building
We think there are a lot of promising opportunities to apply behavioral economics principles to other asset building programs. You can find a lot of examples and research of behavioral economics in action in CFED’s publication Applying Behavioral Research to Asset-Building Initiatives. In this paper, Mindy describes her partnerships with three different asset building practitioners to design and test behavioral program tweaks. What she found (and what other studies around the world have confirmed) is that little adjustments in a program can make a big difference in client behavior. Here are just a few examples of some effective strategies from the field (you can learn more about these examples in the webinar recording):
- Mental accounting: An experiment in India working with low-income construction workers found that they were saving just three percent of their income. Working closely with social workers, the construction workers were asked how much they would be able to save beyond that 3% and asked to commit to either one savings goal or multiple savings. The workers were then paid every month with their earnings divided into two envelopes: one for saving and one for spending. Some workers received envelopes with a photo of their savings goal written down (for example, their children or a new motorbike). If a worker wanted to spend his savings, he would literally have to tear through the photo of his own child to get to the money!
What the study found was that just dividing the money was incredibly helpful. Even more valuable, however, was naming the savings goal and adding the visual picture. Finally, the study also concluded that having multiple savings goals corresponded with a decrease workers’ savings.
How does this apply to my program?
First, label saving goals: the more specific clients are about their savings goals, the more it will resonate and the more likely they will save. Second, literally separate money: just as people often create mental “buckets” of how and when they can spend their money, physically separating the money will encourage that clients follow through with their intentions. Third, be visual: using photos is a powerful tool to remind clients of why they are saving in the first place. Finally, keep it simple: the more complicated, and the more goals a client has, the less-likely he is to succeed or save money.
- Well-designed reminders: Reminders are an easy and relatively inexpensive way to help people adhere to behaviors, like saving consistently or for entrepreneurs, filing quarterly taxes. CFED and Mindy have begun working with one IDA program to test the effectiveness of text messages to promote more consistent savings by young clients. Text reminder studies in abroad have shown positive results: clients that received texts reminding them to save increased their savings by 6%, and clients receiving a reminder with a message associated with their specific goal increased their savings by 16%.
How does this apply to my program?
First, be specific: The text message study shows a 10% difference in client savings between generic savings reminders and goal-specific savings reminders. The more personal the message is to the individual, the more powerful.
Second, focus on the how: just as being specific about the goal is important (the end result), articulating the how and when (the means) can influence a client’s likelihood to follow through on his intentions. It’s not just a reminder to save, but to remember to “drop off your deposit to the bank downtown after you leave work.”
Want to learn more about applying Behavioral Economics to your work?
CFED will be holding several behavioral economics sessions during the Assets Learning Conference in September. To learn more and to register, please visit www.assetsconference.org. We’re excited about the synergies between behavioral economics and asset building, and we hope you are too!
Medical Debt Puts the Brakes on Economic Activity
By Mark Rukavina, Guest Contributor on 05/07/2012 @ 04:00 PM
An American Medical Association study found that one of every five claims is inaccurately processed by health insurers. Millions of Americans are regularly confused by medical bills, despite receiving a significant number of medical bills each year. Of the $2.6 trillion in total U.S. healthcare spending in 2010, $300 billion was paid out-of-pocket through deductibles, co-payments and out-of-network fees.
Employers struggling to contain health care costs often switch to higher deductible plans or increase co-payments in exchange for lower premium costs. Changing insurance coverage leaves many people unsure of whether they should pay the bill. Often people hold off paying to see if their insurer will pay a claim. While it may be tempting to wait for clarity, this can be a big mistake. If delayed payment results in the medical bill being turned over to a collections agency, it is nearly certain to cause headaches in the future.
Thirty million Americans were contacted by collections agencies for medical bills in 2010. Many believed that these medical accounts would not hurt their credit score. However, collections agencies routinely report medical bills to the credit bureaus. They view all collection accounts as “delinquent” with no regard for why the bills were sent to collections. Many people promptly pay their medical bills in full after hearing from a collections agency, but they are surprised to find that even after paying these accounts, blemishes remain on their credit reports.
According to studies published in the Federal Reserve Bulletin, more than half of all accounts in collections on credit reports are medical in nature. Medical collections accounts can stay on a report for up to seven years, even with NO balance due. Collections accounts are reported in the credit history section of a credit report and this section accounts for 35% of a credit score. Because of this, these fully paid “delinquent” medical bills can be devastating. According to a FICO spokesperson, a medical collection — paid or unpaid — can lower a score by 105-125 points for someone with otherwise good credit and a FICO score of 780.
Whether opening a new credit card, buying a car or taking out a home mortgage, the cost of borrowing will be inappropriately increased if there is a medical collection on your credit report. The resulting higher monthly fees on loans leave American consumers with fewer dollars to spend on consumer goods or services. This problem has come to the attention of the U.S. Congress.
In the House, Representatives Heath Shuler (D-NC) and Don Manzullo (R-IL) have put together a common sense, bipartisan proposal. They feel that medical debt is unique and that it deserves to be treated differently than other types of debt, so they introduced HR2086, the Medical Debt Responsibility Act. Jeffrey Merkley (D-OR) introduced the Medical Debt Responsibility Act in the Senate as SB2149. The legislation, which you can read more about here, requires that medical bills that are fully paid off or settled be removed from a consumer’s credit records within 45 days. That’s it, pure and simple.
This straightforward proposal can help to get the economy going again; that’s why it enjoys bipartisan Congressional support. It is also supported by organizations as diverse at the Corporation for Enterprise Development, the American Medical Association, Consumers Union, the Mortgage Bankers Association, the NAACP and the National Association of Home Builders. It’s not too often that such strange bedfellows line up behind a proposal.
While the Medical Debt Responsibility Act does not fix the medical billing system, it does provide relief for those who’ve paid off their medical bills. Congress should immediately enact this proposal, protect families from further financial harm due to medical collections, and help get out our nation’s economy moving again.
Mark Rukavina is Executive Director of The Access Project and was named a CFED Innovative Idea Engineer in 2009.
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