Applying “Financial Coaching” for Scale
By Margaret Miley, Guest Contributor on 10/09/2013 @ 11:30 AM
In the field of financial stability, providers seek effective strategies that engender positive changes in the financial circumstances of residents. Often lost in the discussions are environmental factors: wages, local economic conditions, medical coverage, dangerous financial products and a legacy of discrimination in national policies that support the building of individual assets. For example, the erosion of wages for American workers that began in 1973 is a most pressing influence on economic insecurity. The current reality is often that two full-time workers in a household cannot support a family at a survival level, which has a destabilizing effect on the family, the culture and the larger economy. The setting is aggravated by a less-regulated financial marketplace that includes high-cost, unsafe financial products and services, luring consumers into a cycle of debt and insecurity. Within these confines, however, positive individual changes can be cultivated.
In Massachusetts, we have seen an increased need for services, as borne out by more acute financial indicators for residents, such as CFED’s Assets & Opportunity Scorecard data indicating that 48% (~ 2.4 million) of the state’s adults have subprime credit scores and 27% (~1.7 million) do not have enough cash to survive three months with an interruption in income. At the same time, we see reduced investment by the public sector and diminished capacity in the nonprofit sector to address the increased need. This is accompanied by increased pressures for providers to demonstrate “impact” in condensed time periods, such as one-year funding cycles. Clearly, the need for efficiency and scale must be balanced against the promise of deep, transformational, individual assistance. In this challenging context, The Financial Confidence and Coaching Campaign, Midas’s model of “financial coaching,” combines new ingredients learned from years of financial education and asset building, as well as the broader coaching field. More background is provided in our White Paper. Briefly, the strategies include:
- Treating financial coaching as a “method,” not a “service.” Though coaching has a long history, some current writings on financial coaching suggest that service providers be limited to discrete roles of “coach” or “counselor.” However, we see little application for this costly and constraining format. With residents working more than full-time and staff members overburdened, time and funding limitations do not allow for one provider to be a content resource and one to be a purely process-oriented coach, as that would require participants to manage time and relationships with both. With proper training and ongoing peer support, coaches can refine their practice to maintain the participant-led environment while using coaching and counseling methods as appropriate.
- Integrating the “coaching method” into many service delivery contexts. Many disciplines are pursuing integration in service delivery. This conserves resources and reflects a participant-centered approach to service and treatment. Indeed, as medical practitioners have expanded the patient-centered “medical home” model, innovative asset builders have introduced a component of “fiscal health” to cooperatively address the links between financially-induced stress and health issues. Midas has hosted trainings of financial content and the coaching method to providers of matched savings, college access and career development programs to increase their own financial knowledge and to integrate and strengthen coaching techniques in their daily meetings with participants. Initial data and staff feedback have been positive.
- Bringing in the technology. Though in-person meetings are ideal for building a trusting relationship, the current stable of city-based providers cannot serve the need alone. Currently, corporations, schools and professional services have migrated to audio/visual platforms via the web, many with good results. Midas is providing services on these platforms to serve more residents, particularly those with mobility, transportation, scheduling or language issues that limit their access to existing in-person services. The use of appropriate interactive tools, products and services can expand knowledge and sustain engagement.
- Inviting participants to change the world. It is comforting for participants know that financial issues are not theirs alone. Joining efforts to affect policies, enforcement and others’ financial education gives them a sense of community, purpose and larger vision.
- Scaling it up. If we are going to help millions of people, we need to broadly apply coaching techniques into more accessible formats. This involves (1) developing online content and tools to support and update the financial coaches on changes in laws, issues and techniques to continually develop their skills and content (see MassSaves.org for more information), (2) sprinkling coaching and participant-centered components throughout online platforms used by participants, (3) cultivating a narrative by using videos and social media platforms to tell and share stories and connections, and (4) changing the economy by connecting participants with policy discussions on financial services and economics to improve the economic setting that they must navigate.
At Midas, we see great power in the depth, humanity and scalable promise of adding financial coaching to the many efforts to assist residents struggling in this tumultuous economy.
Margaret Miley is Executive Director of the Midas Collaborative in Allson, MA.
From “To Do” to “Done”: Simple Plan-Making Strategies
Take a look at your to-do list. Which task do you expect to complete first? Probably something fairly simple and concrete: “Buy groceries,” “Pay phone bill,” “Clean bathroom.”
Now, which task always gets pushed to the bottom of the list? Learning conversational Spanish would be fun and would make you a stronger job candidate, but as the day goes on, it’s easily put off for another day.
Despite fully intending to, we may have trouble accomplishing tasks—even very important ones—that we fully intend to do. The tasks we define for ourselves can be vague, contain multiple steps or involve obstacles that we just don’t want to think about. These are situations where a technique called simple plan-making may be useful.
Simple plan-making is a strategy to turn our intentions into action. In a study aiming to improve voter turnout at elections, eligible voters received a phone call asking them if they intended to vote. However, some voters were also asked: (1) when they would vote, (2) how they would get there and (3) where they would be beforehand. Adding these three plan-making questions more than doubled the effect on voter turnout. The act of creating a well-constructed plan helps us think through potential obstacles, plan how to overcome them, and remember to execute that plan at the right time.
In the BETA Project, we incorporated plan-making into our design at partner site Neighborhood Trust Financial Partners (Neighborhood Trust) to help clients follow through on their intentions to open and use credit union accounts. Below, we share some elements of our plan-making designs at Neighborhood Trust.
Why Did We Choose to Use Simple Plan-Making at Neighborhood Trust?
Through Neighborhood Trust’s financial education course, a significant number of participating clients open credit union accounts. Our behavioral diagnosis at Neighborhood Trust revealed that some clients open an account, intending to use it; however, they never take that first step towards actually using the account.
Neighborhood Trust appeared to be an especially promising candidate for plan-making tools based on some key characteristics:
- The intentions already exist. Making a plan won’t work if we don’t actually want to perform the action. At Neighborhood Trust, many clients open accounts during the class, suggesting that they intend to use those accounts…eventually.
- Using an account is complicated. The more vague or complex the steps, the more likely we are to procrastinate. Clients at Neighborhood Trust may not think through the large number of steps required to use their credit union account, from learning how to use a debit card to planning regular trips to the ATM. We saw an opportunity to break out each step to make them more concrete and achievable.
- Timing matters. In order to act on an intention, we must remember what we planned to do at the right time. For clients, fitting in a trip to the credit union amid a busy work schedule may be daunting or easy to forget. Creating a plan to go to the credit union could help clients set an explicit intention for completing the action and writing it down could help them to remember their intentions at the right time (“I’ll go to the ATM right before I shop at the grocery store…”).
- There are opportunities for commitment and enforcement. There are numerous forces pulling our attention away from our intended goals, and it takes a lot to keep ourselves on track. We all need ways to stay committed to completing our intended goals. Neighborhood Trust’s five-week financial education course presents an opportunity for clients to publicly commit to their plans during class discussion, and report back during the next class.
We often tell ourselves that the more important a task is, the more likely we are to complete it. However, because we assume that our strong intentions will be enough to carry us to completion, we fail to take the necessary steps towards completing our goal. Plan-making can be MOST effective (and usually most needed) when intentions are strong. It helps to remind ourselves of all the things that need to happen in pursuit of our goals and to make sure we take action to complete them all.
The BETA Project Design
We designed a set of plan-making activities for Neighborhood Trust clients to use during the five-week financial education course. The activities included bringing the necessary documents to open an account, locating the nearest ATM and making an initial savings deposit.
To make sure we were helping clients follow through on an existing intention, we instructed clients to choose a plan rather than be assigned a plan.
We made sure plans were actionable by making them concrete and granular.
To discourage clients from giving up on a plan, we allowed for flexible timing: “If I don’t finish it this week, I can work on it again next week.”
Financial Advisors acted to guide and enforce the plan-making activities by helping clients select and create a plan at the end of each class and checking in on their progress during the next class.
Make Your Next Plan
Now look at your to-do list again. Is there anything on that list that needs to be rewritten as a plan? When will you read our next blog post? Where will you be? What will you be doing immediately beforehand? Make a plan—and stick to it.
Next BETA Project Post: Testing, Testing
After we define problems, diagnose behaviors and design solutions, we test those solutions. Our next post on the BETA Project will discuss our testing methodology. This post and other helpful insights from the BETA Project are available on CFED’s Behavioral Economics blog and BETA Project website.
New Opportunity: CFPB’s Innovations Project
By Sean Luechtefeld on 10/07/2013 @ 12:00 PM
EDITOR’S NOTE: Will Tucker, one of our friends at partner organization ideas42, sent this announcement this morning. It’s about an exciting new opportunity being offered by the Consumer Financial Protection Bureau, and I think it will be of interest to many of our readers.
Ideas42 and its partners, the Doorways to Dreams (D2D) Fund, the Center for Financial Services Innovation (CFSI), and the Corporation for Enterprise Development (CFED), are excited to announce a call for prototyping partners on the CFPB Innovations Project. The project seeks to develop and test prototypes of new approaches for helping consumers overcome common decision-making challenges in managing their finances. We’re seeking innovators, businesses, and other organizations to work with us to prototype innovations and evaluate their effectiveness. Prototyping partners will have input into refining the design features of innovations, and will get the opportunity to be part of a behavioral design process led by ideas42 and its team.
The Innovations Project is being conducted by the Consumer Financial Protection Bureau (CFPB), with ideas42 serving as a CFPB contractor tasked with managing this project. Organizations should indicate their interest by submitting a brief letter of interest describing their interests and capabilities via email to email@example.com. Please include “Innovations Project” in the subject line. Please contact us today if you are interested in this opportunity, and make sure you submit your interest by November 8, 2013.
For more information on the project and criteria selection, see http://ideas42.org/CFPBinnovations and http://www.consumerfinance.gov/blog/were-looking-for-innovative-partners-for-financial-education-research/.
Asset-Building News Roundup - October 4, 2013
By Veronica Weis on 10/04/2013 @ 11:00 AM
Save the Date: Please join us and the Center for American Progress on October 10 for a Breakfast Policy Forum, Retirement Security for All: Fixing Unequal Tax Incentives for Retirement Savings, from 9:30-11am in the Capitol Visitors Center, Room SVC 209-08. Breakfast will be served at 9am and this event is free. Click here to RSVP via email.
One government program which stands to suffer from the shutdown is the Special Supplemental Nutrition Program for Women, Infants, and Children, known as WIC. According to NPR, "among those affected by the chaos of the government shutdown are 9 million low-income women and children who may be worrying where next week's meal is going to come from."
The Investment Connection helps match financial institutions, corporate enterprises and community foundations with organizations that have Community Reinvestment Act (CRA) eligible community and economic development proposals in need of an investment, grant or loan. Now, your organization can be a part of Investment Connection On-Line. You can submit your organization’s proposals to the all-new Investment Connection On-Line and reach potential funders. In order for your organization’s proposal to appear on Investment Connection On-Line, you must supply your organization’s information by completing an online form for consideration. Investment Connection proposals must be CRA eligible, benefit populations below 80 percent area median income, and within the Tenth Federal Reserve District which includes CO, MO, OK, KS, NE, NM, and WY. Questions regarding this Request for Proposals may be addressed to Ariel Cisneros at firstname.lastname@example.org or 303.572.2601.
From the Assets & Opportunity Network
The Consumer Financial Protection Bureau (CFPB) held a public hearing in Chicago on October 2nd. CFPB Director Richard Cordray joined a panel of advocates and industry representatives at the Harold Washington Library to discuss findings from their report on the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The CARD Act represents a large step forward in consumer protections and financial accountability.
In more news about the Consumer Finance Protection Bureau (CFPB), the Coalition for a Prosperous Mississippi reports that the CFPB concluded its meetings in Mississippi by announcing a new partnership with the City of Jackson. Consumers may now call the city’s 311 line with complaints regarding financial products and services. Consumers that dial the number with complaints will be connected directly with the CFPB where questions may be answered or formal complaints may be lodged.
Crisis Assistance Ministry shared an opinion piece that originally appeared in the Raleigh News and Observer on September 29 about poverty in North Carolina.
Mississippians Report Financial Challenges to Consumer Protection Bureau
By Bill Bynum, CFED Board Member on 10/02/2013 @ 03:00 PM
EDITOR'S NOTE: This post originally appeared on the Huffington Post and can be read here.
In this country where we place such a high value on individual freedoms, we often feel a little uneasy about government power.This is especially true when it comes to the economy, the business sector and the market. We've been taught to suspect government intervention, believing that democracy thrives when there's a "free market."
I like to frame government power in the marketplace in a slightly different way. Think of sports. The government writes the rulebook, employs the referees and insures the integrity of the game. This is the analogy I evoke for the Consumer Financial Protection Bureau (CFPB), the government agency created by Congress in 2010 after the worst economic crisis this country has seen in generations.
I serve as vice chairman of the CFPB's Consumer Advisory Board (CAB), and this week the CAB and key bureau staff met in my home state of Mississippi. The reason CFPB holds meetings at different locations across the country -- and away from Washington, DC -- is to gain greater insight into the circumstances unique to particular communities, and to spread the word about the bureau's work.
In small towns from the Mississippi Delta to the southwestern corner of the state, we heard from teachers, students, retired people, business owners, bankers, public officials and ordinary citizens. They spoke about the challenges they face when they try to borrow money to buy a house, to cover emergency medical expenses, attend college or to start a business. A big obstacle, they told us, is the closing of bank branches in small towns and low-income neighborhoods.
"When the bank told us they were leaving in five weeks, it set off a small panic," said Kenneth Broome, the mayor of Utica, Miss. "For our people, especially our senior citizens living on a fixed income, it's kind of a hardship to have to get transportation to a town further away."
According to a Bloomberg report, 93 percent of bank closings since 2008 have been in low income areas.
"When you don't have a face-to-face relationship with a bank manager and a teller, you lose something important about the American economy," said Lauren Wilkes, who co-owns a small business in Utica. "So many loans for small businesses are made based on relationships."
One of the most important ways the CFPB can have an impact on this kind of large scale, national problem is to make sure the information is available to assess whether a bank or other financial institution's actions have a disproportionate affect on vulnerable populations such as senior citizens, students, active or reserve military personnel and underserved communities.
"One of the bedrock principles at the (CFPB) is transparency," Bureau Director Richard Cordray told people at a public meeting in Itta Bena, Miss. "We have a deep respect for the power that knowledge conveys."
To advance the goal of making sure information is meaningful and available, the CFPB has recently released a set of web-based tools to provide consumers with easier access to public information collected under the Home Mortgage Disclosure Act. With access to information and rules in place for the entire sport -- banking services -- the CFPB can determine whether the playing field is level. The other way the CFPB can exert its power is to protect individual consumers.
A major contributing factor to the financial crisis was the fact that many individuals borrowed more money than they could afford to repay by signing up for mortgages that they did not fully understand. The banks should never have approved these loans.
A key provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act is the requirement that "financial institutions must ensure that borrowers can repay the loans they are sold."
In Mississippi this week, people asked for protection from predatory lenders. "I am a victim of predatory lenders," said Pauline Rogers. "They will entice you with a quick fix because they are strategically located in low income areas, but one thing they will never give you is a future." Mississippi has the highest per capita concentration of payday lenders in the nation. The allowable fees for a small dollar loan in the state are higher than those in neighboring Tennessee.
At Hope Credit Union, where I serve as CEO, we have assisted more than 400,000 people through responsibly structured financial services since 1994. One example is consolidating eight payday loans for a member who had taken out the loans in quick succession, to cover an emergency car repair. A small degree of effort and responsible judgment by any of the eight lenders would have revealed that she could not repay the debt by her next payday. Not surprisingly, it did not take long for rapidly accumulating renewal fees to create an inescapable debt trap.
Fortunately, the CFPB is working hard to understand how these and other abusive financial practices impact lives across the country, and is establishing and enforcing rules that protect every individual equally.
Someday soon, let's hope that whether a person is suiting up for a team in Itta Bena, Mississippi or in New York City, the rules will be fair to all who play the game.
Follow Bill Bynum on Twitter: www.twitter.com/HopeCUbill
Designing for Difficulty – The BETA Project
“Make It Easy” – it’s not just a Staples advertising gimmick, but a key design principle from behavioral economics. How can we make sure people sign up for 401(k) savings accounts? Make it easy by setting a default plan. How can we get people to eat right? Make it easier by designing an intuitive food ‘plate’ instead of a food pyramid. How can you make sure you get to the gym? Pay the extra money for an on-site locker so you do not have to remember your work-out clothes. These may seem like different types of interventions, but they have one thing in common: they make it easier for us to take the actions we want to take.
For the most part, the BETA Project team shies away from designing something that’s hard to use. When we want people to take an action, we make it simple. But sometimes we want to make it hard to take an action. One of our designs for Cleveland Housing Network (CHN) called for exactly that.
Late Fees & Mental Accounting
A few weeks ago, we discussed how we diagnosed problems at CHN. As part of our diagnosis, we found that some CHN residents didn’t seem overly worried about having to pay the late fee. Many lumped the $25 late fee into the rent payment.
When you think about it, this is odd. Though $25 isn’t a huge amount of money, it’s not pocket change, either, especially for the low-income households that CHN services. You would get angry if you received a $25 fine for a parking ticket or for returning a library book late. Why weren’t residents reacting to a fine for a late rent payment?
Behavioral economists call this phenomenon mental accounting. For an example, compare the following two passages:
Imagine that you are about to purchase a jacket for $125 and a calculator for $15. The calculator salesman informs you that the calculator you wish to buy is on sale for $10 at the other branch of the store, located 20 minutes away. Would you make the trip to the other store?
Imagine that you are about to purchase a jacket for $15 and a calculator for $125. The calculator salesman informs you that the calculator you wish to buy is on sale for $120 at the other branch of the store, located 20 minutes’ drive away. Would you make the trip to the other store?
To an economist, both passages are asking the same thing – would you be willing to spend 20 minutes to save $5? But people are much more willing to make the drive if they read the first passage. We tend to think about savings in relative terms. Reducing the price of a $15 calculator to $10 seems like a great bargain, while reducing the price of a $125 calculator to $120 seems trivial.
When we think about a $25 fine for a parking ticket, we’re comparing it to a “fine” of $0 (i.e., not being charged a fine at all). But CHN residents have to pay their late fee simultaneously with their rent, so they’re comparing something like $500 (the median rent) to $525 ($500 plus the $25 fine). Just like in the jacket and calculator problem, they think about the fine in relative terms, instead of absolute terms. $25 represents only 4% of their rent, so the fine seems relatively small.
The BETA Project Design
Because metal accounting was making the late fee seem small relative to the price of rent, we wanted to try to reframe the decision and disconnect it from the rent payment process. We couldn’t arrange for the late fee to be billed separately from paying rent, but we could try to isolate the process of making the decision to pay the rent late.
We did this by creating a late fee waiver. Residents were issued a one-time waiver, which they could use to cancel a late fee. This changes the decision process by adding another step. Rather than thinking, “Should I pay my rent today? It’s just $25 if I pay late,” residents now first have to decide whether they want to use the late fee waiver or not. This is a subtle, but important, difference. Rather than deciding whether to pay late and thereby increase the cost of rent payment from $500 to $525, the decision is now whether to spend $25 or use the waiver.
An interesting wrinkle is that we wanted the waiver to reframe the decision that people made, but we didn’t necessarily want them to use the waiver. The waiver had two potential effects. First, as discussed above, it could reframe the decision to make residents less willing to pay their rent late. But it also had a potential negative effect—it reduced the penalty of late payment, thereby reducing the disincentive.
This put us in an unusual position: we wanted to make a form that people would not want to use. So, we made it harder for residents to use the waiver.
How did we make the waivers harder to use?
To make the waiver harder to use, the BETA Project team had to make sure it both felt harder to use and actually was harder to use. We did this in several ways:
- First, we tried to induce the concept of scarcity. The waiver could only be used once, and we tried to frame it as something for residents to use in an emergency, when they really needed it. We hoped that most residents would save it until it expired.
- Second, we introduced several hassle factors in order to make it difficult to use. Even small hassles make it unlikely that something is used. We added big hassles—most notably, we required residents to come into the CHN offices with their waiver in order to activate it. They could not use it over the phone or over the internet, even though CHN administrators could have easily verified its one-time use.
Third, we incorporated several small design tweaks that made the waiver seem more difficult to use than it actually was. For example, each waiver had a unique serial number (even though it was unnecessary, since CHN could track who used it using tenant ID numbers). We also required a signature to use it.
Finally, we incorporated a small, but important phrase: “You choose when to use it.” We hoped that this would induce a feeling of autonomy and power over the rent payment process.
Were we successful? We’ll be reporting on the outcomes of the BETA experiments before the end of the year, but here’s something to think about: over the four months of the BETA project, 70 waivers were used out of the 373 that were issued. That’s 19%, which means that 81% of CHN residents were not taking up “free money.”
Next BETA Project Post: Simple Plan-Making Strategies
Our next post on the BETA Project will discuss how to create an effective plan—and stick to it. This post and other helpful insights from the BETA Project are available on CFED’s Behavioral Economics blog and BETA Project website.
New Event: Integration & Innovation Webinar
By Sean Luechtefeld on 09/30/2013 @ 04:30 PM
EDITOR’S NOTE: The Bank of America Charitable Foundation sent this invitation to their upcoming webinar, which highlights CFED’s portfolio of work that integrates asset-building into social service delivery systems. We hope you can join our very own Kate Griffin on October 10!
As part of our ongoing efforts to help support community leaders addressing a wide range of pressing issues and to strengthen the nonprofit sector as a whole, the Bank of America Charitable Foundation offers a free monthly webinar to nonprofit leaders. Our goal is to feature subject matter experts who can address issues that are brought to our attention by our nonprofit partners. Since September 2009, we have hosted over 50 webinars with a total attendance of more than 15,000 nonprofit leaders like you.
Thursday, October 10, 2-3 pm EDT
Integration and Innovation: Lessons from Organizations Integrating Asset Building into Social Services
Kate Griffin, Senior Program Manager, CFED; Kira Zylstra, Department Director, Individual and Family Stabilization Services, Solid Ground; Fran Rosebush, Senior Manager, United Way Greater Houston THRIVE; Colleen Arons, Enterprise Marketing, Bank of America
Whether it’s helping a family to re-gain stable housing, find and retain employment, or manage their way out of today’s crisis, social service agencies know that the family’s ability to manage their finances is an important factor in their success. This webinar will introduce how social services agencies are helping families to build assets – through effective financial education, strengthening credit scores, saving for emergencies, investing in homes and jobs, and other strategies. We will discuss concepts outlined in the recent publication, “Integration and Innovation: Lessons from Organizations Integrating Asset Building into Social Services.”
Presentation will be delivered through online webinar and conference call. Upon registering, you will receive a reply email with the link to the webinar as well as the bridgeline information. NOTE: First-time participants should ensure that their network is compatible with WebEx.
All participants are required to register through the attached link: http://www.cybergrants.com/boa/webinar. Upon registering, the organization will receive a confirmation email as well as the link to the webinar and the bridgeline. If you have previously registered for a Bank of America Nonprofit Impact Series webinar, you can click on the link, login, go to the bottom and click ‘register for the webinar.’ Registration will be accepted up until Wednesday, October 9.
We thank you for your continued commitment to improving our community.
Asset-Building News Roundup - September 27, 2013
By Veronica Weis on 09/27/2013 @ 02:00 PM
The Collaborative, which heads Lead State Organization the North Carolina Assets Alliance, will host the 2013 Pathways to Prosperity Conference next month in North Carolina. The Conference will examine innovations in research, practice, and policies to successfully integrate asset-building services in communities.
We're hosting a webinar on October 10, CFED: Integration and Innovation: Lessons from Organizations Integrating Asset Building into Social Services, that will introduce how social services agencies are helping families to build assets – through effective financial education, strengthening credit scores, saving for emergencies, investing in homes and jobs and other strategies.
A Washington Post article highlighted one of our favorite statistics: How $50 makes kids seven times more likely to attend college.
The Robert Reich documentary on income inequality in America officially launches today! For an interesting review of the film, click here.
From the Assets & Opportunity Network
The Illinois Asset Building Group is offering a webinar next month that will feature advocates from Hawaii and Illinois who led successful campaigns to eliminate the TANF asset test in their respective states this past year. They will share: effective messaging, advocating to the Governor’s office, departments, and legislators, responding to opposition and other lessons learned.
The Coalition for a Prosperous Mississippi shared a piece published in the Huffington Post, Mississippians Report Financial Challenges to Consumer Protection Bureau.
New Learning Opportunity for Organizations Interested in Asset-Building Integration
By Kori Hattemer on 09/26/2013 @ 03:30 PM
Do you provide affordable housing options to low- and moderate-income families? Do you often ask yourself how you can help your clients follow a monthly budget so they don’t fall behind on their utility bills?
Are you helping unemployed individuals build the skills they need to find and succeed in their next job? Do you ask yourself how you can help these clients open safe, affordable bank accounts so they don’t lose a big portion of their next paycheck to expensive check cashers?
Do you provide critical services to families in times of crisis? Do you wonder what you can do to help these families build an emergency savings account so they are more prepared for future financial crises?
If you answered yes to any of these questions, you should think about joining CFED’s newest Intensive Learning Cluster! Learning Clusters are designed to explore innovations and promising practices in close collaboration with other organizations around the country. In partnership with the Bank of America Charitable Foundation, our newest Learning Cluster is an eighteen-month collaboration between CFED and organizations providing services in the housing, workforce development and emergency assistance (critical needs) sectors. Participating in the Learning Cluster can help you incorporate asset-building strategies—such as getting your clients banked, helping people manage their credit or providing access to free tax preparation assistance—into your existing services.
Over the course of the Learning Cluster, members will participate in peer learning opportunities and collaborate with CFED and other experts in the field. If you are interested in participating, carefully review the Learning Cluster Request for Proposals and submit your project proposal to CFED no later than October 21, 2013. Organizations who are selected to participate in the Learning Cluster will receive an $8,000 stipend, a full scholarship for CFED’s 2014 Assets Learning Conference in Washington, DC, the opportunity to learn and problem-solve with other members of the Learning Cluster through virtual and in-person convenings, and technical assistance from asset-building experts.
If you have questions, send me an email at email@example.com.
Read this Now! The Art & Science of Reminders
Have you ever meant to do something so important or so forgettable that you created a reminder for yourself, only to find that you still failed to follow through? Maybe you wrote a note reminding yourself to pick up the dry cleaning on the way home from work, but you completely forgot after a busy day. Or maybe you wrote a phone number on your hand last night, but unfortunately (or fortunately) didn’t write down the name or the reason to call.
Reminders are helpful for overcoming prospective memory failures — failures that occur when people forget to do planned actions. But why do some reminders work, and some fail? We have found that when reminders fail, it is often for one of the following three reasons: (1) the wrong action was prompted, (2) the reminder was not specific or (3) the reminder came at the wrong time.
In diagnosing the behavioral bottlenecks for Accion Texas, the BETA Project team looked at Accion’s loan repayment process through the clients’ eyes. Taking this perspective allowed us to see that reminders may be helpful to encourage on-time payments as borrowers seemingly intended to pay, but failed to follow through. When designing reminders for Accion Texas, we made sure the reminders were actionable, specific and timely.
Prompting the Right Action
Accion Texas’ existing monthly statement emphasizes the importance of making a payment by the payment due date. However, most borrowers are enrolled in automatic payment withdrawals, and actually need to make sure that they make a deposit to have sufficient funds. Since it can take a couple of days to process payment deposit, they also need to make sure that any necessary funds are deposited well before the due date.
We were concerned that borrowers may not consciously realize how their Accion Texas loan payment process differs from many other monthly payments. As such, we designed our reminders to emphasize the action of making a deposit rather than making a payment.
To refocus borrowers on the action of making a deposit, we redesigned the monthly statement to include a Post-it note to help borrowers (1) create a detailed plan about when they will make the deposit before the withdrawal, and (2) commit to the plan. We also provided an emphatic “suggested deposit date” on the statement to help borrowers plan out when and how to make a deposit.
The email and text messages reinforced the statement and the Post-it note by explicitly directing borrowers to make sure they have enough funds in their account for the payment.
In each component of the design, our reminders didn’t simply tell the borrowers to “pay on time,” but were intended to elicit very specific behaviors.
When reminders are received is just as important as what the reminders say. Accion Texas borrowers need to ensure there are sufficient funds in their accounts before their due date when the withdrawal occurs. But because only the due date is made salient in the loan contract and monthly statements, a borrower may be wrongly anchored to the due date, when it is too late to take action.
Our email and text reminders were deliberately timed to be far enough before the due date to provide sufficient time to act, and sufficiently close to maintain the salience and urgency to make a deposit. The emails were sent ten days prior to a given borrower’s due date each month. The text reminders were sent three days prior to the due date. Both messages were sent in the morning so that borrowers could make a deposit during daytime business hours.
Without appropriate timing, even the best-worded reminder can fail.
Now that you’ve learned about the art of reminders, try making one to remind yourself to come back and check our next blog post!
Next BETA Project Post: Designing for Difficulty
All of us get fed up with the hassles in our lives. But sometimes, hassles can actually make our lives better. Our next post on the BETA Project will discuss the intentional design of hassles. This post and other helpful insights from the BETA Project are available on CFED’s Behavioral Economics blog and BETA Project website.
Spotlight on Innovation in Entrepreneurship: Microloan Management System
By Heidi Pickman, Guest Contributor on 09/23/2013 @ 03:00 PM
From 2004 to 2010, the microbusiness sector was responsible for over 90% of all jobs created in the US. Microbusinesses (1-4 employees) created a net of 5.5 million jobs, while large businesses (those with greater than 500 employees) lost 1.8 million jobs during the same period.
Despite their crucial role in the economy, only 0.10% of potential microbusiness borrowers are being served. In California, CAMEO’s microlenders struggle to achieve scale. Microlending is expensive for many lenders to sustain and as a result, some of CAMEO’s lenders have left the microloan market. With funding tighter than ever before and increasing need, microlenders have to deliver the same services as economically as possible. Our 28 member lenders made 1,500 microloans in 2012.
Many challenges exist that lead to inefficiencies and high costs of microlending:
- Finding eligible borrowers is difficult.
- Staff spend time on ineligible inquiries and building the pipeline of borrowers.
- Microbusiness owners need extensive business technical assistance before, during and after the loan.
- Microloans often undergo the same ‘traditional’ underwriting process that is used for large loans (i.e., a very extensive process).
CAMEO, as the effective small business CDFI coalition for California, supports the growth and sustainability of microlending by expanding resources and helping to decrease the cost of providing services. We decided to offer Accion Texas’ Microloan Management System (MMS) platform to members as a way to lower costs of microloans.
Accion Texas’s MMS streamlines the cost of underwriting and frees lenders to focus on recruitment and support. The loan turnaround is much faster. Accion’s automated review system allows instant feedback on borrower capacity and history, and underwriting takes three days instead of three weeks.
CAMEO believes that our member CDFIs will benefit in the following ways:
- Improved loan quality through a standardized process that strengthens the lenders’ portfolio
- CDFI’s can focus on spheres of excellence (e.g., business assistance)
- Cost of screening, assessment and underwriting per loan decreases dramatically
- Lender volume expands by 70-300% and thus increases revenues
- Staff can concentrate on loan/deal development
For this project, CAMEO has bundled smaller lenders together in one license, allowing them to post a limited number of applications for a reduced price. As they scale, they graduate to a full license. CAMEO guides lenders through a complicated, multi-agency on-boarding process, then provides ongoing support (e.g., staff training, peer network calls, one-on-one, technology assistance). We are working with four members for the pilot: California Capital, CDC Small Business Development, TMC Development Working Solutions and Women’s Economic Ventures.
Systems change always presents difficult challenges. Organizational behavior and processes and ingrained staff habits are not easy to change. Roles and duties may need to change. Staff may not be used to the algorithm and may need to learn to trust new system. And the incentives to change are not clear.
This leads many organizations to implement MMS partially, which in turn leads to multiple systems and duplicated efforts and masks the benefits of streamlining, speed and consistency.
To work properly, MMS needs executive leadership and systems change. It requires ‘big picture’ thinking about roles and processes. A few DOs and DON’Ts…
DO: Allow access to be open to everyone. Rely on Auto Review for assessment.
DON’T: Make clients jump through hoops before trying Auto Review.
DO: Use MMS for all loans under $50,000.
DON’T: Run two systems or duplicate activity.
DO: Reassign staff and loan committee duties to new ones, such as building the pipeline.
CAMEO believes that in this fast-paced world, we change or become obsolete! Our role is to help our members adopt essential new technology that will help them compete and increase their lending capacity, serve more microentrepreneurs who will create jobs, and build strong, healthy and stable communities.
Asset-Building News Roundup - September 20, 2013
By Veronica Weis on 09/20/2013 @ 05:30 PM
The Asset Funders Network is hosting the Grantmaker Conference 2013 in Washington, DC from October 2-4. It will bring together a diverse group of national, regional and community-based funders concerned about a common goal – financial security for all. Click here to register.
Join us September 26 at 7:30pm for an early screening of Inequality For All, a documentary film about economic inequality in America, in Washington, DC. After the film, join CFED President, Andrea Levere for a short conversation and Q&A on solutions and pathways to financial security and opportunity for all Americans. To RSVP, click here.
The House voted to cut almost $4 billion a year, or 5%, from the roughly $80 billion-a-year SNAP (food stamps) program. That version of the bill would tighten eligibility standards, allow states to impose new work requirements and permit drug testing for recipients, among other cuts to spending. Currently, more than 47 million people are enrolled in a food stamps program, or 1 in 7 Americans. The bill now heads to the Senate.
From the Assets & Opportunity Network
The Coalition for a Prosperous Mississippi shared a blog post with takeaways from new census data that shows poverty increasing in Mississippi while median income dropped.
CFED’s Kim Pate Testifies Before U.S. House of Representatives
By Ezra Levin on 09/19/2013 @ 05:00 PM
On Thursday, CFED’s Chief External Relations Officer Kim Pate testified before the House Small Business Committee’s Subcommittee on Economic Growth, Tax and Capital Access. The topic of the subcommittee’s hearing was “Private Sector Initiatives to Educate Small Business Owners and Entrepreneurs.” Click here to download Kim’s full written testimony.
In her testimony, Kim highlighted the importance of “microbusinesses”—those with fewer than five employees. While individually small in size, microbusinesses account for 90% of all businesses in the country. Taken together, these microentrepreneurs are responsible for creating millions of businesses and even more jobs. On average, these ventures create 2.9 full and part-time jobs each.
Not only are microbusinesses an important influence on the macro economy, they also offer a real opportunity for low- and moderate-income individuals and families to attain economic self-sufficiency and stability. Microbusinesses that survive, grow and become profitable, enhance household income and reduce families’ reliance on public assistance.
Kim also discussed the importance of tax time for microbusinesses. In 2005, CFED launched the Self-Employment Tax Initiative (SETI) with the goals of building assets for low-income households, creating jobs and increasing tax revenue by bringing the self-employed into the tax system. Through this effort, CFED has partnered with Volunteer Income Tax Assistance (VITA) programs, which provide free tax support to low- and moderate-income taxpayers. In short, VITA works and works well—a National Community Tax Coalition (NCTC) report found that VITA programs helped more than 3 million taxpayers claim $2.2 billion in tax refunds while saving the federal government $5.5 million in reduced processing costs.
Building on the success of SETI, CFED joined NCTC and the IRS to launch the Schedule C VITA Initiative, which aims to test new ways to expand support for microentrepreneurs through the VITA program. Also inspired by SETI, Representative Judy Chu (CA-27) introduced the Entrepreneur Startup Growth Act last Congress, which would have added much-needed additional tax assistance support for small entrepreneurs.
CFED looks forward to working with the Subcommittee and Congress as a whole to move forward on these and other opportunities to expand economic opportunity, create jobs and support the most powerful little engines for economic growth in the country—microentrepreneurs.
Census Poverty Report: America’s Working Poor Still Waiting for Recovery
By Lebaron Sims on 09/18/2013 @ 10:30 AM
Though the nation’s GDP has bounced back in the last six years, millions of Americans have yet to recover from the economic crisis.
Today the U.S. Census Bureau released its 2012 Income, Poverty and Health Insurance Coverage report and data, and the state of play for working Americans is as bleak as at the post-recession crest.
Median household income remained a full $4,500 (8.3 percent) below its pre-recession point, in real terms. The official poverty rate was 15%, representing 46.5 million Americans living below the poverty line. These trends are no different than 2011, highlighting the lasting effects of the Great Recession and the long road to recovery most Americans have yet to traverse. These findings only reinforce the importance of America’s safety net programs, like Social Security and the Supplemental Nutrition Assistance Program (SNAP).
Low- and moderate-income families have seen the largest proportional losses in family income over the last six years, and, as these latest Census Bureau data reiterate, little has changed over time.
Average family income for the lowest fifth of the income distribution (less than $20,600) has declined steadily since the 2001 recession, with that decline accelerating to greater than three percent annually after 2007. Families earning between $20,600 and $39,764 have seen annual declines in family income greater than two percent, and, like those in the lowest quintile, have watched their incomes slide downward since 2001.
The historical data on poverty rates by age serve as a brilliant illustration of our nation’s misplaced priorities regarding assistance programs. By the official poverty measure, 21.8% of all American children—over 16 million boys and girls—lived below the poverty level in 2012. In fact, only the age cohort 65 years and older has seen *any* decline in the poverty rate since the recession hit in late 2007. This disparity can be attributed, at least in part, to the success of Social Security and Medicare, the transfer programs in place specifically for older Americans. The importance of this safety net cannot be understated—without it, over 15 million more seniors would live in poverty. This protection, however, should not come at the expense of programs that assist low-income families.
The cuts to the SNAP already in effect, and the more extensive ones proposed by the House GOP as an addendum to the Farm Bill, would devastate low-income households that rely on these benefits to stave off poverty. The Census Bureau estimates that SNAP alone keeps 4 million low-income parents and children above the poverty line. The House GOP’s proposed cuts would almost entirely erase this benefit. In addition, the federal Earned Income Tax Credit keeps 3.1 million children out of poverty. Though neither estimate is included in the official poverty estimates released yesterday, both are included in the Census Bureau’s Supplemental Poverty Measure (SPM), to be released October 30.
Today’s data release only underscores the importance of America’s safety net. Until household incomes recover fully from the recession—which they continue to show no signs of doing in the immediate future—programs like Social Security, Medicare, SNAP and Medicaid are all keeping millions of children, working families and seniors out of abject poverty. Now, more than ever, is the time to strengthen our policies, and lend a hand to families working to climb out of poverty.
Extreme Savers: From Owing $25K to Being Debt-Free in 2 Years
By Sarah Cocclimoglio on 09/17/2013 @ 06:30 PM
EDITOR'S NOTE: This post originally appeared on the College Park Patch and can be read here.
The second time was the charm for Randy Buckman, who had to learn twice that living paycheck to paycheck and racking up credit card bills to maintain a lifestyle wasn’t worth the stress.
At 25, he was still living at home with his parents, with credit card debt, a car loan and no savings account. Buckman wasn’t born a saver, but he realized his financial future was uncertain if he continued spending more than he was earning.
“I thought to myself one day, ‘If this is the way I am living while I live with my parents, how is it going to be when I am on my own with a family to take care of?’” he said.
This realization inspired Buckman, of Rochester, Mich., to start teaching himself about personal finance, saving a little bit of money and paying off some credit cards. Two years later, he was engaged and househunting. He and his fiancee found a 1,700-square foot foreclosure on two acres and bought it for $60,000 less than it had been worth the previous year.
“We patted ourselves on the back as we signed our income away for the next 30 years,” Buckman said.
Despite his newly learned financial lessons, Buckman and his future wife went through their savings and started to rack up credit card debt fixing and updating their new home. “We were wearing out the magnetic strips on our numerous cards,” he said.
Finally, still reading about personal finance and looking for “that one thing, that one piece of advice, that one tip that we just weren’t doing,” Buckman, now 32, said he came across a book, Dave Ramsey’s The Total Money Makeover, that told him to cut up the credit cards and quit borrowing money of any kind, and to live off a written monthly budget every month.
“Prior to that, we had been saving and paying extra toward debt when we could, but it wasn’t a priority,” Buckman said. “If ‘life’ happened, we would use our savings and if that wasn’t enough, we would use debt to catch the remainder, then start the cycle over of trying to save and pay off debt. Not only did we not have a plan for the unknowns of everyday life, but we didn’t have a plan for the knowns either.”
The couple then committed to acting like borrowing money was illegal. It changed the way they viewed their income and expenditures; they vowed to pay off all of their non-mortgage debt—from car and student loans to credit cards—in two years.
Nine months later, they had paid off $25,000 using money from their wedding, a pay increase Buckman’s wife received when she took a new job, and money Buckman earned working overtime at his first job as a firefighter and paramedic, and by taking on a second job. The couple even accumulated six months' worth of living expenses in savings.
Eventually, they decided to downsize, selling their house at a loss for a 750 square foot apartment closer to work. This way, when kids came along, the Buckmans could afford to live on one income so that Buckman’s wife could stay home with the kids.
“We don’t plan on remaining in an apartment forever, but when we do buy a house, it will be more well thought out and fit our lifestyle,” Buckman said.
Here are some lessons Buckman learned along the way to financial stability:
- Start at the bottom. Pay off balances starting with the smallest amount, irrespective of interest rates. After you pay off the smallest debt, apply the monthly payment you were making to the next smallest debt plus the minimum payment. You won’t feel any out-of-pocket loss and your debt will start to disappear.
- Buy used. The Buckmans save money by shopping at thrift stores, Craigslist and mom-to-mom sales, especially for clothing and kids’ items. If you must buy new, try to buy refurbished items or floor models.
- Spend some to save some. If diaper bills have you in a budget crunch, consider going cloth. Buckman and his wife laid out $200 up front for cloth diapers and wipes, but ended up saving thousands because they didn’t buy disposable diapers.
- DIY. Buckman makes his own laundry detergent, makes almost all meals at home from scratch and uses baking soda and vinegar for almost all of his household cleaning.
- Plan for the unknown. To break the cycle of having to deplete their savings account for unexpected expenses, the Buckmans initially saved $1,000 in an account to cover the “what ifs” of life before they started their debt-busting. “Once we had that money in place and used it properly, it was much easier to concentrate on not only getting out of debt, but staying out of debt,” Buckman said. “We didn’t have to stay in the cycle of paying off debt, just to go back into debt when the car broke.”
TELL US: What are your tips for staying debt-free? Share them in the comments section below.
New Projects Symbolize New Approaches to Helping Low-Income Families Build Wealth
By Sean Luechtefeld on 09/16/2013 @ 11:30 AM
Since last summer, CFED and the Assets & Opportunity Network have worked together to convene learning groups. These opportunities offer CFED and participating organizations the chance to work with and learn from each other about strategies that improve the well-being of economically disadvantaged members of communities across the country. This summer, four new peer learning opportunities have been made possible thanks to the Administration for Children and Families’ (ACF) ASSET Initiative Partnership, Bank of America Charitable Foundation, the MetLife Foundation and Wells Fargo, and we’re excited about the ways that these new opportunities will drive innovation, collaboration and scale in the field.
Here’s a preview of these four exciting new opportunities:
- Head Start Integration Cluster: This Intensive Learning Cluster will focus on integrating and/or expanding integration of financial-empowerment strategies into Head Start programs. On August 29, CFED—with support from the ACF’s ASSET Initiative Partnership—released a Request for Expressions of Interest for Head Start programs interested in receiving peer and expert advice on how to better offer, partner to provide or refer Head Start families and staff to asset-building services.
- Integrating Financial Capability into Social Service Delivery Systems: This Intensive Learning Cluster—sponsored by Bank of America Charitable Foundation—will bring together programs providing housing, workforce development and emergency assistance services that wish to strengthen the financial capability of the clients they serve. Technical assistance and peer learning opportunities will be provided over an 18-month period as organizations pilot an asset-building intervention and document outcomes and lessons learned.
- Savings Innovation Learning Clusters: These learning clusters—sponsored by MetLife Foundation—will bring together six direct service organizations that will develop and test innovative, “next generation” savings program models that help clients build emergency savings or save for longer term asset-building goals. Selected organizations will participate in peer learning opportunities both in-person and virtually over the course of 15 months, as well as receive individual technical assistance, to facilitate piloting and evaluation of their savings program models.
- Assets & Opportunity Network Peer Learning Groups: Starting this fall, CFED will facilitate the formation of Peer Learning Groups, sponsored by Wells Fargo. These groups will come together over the course of 3-6 months to advance a shared learning agenda about common topics of interest, including coalition building, asset limits, prepaid cards, curbing predatory lending and more.
Each of these new projects are exciting, both because of the valuable insights and relationships we know our partners will develop, and because of how these new connections and collaborations will build capacity and catalyze the field to even greater levels of scale, innovation and impact. We hope you are as enthusiastic about these opportunities as we are, and we look forward to formally inviting you to participate this fall.
All-In Nation: Making the America that Works for All
We were delighted last month when the Center for American Progress (CAP) and Policy Link released All-in Nation: An America that Works for All. The book, edited by Vanessa Cárdenas and Sarah Treuhaft, is an eloquent explanation of how strong communities of color are the linchpin to a vital economic future in the United States. We were also extremely pleased to see that saving, college access, education, homeownership and so many other issues typically left out of the conversation were thoughtfully included in this treatise on inclusivity.
All-in Nation is noteworthy for how it advances the conversation about asset-based strategies that create pathways for economic security. As one example, we love the recommendation that Congress turn certain tax deductions into refundable tax credits as a method for incenting saving. Likewise, the proposal for a savings tax credit to be used for a variety of purposes such as retirement savings or health care is one that Congress ought to seriously consider if they want to move the dial on our country’s burgeoning racial wealth gap. It’s policies like these—moveable, meaningful and manageable—that actually have the potential to make a difference when it comes to ensuring fair financial footing for communities of color.
All-in Nation also gains kudos for including in its pages descriptions of many of the collaborative efforts to close the racial wealth gap and advance America’s assets agenda that are springing up around the country.
An additional example to consider is the Asset Building Policy Network, or ABPN. Made possible through support from Citi, who is also a member, the ABPN is a coalition of the nation’s preeminent civil rights and advocacy organizations—including CAP and PolicyLink—committed to improving economic opportunity and security for low- and moderate-income families and communities of color. The ABPN engages in policy advocacy, such as authoring several comment letters to federal agencies, which has resulted in action by the agencies that supports ABPN issues. The Consumer Financial Protection Bureau, for example, directly quoted the ABPN’s comment letter on financial education. ABPN members have also collaborated to conduct research, including the recent collaboration among member organizations National Council of La Raza, National Urban League and National CAPACD to study the financial access challenges facing low-income people of color in the financial marketplace.
These examples, and the broader message of All-in Nation, reaffirm one of CFED’s core values: collaboration. As a special organizational calling and competency, engendered by a conviction that our success requires the varied talents and contributions of many, that a rich diversity of race, gender, background and perspectives and a commitment to learning from others strengthens our work, collaboration has defined our work since the beginning.
As Dr. King reminded us some 50 years ago, change doesn’t roll in on the wheels of inevitability; it comes through continuous struggle. That struggle is as important now as ever before; CFED’s own research finds that about two-thirds of households of color find themselves living in asset poverty, meaning they lack the resources necessary to sustain themselves at or above the poverty line in the event that an emergency like illness leaves them without their primary source of income.
While we cannot undo past discrimination, we can change the trajectory of its future. This is the call that organizations like CAP and Policy Link and coalitions like the ABPN are heeding every single day. Books like All-in Nation are precious moments when that call is amplified, so we hope you’ll read it as soon as you have the chance.
Saver Success Story: Meet the Rojos
By Jimmy Crowell on 09/11/2013 @ 03:30 PM
Now with expanded geographic eligibility: Accepting submissions from nearly 230 counties in 19 states!
CFED and Bank of the West have partnered to bring IDA practitioners a unique opportunity to support their homeownership savers. To advance homeownership and encourage the work of IDA practitioners, CFED, with support from Bank of the West, is looking for stories and photos of recent homebuyers in eligible counties within the 19 states Bank of the West serves. In exchange, CFED and Bank of the West will provide your program with $2,000 in matching funds and $1,000 in administrative support for financial education (for a total of $3,000) for each story that is accepted. This will be the last opportunity to receive programmatic support in exchange for saver stories in 2013, so act fast!
IDA programs interested in applying must submit a homeowner’s story, photo and signed waiver for each eligible saver, and must comply with the terms on the Saver to Homeowner Story Fund website.
Need some inspiration? CFED and Bank of the West are pleased to share the story of one family’s participation in an IDA program and their subsequent journey to financial stability through homeownership:
In May 2012, Ruben and Jennifer decided to take the first steps toward homeownership. Saving money had always seemed hard, but they were determined to provide a better home and a safer environment for their children. The Rojos believed that if they wanted to make a change in their lives, it would be up to them to make it happen.
Ruben found out about Catholic Community Services’ Individual Development Account (IDA) Program through Habitat for Humanity and immediately enrolled. Unfortunately, his weak credit made it difficult to secure a mortgage. Through the financial education classes required by the IDA program, Ruben began working diligently to repair his credit score. He also learned how to budget for his family, and plug “spending leaks” so that the family could build their savings. Suddenly saving felt much easier – and Ruben was pleasantly surprised that the family only had to make a few small lifestyle changes to reach their savings goal.
In May 2013, one short year after enrolling in the IDA program, Ruben and Jennifer accomplished their goal of homeownership. They had always lived in apartments and had never owned a home before. The difference, Ruben says, is “like night and day.” For the first time, the family feels truly at home, and has enjoyed a sense of community and stability that had previously been lacking – and the children have quickly made friends in their new neighborhood.
Looking back on the experience, Ruben is astounded by all the unforeseen benefits homeownership has brought them. “My family and I started to have a healthier life. Our lives became more stable,” he explains. Now, the Rojos have adopted a new mindset when it comes to their finances, and plan to continue using the skills they learned through the IDA program. “We think differently now and feel, if we really want to, we can do almost anything,” says Ruben. And he’s passing on his learning to the next generation: “I plan to teach my kids good habits like saving,” he says with pride.
How Food Stamps Keep Families in a Cycle of Poverty
By Mercedes White, Deseret News on 09/09/2013 @ 12:00 PM
EDITOR'S NOTE: This article originally appeared in Salt Lake City's Deseret News and you can read it here.
On a recent Monday evening, 6-year-old Esther lugged a jar of Nutella from the kitchen into the living room where her mother Melissa, nine months pregnant, rested on the sofa in their modest Utah County home. Esther held the jar out to her mother, smiling shyly as she asked for permission to have some. Melissa let out a gentle sigh as she unscrewed the lid. “Not too much,” she said as she handed the jar back to her daughter. In one week she may not be able to give her daughter luxuries like a spoonful of Nutella.
Until recently, Melissa and her husband Jimmy received $400 a month from the Supplemental Nutritional Assistance Program, also known as food stamps. Combined with the $21,000 Jimmy earns as a security guard at a local hospital, it was just enough to feed their four (soon to be five) children ages 2 to 10.
Since 2007, the number of Americans on SNAP has exploded, going from approximately 22 million people at the start of the recession in 2008 to more than 45 million in 2013. The program provides these families a much-needed safety net as they struggle to get back on their feet, according to Jennifer Brooks, policy director with the progressive Corporation for Enterprise Development based in Washington, D.C.
Jimmy and Melissa say they would like to get off food stamps altogether and be on their own, but the rules governing eligibility for the program make it hard. In particular, federal policy stipulates that no matter how small the income or how large the family, persons with assets more than $2,000 — which include savings accounts — are not eligible to take part in SNAP.
According to many social policy experts, this rule needs to be changed. “Asset tests impede the process of moving from dependence on government assistance to self-sufficiency,” said Michael Sherraden, professor of social work at Washington University in St. Louis. Savings are an important part of economic development, he said. “In order to develop capacity, families and communities must accumulate assets and invest for long-term goals.”
A safety net of three months worth of living expenses can ensure that low-income families have some cushion when their car breaks down or work hours get cut, said Brooks. “It will be the difference between going right back on government assistance when an unexpected expense comes up and being able to absorb the cost and remain self-sufficient.”
Wrong to save
Melissa and Jimmy didn’t know about the asset limitation when they decided to put a $3,000 tax refund into a savings account. The couple was eager to get off government assistance as soon as possible. “I never thought I would be in a position where we needed this kind of help,” Jimmy said. Putting some money aside for unexpected expenses and towards a down payment on a home seemed like important first steps.
Several months after depositing their refund, the couple received notice that their food-stamp benefits would be cut at the end of July. The couple understands why the rule exists, but they said it came as an unexpected blow. “You don’t want people with no income and $50,000 in savings taking government benefits,” Jimmy said, “but that isn’t what was going on here. They need to look at the totality of the situation.”
Melissa and Jimmy weren’t sure what to do. Without SNAP they’d need to use their nest egg to feed their family, defeating the purpose of saving in the first place. Not only would they lose their savings, their monthly food budget would go from $400 on SNAP to $250. As she looked at the numbers, Melissa wasn't sure if she could feed six people on that. Though the family eats modestly on SNAP, there is room for some fresh fruits and vegetables and the occasional treat. Without SNAP, the only way they could get by is by cutting out fresh produce altogether. Melissa is reluctant to go this route: "I'm worried this kind of diet will jeopardize my kids' health," she said.
The alternative is to spend some of their savings so they can again qualify for SNAP. “It felt like a no-win situation,” Melissa said, “like we were being forced to choose between what is good for our family in the long term and what our kids need right now.” Survival in the short term and financial security in the long term seemed completely at odds.
Melissa and Jimmy's experience is not unique — according to Reid Cramner, a director with the New America Foundation's Asset Building Program — it is how American welfare works. The rules force "families to choose between a small emergency cushion and putting food on the table," he said in a recent statement for the New American Foundation. "We're forcing them to accept long-term poverty in exchange for short-term assistance."
Prior to 1996, federal social assistance programs like food stamps focused on providing long-term income support to poor Americans. “Essentially, people could be on welfare indefinitely,” Brooks said. “In this context (when the goal of the program is to provide income support), an asset test makes sense,” Brooks added, explaining that it reduces the likelihood that individuals with the resources to support themselves will claim government assistance.
However, the “Personal Responsibility and Work Opportunity Reconciliation Act,” signed by President Bill Clinton in August of 1996, marked a fundamental shift in the American approach to social welfare programs. “The goal of the welfare reform was to move families off government assistance,” Brooks said. “You couldn’t be on welfare forever anymore.”
But when the federal government made these sweeping changes to welfare, the assets test remained in place. The problem with assets tests, however, is that they are “contrary to the goal of getting people off welfare,” according to Brooks. “If a program has the explicit goal of moving people from dependency to self-sufficiency, people need to have an opportunity to build up a safety net before they transition off government assistance.”
The states’ role in welfare
Welfare is federally funded, but it is up to each state to determine how to administer the programs, including SNAP, Medicaid and Temporary Assistance for Needy Families. Shortly after welfare reform, some states recognized that assets tests didn’t make sense anymore. Since 1996, 35 states eliminated assets tests for SNAP benefits. Five states (Nebraska, Pennsylvania, Texas, Michigan and Idaho) increased the amount of assets beneficiaries can hold from $2,000 to between $5,000 and $25,000. Ten states (including Utah, Wyoming, Virginia and Alaska) use the federal government’s $2,000 assets threshold.
Moving off dependence on government benefits is difficult everywhere, but the challenges are especially formidable in states with strict assets limits. In many circumstances it means that families, like Jimmy and Melissa, are getting pushed out of the nest before they can fly. "These programs are supposed to help people transition out of poverty," said Martha Wunderli, state director of the Fair Credit Foundation in Utah, a non-profit organization that provides financial services including education, debt management and asset building programs for low-income families. “Building assets is a big part of getting out of poverty ... and it is not fair to remove benefits that help them get out of poverty before they are ready."
Some states are reluctant to change their policies due to fears people will abuse the system. Brooks notes several states reinstituted assets tests after allegations of lotto winners and wealthy elderly retirees receiving benefits were made public by the press.
Brooks recommends that instead of re-instituting assets tests, governments change the rules about what counts as income. “The situation with the lottery winners could have been avoided if state law considered their winnings income, not assets,” Brooks said.
But not everyone agrees. Some conservative lawmakers want to hold all states to the federal assets limit. For example, Rep. Paul Ryan (R-Wis.) and Rep. Frank Lucas (R-Okla.) would like to add a condition to the Farm Bill that would force states to adhere to the federal government's assets test. This could result in millions of people losing benefits, Brooks said, adding that supporters of this policy consider it a way to decrease fraud.
Weeks away from delivering her fifth child, Melissa isn't in a position where she can work. Even after the baby comes she's unsure about whether she will be able to work. The couple's eldest daughter has a rare chromosomal abnormality, which requires extensive medical care and behavioral therapies. Someone needs to be there to take her to these appointments and communicate with the doctors and therapists about her progress. She'd love to take on some part-time work from home, but it will be some time before she's in a position to do that.
Jimmy is looking for better-paying jobs, too. He'd like to apply for the police force in their city, but at this point, his fitness level isn't where it needs to be to meet the requirements. He's working on it, but it will be a few months before he can apply for the police force and several more before he would start working — assuming he gets hired.
As they look at the numbers and their current situation, Jimmy and Melissa feel they don't have much of a choice but to spend some of the money they saved so they can again qualify for SNAP benefits. They would prefer the security and potential for leaving welfare that the savings represented, but as Jimmy puts it, ”When you have kids, you have to put the needs of your family before your pride.”
Asset-Building News Roundup - September 6, 2013
By Sean Luechtefeld on 09/06/2013 @ 12:30 PM
Registration for CFED’s Assets & Opportunity Network Leadership Convening will open on September 16. The event will take place at the Holiday Inn Capitol in Washington, DC, on December 3 & 4. Stay tuned for more details.
Bank of the West has announced the final round of its Saver to Homeowner Story Contest. If you work with savers in an IDA program who are working toward homeownership, your organization could win up to $3,000. Read more here.
The Christian Science Monitor published an article, authored by Next Step CEO Stacey Epperson, about how manufactured homes represent an asset-building opportunity for low-income families, both by providing a stock of affordable homes and also by helping families to save money on energy costs. Check it out.
From the Assets & Opportunity Network
Using the Urban Institute’s mapping tool, the YWCA of Metropolitan Dallas finds that over the past 30 years, poverty among Hispanic families in Metro Dallas has grown significantly. Read about it and other findings here.
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