By Rashmi Joshi on 08/09/2011 @ 11:30 AM

Tags: Recommended Reading

CFED's Vice President of External Relations Kim Pate passed this along - how interesting!

Chicago, IL (July 22, 2011) — Representatives of 11 Chicago-area community development organizations and Citi will gather today to applaud Chicago City Treasurer Stephanie D. Neely’s launch of the Bank On Chicago financial inclusion initiative and to announce that they have joined together to form the Chicago Credit Building Coalition (CCBC).

The CCBC will expand financial inclusion for low- and moderate-income residents in the Chicago area by complementing existing financial education programs with a financial tool, provided by Citi, that supports credit-building. The community development organizations Justine PETERSEN and Credit Builders Alliance will provide the CCBC members with assistance and tools to increase their capacity to provide these services and to monitor the impact that financial coaching complemented by the use of this product can have on individuals’ credit profiles.

“Having a good credit profile is essential for lowering an individual’s day-to-day transaction costs, growing their assets through small business or homeownership and securing employment, said Stephanie D. Neely, Chicago City Treasurer. “These organizations are demonstrating their commitment to helping underserved Chicago residents, and by working together they will have a tremendous, positive impact.”

The Chicago Credit Building Coalition members are: Chicago Urban League; Citi Community Development; Illinois Hispanic Chamber of Commerce; JVS Chicago; Local Initiatives Support Corporation of Chicago; Mercy Housing Lakefront; National Latino Education Institute; Neighborhood Housing Services; Partners in Community Building; The Resurrection Project; South Side Community Federal Credit Union; and Spanish Coalition for Housing. Supporting partners of the CCBC are Justine PETERSEN and Credit Builders Alliance.

Highlights of the program include:

• Financial coaching and education to help participants improve their financial behavior and learn credit- and asset-building best practices.
• Client access to a secured or unsecured credit card provided by Citi subsidiary Banamex USA to help individuals build their credit history.
• A streamlined, Web-based system to help nonprofit partners assist clients with applying for and monitoring their use of the credit card. Nonprofit Justine PETERSEN developed the system along with Citi Microfinance and will provide technical assistance to the CCBC members for card processing.
• The ability for CCBC members to monitor changes in their clients’ credit score, through the assistance of Credit Builders Alliance, which will provide training and access to CCBC members and the opportunity to identify those programs that are most impactful.

“Especially in the current economic climate, being creditworthy is essential to economic empowerment,” said Donna Rockin, Director of the Illinois SBDC / Duman Microenterprise Center at JVS Chicago, which is serving as the lead coalition member. “We have provided one-on-one credit counseling for over 20,000 individuals since 1997. We’ve seen that the right kinds of intervention can take people with low or no credit scores and with significant debt to the point where they can buy a home or start a business. By coming together to offer this innovative package of financial tools and education, we are going to have a tremendous impact in terms of helping Chicago residents establish and raise their credit scores. It’s a collaborative and comprehensive model that other cities will want to adopt.”

"The communities we serve need not only financial coaching but also access to financial products and services in order to achieve financial inclusion and success," said Elba Aranda-Suh, Executive Director of the National Latino Education Institute. "Citi's ability to provide useful financial tools that also will enable people to raise their credit scores complements the critical financial coaching and education that the coalition members are already providing."

The Banamex USA credit card is already in use in other programs to help people with low credit scores or no credit to build their histories and increase their credit scores. For applicants with no or limited credit history, the secured card requires a small minimum cardholder security deposit of $300 and a commitment as prescribed by the community organization to attend a series of free financial education classes on improving one’s credit scores and financial capability. Early pilots indicate that customers have increased their scores by an average of 50 points through the use of the card and financial education resources. Close to 23 percent of customers opening a Banamex USA card originally had no reported credit history.

“This initiative is the kind of collaborative approach that we’ve found to be effective in our ongoing efforts to expand financial inclusion,” said George Wright, Midwest Region Director for Citi Community Development. “These local partners, with in-depth knowledge of the financial challenges impacting Chicago residents, are combining forces to maximize impact and scale of their credit building efforts. We think that’s a smart strategy and we’re proud to provide the technical assistance and the financial product to move this initiative forward.”

By Sean Luechtefeld on 08/08/2011 @ 11:00 AM

Tags: Recommended Reading

In case you missed it, here’s your recap of last week’s top posts from in and around the assets & opportunity blogosphere.

A Deep Sigh of Relief…
…mostly because breathing will now be possible. The Green for All blog notes that the White House and 16 key agencies, EPA included, have signaled significant increases in support for those communities most affected by pollution. Read about the new measures here.

Glad That’s Over. Wait...What? It’s Not?
Seems like we’ve heard all we want to hear about the debt ceiling and deficit reduction measures. Unfortunately, we haven’t heard all we will hear. David Bradley, Executive Director of the National Community Action Foundation, notes on his blog that these talks are nowhere near over and that we should expect to hear more throughout the rest of 2011. What’s worse – the possibility for cuts to CSBG. Read more here, if you can tolerate it.

With Just the Right Amount of Snark…
…the bloggers at AFL/CIO note that amidst the hubbub of debt talks, attention is straying from jobs. Yet, a slowing of progress on the jobs front is clear, evidenced by rising unemployment rates in 90 percent of America’s cities. For a slew of interesting data, check out the AFL/CIO Now blog.

Have a link you’d like to share with our readers? Send us an email!

Related Blog Posts

• In Case You Missed It – July 26 Edition
• In Case You Missed It – August 2 Edition

By Sean Luechtefeld on 08/04/2011 @ 11:15 AM

Tags: Events

Today, August 4, 12:00 Noon – 1:00 PM EDT / 9:00 AM – 10:00 AM PDT

Today, CFED President Andrea Levere will be the featured speaker on Net Impact’s Issues in Depth call. The topic of the discussion, Building the Inclusive Economy, will explore how the asset-building field is working to merge community practice, public policy and private markets in innovative ways to bring all Americans into the mainstream economy.

Issues in Depth calls “provide Net Impact members with the chance to interact with industry and thought leaders, and stay up-to-date on the latest hot topics and career trends in environmentally and socially responsible business.” The call will allow participants the opportunity to ask questions and will feature interactive discussions about the issues that matter most in our field.

For more information or to join today’s call, visit the Net Impact website. The call is only open to Net Impact members, but we hope you’ll be able to join Andrea later today!

By Johanna Barrero on 08/04/2011 @ 11:00 AM

Tags: Children's Savings Accounts, Financial Empowerment

CFED is currently involved in a number of Children’s Savings Account initiatives serving young children, several of which are targeted toward children age five and younger or children in Head Start and Early Childhood Development programs. We know from experience that children’s savings initiatives that incorporate both a savings account and financial education combine two powerful opportunities for families: a chance to save and a chance to learn. Since we are working with such young children, we had to ask: what is appropriate financial education for preschoolers? What can we teach children at this early stage about money? Karen Holden from the University of Wisconsin-Madison addressed this question in her study, Financial literacy programs targeted on pre-school children: development and evaluation.

The study discusses childhood cognitive development and highlights some important aspects that many of us already intuitively know. Perhaps most important is that habits children learn when they are young form the basis for their future behavior; in this case, their financial behavior. Since most of the habits children acquire during the early years depend greatly on what they see and learn from their parents, financial education for preschoolers must rely on parents reinforcing these concepts at home. This means that teaching financial literacy to preschoolers can be most effective when the whole family is involved.

Recent research suggests financial education can be successful for children as early as preschool.

So how do we know what money concepts to teach to preschoolers themselves? The study points out that money as an abstract, isolated concept is almost impossible for children to grasp. Preschool-aged children have not yet developed the ability to add or subtract, and they have no direct experience earning money, spending it or using a financial institution to save it. But, they do have a pretty good understanding of the concept of exchange and value and people’s willingness to make deals and trade things. They learn this from an early age through constant negotiations with their parents and caregivers and through conditional transfers (rewards for desired behavior). They also learn these concepts through playing and socializing with other children. Children form their own ideas and understanding about money based on their experience and their engagement in social practices involving money. Therefore, an effective way to teach children about the value of money and money management skills is to incorporate these concepts into their daily social interactions and familiar environments.

The notion of time is another important cognitive developmental factor to consider when delivering financial education to preschool children. Children this age do not fully understand the difference between past, present and future, all of which are essential concepts for understanding the principles of saving and investing (i.e., delayed gratification in the present for future gains). According to the study, children first understand the difference between present and future around important life events such as their birthdays. Creating special events around saving, like setting a savings goal for an important date, may be an effective way of delivering financial education that takes into account children’s concept of time.

In addition to the fascinating information on children’s cognitive development, the study provides a very comprehensive review of financial literacy curricula for school aged children and youth. Some of the programs reviewed were developed abroad, while others were developed in the United States; however, only a few of these curricula target children in the preschool years.

Here are a few of the most compelling preschool financial education resources from that list:

1. Thrive by Five (Credit Union National Association): Teaching your preschooler about spending and saving (http://www.creditunion.coop/pre_k/index.html).
2. University of Nevada Cooperative Extension has two resources: Money Sense for your Children (http://www.unce.unr.edu/programs/sites/moneysense/ and Money on the Bookshelf: A Family Financial Literacy Program (http://www.unce.unr.edu/programs/sites/moneybookshelf/).

In addition to these resources, it is worth mentioning the recent release from Sesame Workshop, in partnership with PNC bank’s Grow Up Great initiative, For Me, for You, for Later: First Steps to Spending, Sharing and Saving. This free kit includes an activity book, a parent guide, saving jar labels and a DVD featuring Elmo and other Sesame Street characters discussing the basics of spending, sharing and saving.

With many new studies and materials coming out each month, expect another blog post covering more financial education resources for children!

Related Blog Posts

• A Nudge in the Right Direction
• Personal Finance in Schools

By Steve Crawford, Senior Fellow on 08/03/2011 @ 11:00 AM

Tags: Economic Inclusion, Recommended Reading

Of the three component of the competitiveness triangle – innovation, entrepreneurship and human capital – the most important is human capital – the knowledge, skills and capabilities of the workforce. Indeed, it is a vital ingredient of the other two. Since this will be my last blog post in this series (I have taken a new position as a Research Professor at the George Washington University Institute of Public Policy), I want to make several points about the growing gap between the demand for and supply of workers with post-secondary education and skills, the opportunities this gaps offers for upward mobility but also the obstacles (affordability and more) the poor face in trying to seize such opportunities, and the role of public policy in facilitating post-secondary access and success. These thoughts draw in part on my experience as a college professor and administrator, elected school board member, special advisor to a state higher education commission, and executive director of a state workforce investment board.

Most simply put, the key issues are quality, equality, quantity, and productivity. Quality refers to the depth and significance of the knowledge and skills acquired. For years we have lamented the mediocre performance of American K-12 students on international tests, but comforted ourselves with the belief that our higher education system is the world’s best. Yet, a growing body of evidence suggests otherwise.

The latest contribution to this critique is the book, Academically Adrift, by Richard Arum and Josipa Roksa. Based on a study of 2,322 students in 24 four-year institutions, it finds no statistically significant gains during the first two years of college in the critical thinking, complex reasoning, and writing skills of at least 45 percent of the sample, as measured by the Collegiate Learning Assessment. The authors argue that these troubling findings are the result of a student body distracted by socializing or employment and an institutional culture that places a low priority on undergraduate learning. Yet, by quality I also mean the economic relevance of the applied learning that does take place. On this, see the recent publication by the National Governors Association: Degrees for What Jobs? Raising Expectations for Universities and Colleges in a Global Economy.

Equality refers to the enormous variations in educational attainment by socioeconomic status, especially race and class. The high school graduation rates (not counting GED) of African-American and Hispanic ninth graders hover around 60 percent, vs. 81 percent for whites and 90 percent for Asians. Differences by income group are even greater: 82 percent of young people from the highest income quartile in America have attained a bachelor’s degree by age 24, compared to only 8 percent of those from the lowest income quartile.

We like to think that education is the door to opportunity for poor children to achieve upward mobility, but in fact it may simply serve to reproduce or even amplify existing inequalities. Although the degree-attainment rates of minorities and low-income students have improved, the gaps that separate Latino and African-American students from their white peers actually are wider today than in 1975, and the gap between low-income and high-income students has doubled.

Quantity has become an issue for two reasons. First, the U.S. has fallen from first among countries in the proportion of young adults who attain a post-secondary credential to 10th, thus perhaps weakening our competitiveness in the global economy. Second, most new jobs require at least some post-secondary education, and even at this time of high unemployment, many good jobs are going begging because employers cannot find workers with the needed skills. This is partly a function of the distribution of specialties among those with post-secondary credentials but not entirely by any means.

President Obama and other national leaders have called for dramatically increasing the proportion of youth obtaining a post-secondary credential, but this vision will be very difficult to realize because of issues of readiness and affordability. The insufficient numbers of young adults who are college-ready reflects the quality and equality problems discussed earlier. Yet, it also reflects the “wilt” among low-income and minority teenagers in their determination to pursue higher education.

Fortunately, several studies and pilots show that matched educational savings accounts not only help young students save money for college; they also “make hope concrete” and motivate students to buck their peer cultures and study hard in high school. On this, see especially the publications of the Center for Social Development at Washington University in St. Louis and the work of CFED, especially its Partnership for College Completion, a partnership with the United Negro College Fund, KIPP schools, and Citibank.

Affordability, on the other hand speaks to productivity. The traditional way to make higher education more affordable has been to expand the financing for it, usually through public financing of institutions and student loans and grants. The problem is that costs have continued to rise far faster than the general inflation rate. Moreover, the states and the federal government face daunting fiscal constraints, student educational debts are generating a backlash, and the public is beginning to question higher education’s value proposition. According to a recent Pew Research Center poll: “A majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they and their families spend.” All this is creating a growing pressure to increase the productivity of higher education.

There are many ways to increase productivity – from three-year degrees to more online education – but most are controversial. The most interesting work in this area comes from Harvard Business School professor, Clayton Christensen and his colleagues. They have produced two important books, Disrupting Class (2008) and The Innovative University (2011) and a report co-published with the Center for American Progress, Disrupting College (2011). All these do a superb job of applying Christensen’s theory of “disruptive innovation”, first presented in his classic, The Innovator’s Dilemma (1997), to education.

I cannot close without saying a word about K-12 education. It’s a good thing that the country is debating ways to increase teacher effectiveness, from improving teacher education to linking salaries to student performance. But we are neglecting two other promising paths forward: public school choice and work-based learning. There is not room here even to summarize key points, but on the former, see Richard Kahlenberg’s excellent book, All Together Now: Creating Middle Class Schools through Public School Choice, which shows how to counter the terrible effects of concentrated poverty –in part by combining choice with the requirement that every school take its fair share of free-and-reduced-meal students. On the latter, see the recent report from the Harvard Graduate School of Education, Pathways to Prosperity: Meeting the Challenge of Preparing young Americans for the 21st Century, a report on work-based learning programs that hold great promise for improving high school graduation rates, especially of low-income males.

EDITORS’S NOTE: Good luck in your new position at George Washington, Steve!

By Sean Luechtefeld on 08/02/2011 @ 02:30 PM

Tags: Recommended Reading

In case you missed it, here’s your recap of last week’s top posts from in and around the assets & opportunity blogosphere.

Since You Haven’t Heard Enough Already
Unless this is your first visit to the interwebs in weeks, you’ve noticed that Congress has reached an agreement on the debt ceiling debate, Congress has approved the plan and it is on its way to President Obama’s desk as I write this blog post. Kathryn Baer’s Poverty & Policy blog provides an insightful analysis of the deal, arguing that while not ideal, much worse outcomes could have happened. Check it out here.

More on the Racial Wealth Gap
Last week, CFED President Andrea Levere spoke to the National Urban League Convention about some of the chilling findings released in a recent Pew Research Center report about the growing racial wealth gap. This week, the Oklahoma Policy blog reports that one factor compounding the problem is disparity between African-Americans and their white counterparts in unemployment levels. In Oklahoma, for example, the unemployment rate for whites is 7.2% (lower than the national average), but is almost twice that amount (13.1%) for African-American Oklahomans. Read all about it here.

Strong Cities Initiative Launches
The Harvard Kennedy School’s Government Innovators blog posted news about the White House “Strong Cities, Strong Communities” Initiative. The post explains the initiative, whose goal is to expand economic development within American cities across a variety of sectors. The program will include a six-city pilot, with Fresno, Memphis, Detroit, New Orleans, Cleveland, and Chester, PA, participating. Read the full press release here.

Have a link you’d like to share with our readers? Send us an email!

Related Blog Posts

• In Case You Missed It – July 26 Edition
• In Case You Missed It – July 12 Edition

By Carol Wayman on 08/02/2011 @ 02:00 PM

Tags: Federal Policy, Policy Alerts

Moments ago, the Senate voted to approve a plan that would increase the debt ceiling and decrease the federal deficit by roughly $1 trillion over the next ten years. The plan, which earned approval from the House yesterday, will go to President Obama to sign into law by the end of the day today.

While a much-needed step in ensuring the U.S. government avoids defaulting on debts, the plan does not go far enough given the needs of low- and moderate-income Americans. In order for a deficit reduction plan to truly do what is needed for these disadvantaged communities, a reduction in spending is needed alongside increases in revenue. Those revenue increases, however, are missing from the bill.

In other federal policy news, my opinion piece calling for greater investment in economic development activities by the Federal Home Loan Bank system was published in the 36th anniversary edition of Shelterforce Magazine. Read the piece here, and then use the comments section below to weigh in on how the FHLB’s Affordable Housing Program can serve as a model for expanding the nation’s economic development system.

By Rashmi Joshi on 07/29/2011 @ 05:00 PM

Tags: Financial Empowerment, Individual Development Accounts, Matched Savings

As CFED begins its 2012-2014 Strategic Planning process, CFED Communications Intern Rashmi Joshi takes a look back at what we’ve accomplished during the 2007-2011 Strategic Plan phase in a series of blog posts. You can read last week's post here.

Welcome back to our new series that analyzes the successes of our Strategic Plan for 2007-2011! This week’s post will discuss the successes of the objectives that CFED initially set for Financial Security. For all four years (2007-2011), CFED set out to provide opportunities to achieve financial security for the millions of Americans who face hardships that prevent them from building wealth. One goal that was set throughout the lifespan of the Strategic Plan was to positively impact 50 million individuals through policies that provided asset-building opportunities. The assumption here, of course, was that CFED was part of a movement behind the passage of these policies. CFED performed consistently for the past four years, positively affecting an estimated 43 million Americans through policy change. Therefore, we achieved 86% of our goal.

The statement of these findings brings to light an obvious question is: How did CFED measure the number of individuals who were positively affected? We defined an individual asset-building opportunity as an Individual Development Account (IDA), Children’s Savings Account (CSA), Matched 529 Account, employer matched retirement account, and any other matched savings account. In order to calculate the number of individuals who held one of these accounts, CFED tracked the AFI funding as proxy, multiplied this number by two to determine the total funding (including non-federal matches), and divided that amount total by a set per-account amount.

What kind of state and federal policies did CFED support that allowed for these asset-building opportunities? The answer lies in the other measure used to track CFED’s progress in achieving its goals within the category of Financial Security. Starting in 2009, CFED set a goal of achieving 100 state or federal policy changes that supported asset building each year. This goal was met by 96% until the third quarter of 2010, when CFED dramatically increased its effectiveness in policy change. From Q3 2010 onwards, CFED has met its goal of creating 100 policy changes towards asset building at the state or federal level per year by 115%. (2011 figures are in the process of accumulating, and are therefore excluded from this study.)

Achieving 115% or even 96% policy changes that support asset building seems like a difficult task. In order to calculate this figure, we asked ourselves the question: Did a positive legislative or regulatory change happen? The answer was yes, several of the policies that we supported went above and beyond in meeting this criterion.

Overall, CFED met its goals regarding the first measure – providing asset-building opportunities to 50 million Americans – with a 96% success rate. From 2009 until late 2010, CFED held a 96% success rate for its goal of obtaining 100 federal or state policy changes. This, combined with CFED’s 115% success rate with which the goal was met in the last quarter of 2010, creates an average 98% success rate with which CFED accomplished the second measure within the Financial Security category of the Strategic Plan – that is, the measure of state and federal policy changes that supported asset building. These successes demonstrate CFED’s unique ability to transform abstract issues of low-income communities into real-life solutions that can sustainably improve their quality of life. In this way, CFED continues to make strides in providing pragmatic, viable solutions to the financial crises faced by underprivileged communities.

Related Blog Posts

• CFED's 2007-2011 Strategic Plan: An Analysis
• A Fresh Behavior-Inducing Solution: Tiered Matched Savings

By Sean Luechtefeld on 07/29/2011 @ 04:00 PM

Tags: Economic Inclusion, Events

Andrea Levere

Earlier today, CFED President Andrea Levere gave a presentation to the National Urban League Convention stressing the critical need to build infrastructures that build assets. Andrea’s address highlighted the fact that rates of asset poverty exceed those of income poverty, especially among some of America’s most vulnerable populations, including communities of color.

There has been a lot of talk this week about the asset disparities for families of color. In her discussion of the burgeoning racial wealth gap, Andrea cited a report released earlier this week by the Pew Research Center, which found that racial disparities in asset ownership are at their highest levels since the mid-1980s.

A few of the key findings of this chilling research that Andrea discussed include:

• The median wealth of white households is 20 times higher than the median wealth of black households and 18 times higher than the median wealth of Hispanic households
• Four times as many Hispanic and black households had zero assets when compared with their white counterparts
• Thirty-five percent of black households and 31% of Hispanic households have zero or negative net worth, compared to 15% of white households

To download a PDF of Andrea’s presentation today in Boston, click here. Then, leave your comments by clicking the link below.

By Lauren Williams on 07/28/2011 @ 04:30 PM

Tags: Events, Housing and Homeownership

In May, we brought together over 80 federal agency staff, nonprofit leaders and other allies to discuss Manufactured Housing and the Future of Affordable Housing at our Bringing it All Home event. This event exceeded all our expectations for numbers of participants, quality of presentations and discussions, and concrete ways to move our agenda to transform the manufactured housing marketplace forward.

Bringing it All Home raised the visibility of our nonprofit partners’ use of manufactured housing in scalable strategies that promote long-term economic security for low- and moderate-income individuals and how federal affordable housing programs can further these efforts. Each session showcased a different partner and was structured so that high-level federal agency officials on the panel could respond to their strategies. Through these conversations, we raised awareness among key policymakers on the importance of fully integrating manufactured housing into the federal response to affordable housing.

As promised, the I’M HOME team has researched and followed up on new ideas and is exploring innovative new opportunities for partnership that were suggested at this convening. We have catalogued the key takeaways from this event in two documents:

The Convening Report provides a quick summary of the event followed by key takeaways from the convening and strategies that will guide the I'M HOME network and nonprofit partners as we move forward.

Some key strategies include:

• Setting priorities to frame a shared comprehensive policy, program and financing agenda
• Cultivating champions at every level of government
• Working from the state and local levels up and from the national level down
• Strengthening existing partnerships and building new ones
• Conducting a targeted, consistent communications and public relations campaign
• Continuing to tell the stories of manufactured homeowners

The Action Agenda for Federal Agencies and Other Partners outlines challenges facing the integration of manufactured housing into federal affordable housing strategies and offers several potential policy changes that could address those challenges, many of which were discussed at Bringing it All Home. The four challenges include:

1. Regulatory barriers prevent affordable housing developers from acquiring the federal support necessary to use manufactured housing for new and replacement development.
2. Less favorable financing terms than site-built homes prevent manufactured homeowners from building wealth.
3. Short term lease arrangements and sometimes arbitrary rules and regulations set by community owners limit the security of tenure of manufactured homeowners in land-lease communities.
4. Two million existing manufactured homes were built before the 1976 HUD Code, many of which are energy inefficient, unsafe and unhealthy for their residents.

Other archived convening materials, including the agenda, speaker biographies and PowerPoint presentations can be downloaded here.

By Ethan Geiling on 07/27/2011 @ 03:45 PM

Tags: Assets & Opportunity Initiative

During the 2011 legislative session there was—and continues to be—significant action at the state level around the regulation of payday, car-title, and other small-dollar lending.

• On July 6, New Hampshire Governor John Lynch vetoed a bill that would have drastically raised the maximum amount car-title lenders could charge in interest. Car-title loans are currently capped at 36% APR in New Hampshire.

• The North Carolina legislature introduced a bill this session that would have raised the rates and fees installment loan companies could charge. The U.S. military and a number of consumer advocacy groups opposed the bill, which advocates believe is essentially dead.
• Two bills were signed into law in Texas that will increase regulatory oversight over payday and car-title lenders.
• In California, a bill that would raise the maximum payday loan amount from $300 to $500, is moving through the legislature. The bill passed the Assembly and has been referred to the Senate Judiciary Committee.
• A panel of judges in Wisconsin asked the state Supreme Court to decide when interest rates on payday loans become excessive. A bill to cap payday loans at 36% was also introduced this session.

Montana is the most recent state to cap small dollar lending. In November 2010, Montana passed a ballot initiative to limit annual interest rates on small dollar loans at 36%. Montana Women Vote, AARP Montana and Assets & Opportunity partner Rural Dynamics were instrumental in organizing the “400% Interest Is Too High – Cap the Rate Campaign” to get the initiative on the ballot. 72% of voters backed the measure, illustrating the bipartisan appeal of the issue.

Seventeen states currently prohibit payday lending or effectively ban the practice by mandating an APR of 36% or less.

By Bill Schweke on 07/27/2011 @ 03:15 PM

Tags: Business Incentives, Economic Development, Ideas in Development

EDITOR’S NOTE: Elements of this article were drafted with Doug Ross and Rick Carlisle.

The world of economic development has changed dramatically in the past few decades. After being virtually synonymous with the practice of “smokestack chasing,” the field has broadened to include small business development, technology transfer, business retention, manufacturing modernization, applied research development and even education reform. Scores of new program efforts have been adopted by states ranging from Maine to Hawaii.

At the same time, an almost opposite judgment could also be reached – that nothing big has changed and that the more things change, the more they stay the same.

Examples abound. The costs of subsidy packages that attract businesses are constantly in flux. Meanwhile, the attachment to the traditional view of what constitutes a good business climate – low taxes, no unions, weak environmental regulations and low wages – emphasizes costs, rather than quality of the goods or services.

The real business climate challenge, then, is figuring out how our communities, regions and states cope and even flourish in the new global, informational service economy.

More specifically, in your community, do you have a business climate conducive to cultivating new firms in the fastest growing sectors? Do you have an entrepreneurial economy where firms are seeking to shift their resources from lower to higher uses? Are you developing those talents, traits and attitudes that are, after all, uniquely American – flexibility, resourcefulness and optimism?

Just as these new initiatives have spread across the nation and begun to sink deeper institutional roots, many policymakers have started to ask tough questions about their performance. It appears that more and more states are “doing the right thing.” Can programs that states can actually afford assist enterprises across the state with an adequate level of service? Do their efforts really make a difference?

Increasingly, discussion about the gap between promise and performance rests on the nature of today’s “public technologies” and not just their level of funding (the usual culprit)?

Perhaps, government policymakers, managers, critics and advocates are focusing mainly on the “soft” technologies, such as the “machinery” of management, monitoring, accountability, service delivery, staff training, evaluation and data collection.

In some respects, these developments could be regarded as the private sector management strategies being adapted to the public (and nonprofit) sectors, as well as partnerships between all three –approaches like TQM, Six Sigma, re-engineering and others. Treating employees as assets rather than cost centers, along with moving toward product customization, value chains and balanced scorecards are the rage.

Moreover, during our lifetime, government has chiefly responded to development and employment challenges by creating a “program.” Rules are written, eligibility is established, budgets are approved and departments are created. After all these changes, programs are left alone to fix the problem, but whether or not these problems enjoy solutions depends.

Depends on what? First, there is no decent mechanism for customer feedback. Second, too little monitoring of the right kind of data takes place. Third, few incentives to producing quality services are in place. Fourth, there are insufficient rewards for producing quality services. Finally, failure to mobilize constituents creates larger problem solving challenges.

The result all too often is an inflexible bureaucracy, which is equipped to deliver standardized programs that change little over time (social security checks). Programs are Balkanized and often isolated from their customers. At the same time, growing needs for better referrals and brokers of aid from other institutions emerge. This type of organization is the least likely to perform well in a rapidly changing world.

What we need is to find ways to inject elements of markets, competition, adaptability and self-governing while rationing capital to those that perform better.

This transformation is described in many varied ways – the New Governance, integrated program delivery and the Third Wave are just a few examples.

It’s all about having the know-how and not just the know-what. At the same time, an almost opposite judgment could also be reached – that nothing big has changed and that the more things change, the more they stay the same.

Examples abound. The costs of subsidy packages that attract businesses are constantly in flux. Meanwhile, the attachment to the traditional view of what constitutes a good business climate – low taxes, no unions, weak environmental regulations and low wages – emphasizes costs, rather than quality of the goods or services.

The real business climate challenge, then, is figuring out how our communities, regions and states cope and even flourish in the new global, informational service economy.

More specifically, in your community, do you have a business climate conducive to cultivating new firms in the fastest growing sectors? Do you have an entrepreneurial economy where firms are seeking to shift their resources from lower to higher uses? Are you developing those talents, traits and attitudes that are, after all, uniquely American – flexibility, resourcefulness and optimism?

Just as these new initiatives have spread across the nation and begun to sink deeper institutional roots, many policymakers have started to ask tough questions about their performance. It appears that more and more states are “doing the right thing.” Can programs that states can actually afford assist enterprises across the state with an adequate level of service? Do their efforts really make a difference?

Increasingly, discussion about the gap between promise and performance rests on the nature of today’s “public technologies” and not just their level of funding (the usual culprit)?

Perhaps, government policymakers, managers, critics and advocates are focusing mainly on the “soft” technologies, such as the “machinery” of management, monitoring, accountability, service delivery, staff training, evaluation and data collection.

In some respects, these developments could be regarded as the private sector management strategies being adapted to the public (and nonprofit) sectors, as well as partnerships between all three –approaches like TQM, Six Sigma, re-engineering and others. Treating employees as assets rather than cost centers, along with moving toward product customization, value chains and balanced scorecards are the rage.

Moreover, during our lifetime, government has chiefly responded to development and employment challenges by creating a “program.” Rules are written, eligibility is established, budgets are approved and departments are created. After all these changes, programs are left alone to fix the problem, but whether or not these problems enjoy solutions depends.

Depends on what? First, there is no decent mechanism for customer feedback. Second, too little monitoring of the right kind of data takes place. Third, few incentives to producing quality services are in place. Fourth, there are insufficient rewards for producing quality services. Finally, failure to mobilize constituents creates larger problem solving challenges.

The result all too often is an inflexible bureaucracy, which is equipped to deliver standardized programs that change little over time (social security checks). Programs are Balkanized and often isolated from their customers. At the same time, growing needs for better referrals and brokers of aid from other institutions emerge. This type of organization is the least likely to perform well in a rapidly changing world.

What we need is to find ways to inject elements of markets, competition, adaptability and self-governing while rationing capital to those that perform better.

This transformation is described in many varied ways – the New Governance, integrated program delivery and the Third Wave are just a few examples.

It’s all about having the know-how and not just the know-what.

By Sean Luechtefeld on 07/26/2011 @ 02:30 PM

Tags: Recommended Reading

In case you missed it, here’s your recap of last week’s top posts from in and around the assets & opportunity blogosphere.

Catch-22, Anyone?
The Economic Populist reports on an interesting trend – that many employers are excluding from their applicant pools those that are currently unemployed. Yes, that’s right: if you’re searching for a job because you don’t currently have one, you are ineligible for quite a few of the jobs that could potentially otherwise be yours. So, if you have no job, you need one and can’t get one. If you have a job, you don’t need one, but are welcome to apply. Read the Economic Populist article here.

Here’s Some Innovation for You
A recent post on the Freakonomics blog illustrates how cities are installing homeless meters – posts in the ground that look like parking meters. But, this isn’t a ploy to get folks to pay to park in front of a homeless person. Instead, it’s a means of collecting loose change to then donate to area homeless shelters. If you ask me, this just goes to show that helping others comes in every form – you’ve just got to be creative. Read more here.

CFED, In a Nutshell
Often times, it’s hard for us to describe the relationship between our main asset-building strategies. What, for example, is the relationship between homeownership and access to higher education? The folks down at the New America Foundation answer exactly that question in their blog today, explaining how homeownership provides the financial security needed to access a college education (and other important asset-building opportunities, of course). Check out their commentary here.

Have a link you’d like to share with our readers? Send us an email!

By Bob Friedman on 07/25/2011 @ 04:00 PM

Tags: Entrepreneurship, Recommended Reading

On Friday, an op-ed that I wrote on entrepreneurship and job creation was featured in The Hill’s Congress Blog. In the editorial, I argue that the current tax structure – currently being debated in Congress and at the White House – unfairly burdens entrepreneurs who not only start and grow their own businesses, but who alone are responsible for as many as one in every five new jobs created in this sluggish economy. Please take a moment to read the blog post (reproduced below) and let me know what you think using the comments section at the bottom of this page.

CFED Founder Bob Friedman

“Tax cuts for job creators!” It is a rallying cry echoing these days from both ends of Pennsylvania Avenue. For Republicans in Congress it means never raising taxes on the wealthiest 2 percent of the population. The White House, meanwhile, is considering a general reduction in payroll taxes for all.

Both scenarios, however, miss the real job creators: new businesses under one year old and typically unincorporated, which have added an average of 3 million net new jobs a year to the American economy. That’s more than all other categories of business combined, according to recent studies by the National Bureau of Economic Research and the Ewing Marion Kauffman Foundation.

Most of these real job creators are people shaping jobs for themselves – out of necessity and opportunity. Examples of these businesses include childcare, landscaping, graphic design, construction, catering, pet sitting and home cleaning. Not all of these jobs are full time and some may not last. But even part-time jobs can mean the difference between poverty and subsistence—despair and hope. Forty percent of these firms will go out of business within five years, but the remaining 60 percent will grow rapidly. The overwhelming majority will not incorporate, at least in their first year. But some will grow quite large quickly, accounting for as much as a fifth or more of total job creation.

Some 2 million Americans will file tax returns reporting first time self-employment earnings this year. But if this year is like others, these businesses will remain invisible to economists, the media and policymakers. The result is that policies that are intended to nurture job creation and bolster small businesses are poorly targeted and do not reach the self employed. What’s more, these struggling businesses must contend with tax burdens that too often prevent them from growing quickly and boosting our economy.

That needs to change. It is time we switched our focus from the millionaires and established businesses to these real job creators.

We can start by recognizing the deeply unfair double burden they face when it comes to Social Security taxes. Even the smallest business owners are currently forced to pay both the employer and employee share if their net profit exceeds $400, though at that level they will be ineligible to receive any Social Security benefits. We can immediately show our support for the vital role grassroots entrepreneurship plays in our economy by raising the threshold for requiring Schedule C filing and payment of payroll taxes to at least the level at which filers will earn Social Security benefits -- $1,120 this year, indexed to inflation.

Second, we should focus payroll tax holidays on businesses in their first few years of life when they are at their most fertile and vulnerable, exempting them from employee and employer share the first year and employer share the second.

Third, we should encourage Americans to save for starting a business by making the Saver’s Credit refundable, extending it to 50 million low-income working families, and allowing savers in retirement accounts to borrow against their savings for business creation in the same way we allow them to borrow from those accounts for higher education and homeownership. Studies have shown that these loans are paid back, and actually boost retirement nest-eggs through enhanced asset-building.

Finally, we should eliminate asset limits, which penalize entrepreneurs on public assistance if they earn too much by removing their benefits. It makes no sense to penalize low-income, poor, disabled, older and unemployed Americans from saving, starting businesses, going to school – the only paths that will likely free them from poverty.

If we did all of the above, the total cost, almost exclusively for tax cuts, would be a few billion dollars a year – less than 5 percent of the cost of the temporary payroll tax reduction currently in effect. The economic impact would dwarf the initial investment: as many as an additional million new and healthier businesses and jobs within a few years, many of them created by and for the unemployed and poor.

Is this a Republican or a Democratic, an Administration or Congressional agenda? It could be either or both. Today, it is neither. But it could well be the impetus for tomorrow’s economy; an economy that recognizes that the true drivers of job growth are those who have the drive to create jobs for themselves.

By Rashmi Joshi on 07/22/2011 @ 04:00 PM

Tags: Housing and Homeownership, Innovation

In January 2007, CFED embarked on an ambitious process to create a Strategic Plan that outlined our work for the next five years. The purpose of the plan was to ensure that CFED fulfilled the promise it made during the time of its foundation- to provide low- and middle-income people everywhere with the ability to be savers, investors, homeowners, skilled workers and entrepreneurs. In order to make certain that that we sufficiently contributed to an opportunity economy, CFED devised its Strategic Plan a strong vision in mind to:

• Provide a reasonable public incentive to every person to save for the future, including every child, starting at birth
• Ensure that every family who desires to own a home has the opportunity to do so
• Provide every person who wants to start a business with the opportunity to access entrepreneurial training and financial resources to generate income and create jobs

The initial version of the strategic plan was grounded in specific strategic goals, framed in measurable terms, to be achieved over a five-year period. Staff were tasked with determining the specific program, policy, research and financing activities that could best lead to the achievement of these goals. In addition, staff set annual milestones that could serve as benchmarks to assess the organization’s progress toward realizing the measurable outcomes in each five-year goal. This series will analyze three of the goals that were integral to the Strategic Plan:

Each year, CFED sought to measure our successes within each goal by gauging the results of performance measures we initially created specific to that goal. For example, in order to assess our success within Financial Security, we referred to our performance within the measure “Number of asset-building opportunities.” Over the next several weeks, we will go into further detail regarding the process of creating measures to determine our performance within each goal, our actual performance and the implications of those metrics for the future.

In the same vein of the objectives we had when drafting the Strategic Plan, our objective in analyzing our successes is to ultimately improve the livelihood of millions of Americans through organized, professional and precise efforts in asset building. We hope that this endeavor will not only provide us with development areas that will tailor our strategic planning in the future, but also will demonstrate, by virtue of our transparency, the pride that we take in our work.

By Sean Luechtefeld on 07/22/2011 @ 03:45 PM

Tags: Events

Last week, our friends at the Ford Foundation hosted The Just City: A Ford Forum on Metropolitan Opportunity. CFED’s President, Andrea Levere, was a guest at the event and was featured in a Flip Cam interview. To check out Andrea’s short 30-second interview, check out the Just City website here.

Also available on the Ford website are all of the sessions from the Just City forum, which are all interesting resources on asset building in cities from leaders in our field. When you have the chance, I recommend you check out these resources, especially if you work with an organization dedicated to some of the challenges facing low- and moderate-income families in America’s cities.

Did you go to the Ford Forum? Share your thoughts and takeaways from the event by clicking on ‘Comments’ below!

By Anne Li on 07/21/2011 @ 03:30 PM

Tags: Economic Inclusion, Financial Empowerment, Innovation, Innovators

Here is a timely and hard-hitting post from CFED’s Innovative Idea Champion Jack Towarnicky, prompted by a recent front-page Wall Street Journal article. You may also want to read Jack’s Executive Summary, The 401(k) as a Lifetime Financial Instrument, available through his Innovator Profile Page. Here are Jack's thoughts:

It was discouraging to see a front-page Wall Street Journal article on July 7th that was only the most recent of many articles critical of benefit plans: "401(k) Law Suppresses Saving for Retirement." The WSJ is America’s #1 daily newspaper - reaching 2.11 million Americans. The article focused almost entirely on some workers, perhaps as many as 40% of those automatically enrolled, who say they would have contributed more under a 401(k) savings plan with a voluntary (instead of automatic) enrollment process. Did you get a call from the Vice President of Human Resources or maybe the Chief Financial Officer of your organization?

Here’s my take on the article.

Consider a recent study from Vanguard, the huge investment management company, "How America Saves, 2011.” On page 25, see figure 23 – for those with less than one year’s service, only 29% voluntarily enroll versus 75% with automatic enrollment. So, a year’s tradeoff between voluntary and automatic enrollment 401(k) plans might be estimated as:

• 12% (40% of the 29% who would have enrolled) who say they would have contributed more
• 17% (the rest of 29%) would would have contributed 3% or less anyway, compared to
• Another 46% (for a total 75%) who are enrolled only because of the automatic features, while
• All 75% are “teed up” for automatic escalation.

Importantly, that same Vanguard exhibit confirms that participation is also dramatically higher for lower income and younger Americans:

• Income < $30,000: 26% voluntarily enroll, 76% accept automatic enrollment
• Age < 25: 18% voluntarily enroll, 72% accept automatic enrollment

The importance of early money, in terms of building financial security, cannot be overstated!

Automatic features have been around for over 15 years. The article’s lead paragraph incorrectly attributes automatic features as originating in that 2006 Act. The WSJ article's author also ignores the rest of the Pension Protection Act of 2006 provisions for 401(k) plans and other retirement plans, to solely focus on this one group who SAY they intended to save more. Why didn’t she take the time to confirm that EACH and EVERY worker who allowed the default to take effect was specifically notified of their opportunity to enroll? Why didn’t she mention those who did take action to voluntarily enroll - those who rejected the default for a different rate, those who selected Roth 401(k) or those who rejected the Qualified Default Investment Alternative?

But, okay, let's focus on those who SAY they woulda, coulda, shoulda saved more with a plan that uses voluntary enrollment. The workers’ failure to respond when solicited is not a surprise - it is sadly typical. Many studies confirm workers state an intention to start saving or to increase contributions but fail to follow through. My favorite is a 2001 Harvard study, “Saving for Retirement on the Path of Least Resistance” (updated December 2005). There, on pages 6 and 7, the study confirms that for every 100 workers, 67.7% report that their current savings rate is "too low" relative to their ideal savings rate, 35% of those who said their savings rate is "too low" confirmed an intention to increase contributions, most within the next two months; however, only 14% actually increased contributions in the four month after the survey. Why didn't the WSJ reporter identify those workers who did take action post-enrollment to raise their contribution rate? Best intentions are just that - intentions.

Finally, the use of average savings rates among participants is misleading; citing a decline among AonHewitt-administered plans from 7.9% (2006) to 7.3% (2009). However, the 2006 and 2009 populations are very different – by 2009, many joined at a 3% rate specifically due to the increased prevalence of automatic enrollment.

For comparison, in a May 2011 release, AonHewitt published a study of 120 large employer 401(k) plans it manages:

• Participation increased to 75.8% in 2010 from 67.2% in 2005
• Plans with automatic features increased to about 60% in 2010, from 24% in 2006

So, because the WSJ article selectively presented only the change in contribution rates among those who were contributing, recent entrants at, say 3%, depressed the average. A more accurate measure of how automatic features change savings behavior would have been a comparison of the average deferral percentage -- because a variable that includes the non-participant zeroes is much more representative.

To conclude, yes, certainly the features in your automatic enrollment design do make a big, big difference. But, a plan sponsor using automatic features, done right (enroll all workers, escalate all workers, and apply those automatic features perennially), will address each of the top three financial security/retirement preparation issues Americans face – most employers don’t offer a retirement savings plan, not enough employees save, and those who do save, often don’t save enough.

What say you?

The comments here are solely mine and do not necessarily reflect the views of any employer, trade group or association I am affiliated with - past present or future.

Here are links to comments concerning the Wall Street Journal from two other benefits experts:

• Jack VanDerhei - Employee Benefits Research Institute
  VanDerhei writes, in part, “The WSJ article reported only the most pessimistic set of assumptions from EBRI research…[It] also chose not to report any of the positive impacts of auto-enrollment…What it failed to mention is that it’s increasing savings for many more – especially the lowest-income 401(k) participants.”
• David Wray - Profit Sharing Council of America

By Jennifer Brooks on 07/20/2011 @ 04:00 PM

Tags: Assets & Opportunity Initiative, Local Policy

A New Direction for the Assets & Opportunity Initiative: Creating a National Network

Since 2002, CFED has helped foster the emergence of state and local asset coalitions and their policy advocacy efforts. Primarily anchored by the Assets & Opportunity Scorecard, CFED has partnered with an expanding group of—primarily state-level—asset policy advocates and coalitions to increase awareness of asset-building strategies and advance a broad range of asset-building and asset-protection policies.

Since we began this work nearly a decade ago, the field of advocates, coalitions and other stakeholders has increased in number and become more diverse. Collectively, we have also recognized the need for a way to leverage our knowledge and maximize our impact.

With input from a broad range of stakeholders through listening sessions, discussions and work groups—and with the ongoing advice of an Interim Network Steering Committee—we are ready to take the next leap.

We are pleased to announce the establishment of a new national Assets & Opportunity Network.

Click this image to download the request for letters.

The Assets & Opportunity Network is a movement-oriented group of advocates, practitioners, policymakers, and others nationwide working to expand the reach and deepen the impact of asset-based strategies. Network members are on the frontlines of state and local policy advocacy, coalition-building and service delivery. The purpose of this Network is to serve as both a learning community and advocacy community—to both enhance member capacity to advocate and deliver asset services, and to foster growth of assets movement leading to opportunities at scale. The Network is a hub of action for local, state and federal policy advocacy as well as program implementation.

Network membership will have two tiers—General members and Lead State and Lead Local Organizations—and will be guided by a permanent Network Steering Committee. The first step toward building-out the Network is selection of Lead State and Local Organizations. (General Membership will be available starting January 2012.)

CFED is soliciting letters of interest from organizations interested in serving as Lead State and Lead Local Organizations. Interested organizations should submit letters of interest to scorecardpolicy@cfed.org by August 5, 2011.

We look forward to building the Assets & Opportunity Network together!

By Lauren Williams on 07/19/2011 @ 02:45 PM

Tags: Entrepreneurship, Recommended Reading

In Thomas Friedman’s July 12th op-ed column in the New York Times, he points out the mismatched nature of today’s unemployment problem and politicians’ approaches to resolving it. Strategies that might have created jobs decades ago simply cannot keep up in today’s economy; as Friedman says, the current job market “is not your parents’ job market.”

He’s right; today’s job market requires an entirely new mind set and skill set in order to contend. The most dynamic sectors of the economy are becoming more effective, productive and creative with fewer employees. As Reid Garrett Hoffman, author of “The Start-Up of You” said to Friedman:

“The old paradigm of climb up a stable career ladder is dead and gone. No career is a sure thing anymore. The uncertain, rapidly changing conditions in which entrepreneurs start companies is what it’s now like for all of us fashioning a career. Therefore you should approach career strategy the same way an entrepreneur approaches starting a business.”

Still, with the release of the disappointing June jobs report which featured slow hiring and a rising unemployment rate, Democrats and Republicans alike are stuck in old, dead-end debates about “stimulus versus tax cuts” solutions that fail to recognize the new realities of today’s job market. As Friedman rightly points out, the challenge today may be to invent one’s job rather than to simply find one. Friedman alerts us to the need to act entrepreneurially—to creatively differentiate oneself, to understand where growth opportunities are and to take advantage of those opportunities—in order to become employed. To take his point one step further, particularly as it relates to the debate around how to create more jobs, it’s critical that we carefully consider the potential for individuals to quite literally create their own jobs through self-employment.

Job growth in the U.S. is driven almost entirely by business startups. Though Friedman’s remarks are targeted at young college graduates and mid-career professionals who find themselves unemployed amidst the jobs crisis, the challenge of taking an entrepreneurial approach to employment applies to everyone in today’s job market. At CFED, we recognize that the challenge of literally inventing one’s own job is one that has been embraced by low- and moderate-income Americans for years. Nearly two thirds of all self-employed individuals in the U.S. earn less than $50,000 in Adjusted Gross Income and nearly 24% of all EITC filers report some self-employment income as well. This alone demonstrates that, regardless of whether these individuals aim to fill household income gaps left by underemployment or to develop high-growth firms that will hire hundreds of employees in the future, low-income individuals are acting entrepreneurially to create value where opportunity exists.

Most of the real job creators are people creating jobs for themselves, out of necessity and opportunity. Not all of these jobs are full time; not all will last, though many will. But even part-time jobs can make the difference between poverty and subsistence, dependence and some measure of independence, unemployment and employment, despair and hope. One important, but underappreciated, strategy in boosting job creation is to help non-traditional entrepreneurs—including the traditionally disadvantaged, minorities, immigrants, rural residents and Native Americans—succeed and grow businesses. At CFED, we’ve developed the Self-Employment Tax strategy, which offers a promising way to reach those entrepreneurs—using the tax filing moment to identify, reach and offer support to self-employed individuals. This strategy has been designed to help low-income, self-employed individuals formalize and grow their businesses, create jobs and access tax-based asset building opportunities. To support this effort, CFED offers technical assistance and funding to community tax preparation providers, supports related product and service innovations, conducts practice-related research and promotes sound tax policies. In the last five years, as part of this strategy, CFED has worked with community-based tax assistance providers to provide free or low-cost tax assistance to nearly 40,000 low- to moderate-income small business owners across the United States. These tax preparation practitioners have provided these taxpayers—many of whom were formerly operating informal businesses or were maintaining incomplete records—with better systems for business management, improved access to asset-building products and services and immediate access to capital through tax credits like the Earned Income Tax Credit, the Making Work Pay credit and the Child Tax Credit. With these tools, entrepreneurs can better position themselves take advantage of opportunities that will enable them to grow their businesses, incomes and wealth.

In this challenging job market, Friedman is right to highlight the need to take an entrepreneurial approach to the job market. But let’s not forget that entrepreneurs come in all shapes and sizes. As the President and policymakers seek to re-start the economy, we should not forget the critical role played by start-up businesses, including those found in unexpected places.

By Jason Zavala, Guest Contributor on 07/18/2011 @ 01:15 PM

Tags: Behavioral Economics, Individual Development Accounts, Matched Savings

Jason Zavala is president of MitiGate, Inc., a consumer financial education consulting firm. As a former counseling practitioner, he has been observing and teaching about homeownership, foreclosure and general money issues nationally for over a decade.

Inciting and incenting behavior: the IDA saver
Imagine yourself as an IDA practitioner. Now consider what makes an IDA program participant respond, engage or consume differently than other typical students… Do we (in)advertently cajole or coerce their savings behaviors? How are these savers impacted if they give you the “wrong answers” or pursue undesirable directions? Are IDA participants seeking a certain level of social significance and belonging? Do they seek to please?

With these types of motivations in mind, how can we maximize Match Savings Accounts outcomes?

IDA savers may be better teachers of actions than we are. Their behavior – as it relates to their matched savings account – suggests that there are a few easy wins that can be tied to our behavioral messaging. Once we understand more about the target IDA audience (which has changed over time), the answer lies in redefining the match methodology by integrating behavioral triggers.

Formulaically, we know (generally) that IDA savers can represent each and all of the following:

• Very modest income
• Low annual cash resources
• High financial returns on program investments
• Goal use restrictions
• Responsiveness to program training requirements and deposit benchmarks
• Heightened awareness of mandatory engagement
• Elevated expectations of success

Mix in some tenets about actions related to finances: none of us really like details, preparation, nuances, complexity, or evaluation. For example, think about…

• What you did the last time you were on a phone and a customer service person invited you to stay on the line after your call for a quick survey
• How we sense a need to buy before the sale ends (even if the price was marked up)
• How your retirement fund automatically supports, at a baseline, the least risky denominator, and how that affects your involvement
• How difficult it is to make a choice in the toothpaste aisle (not to mention all of the decisions you don’t make!)

These types of behavioral economics triggers – hassles, loss aversion, power of default and proliferation of choice – can be applied to matched savings programs. IDA participant behavior is the trigger point to build upon and help reenergize the matched savings field. In doing so, we may be able to identify more cost efficient, outcome-relevant designs.

So how would a new, tiered match savings interface with behavioral change? Below is an example of some prescribed match thresholds that a participant can achieve and be “rewarded.” Consider giving your customers the options to “access” anywhere from 1:1 to 3:1 matches based not on the goal itself but the continuation of asset security, i.e. the behavioral shift. The effort is both graduated and optional. For example, at a 2:1 match, the next option may invite them to engage a health specific goal. Let the participant identify the success that brings them to 2.5:1 match. It’s like inviting them to be part of the gold, platinum, and diamond level and while they design the rewards themselves at the same time.

Here is a partial list of segments for a tiered design with behavioral trigger cues to develop:

Consider a Tier 1 and Tier 2 engagement. Begin to think about time variants at which a saver attempts a new behavioral exercise and how you can incorporate values that measure and weight applications based on ease of application or impact, and identifying behavioral benchmarks pre and post goal attainment. Do you know how long they sustain the patterns or behaviors? Were behaviors triggered only when the participants were expecting rewards?

Tiered match savings planning: facilitating positive social and financial outcomes
Acquiring or purchasing is often the saver’s first goal, and sometimes the only goal. The win-win for both the saver (consumer) and the program comes in management of the goal and the continuation of positive savings behaviors. For some savers, the goal is a car; for the program managers, it is an economical car and economical use. For a saver it might be a business venture; for the program manager it includes a risk conscious application. These completed efforts model savings beyond tomorrow, in that it is ideally planning in perpetuity.

A tiered matched savings structure not only helps achieve IDA program outcomes but can help encourage participants to sustain their positive actions. So how can you behaviorally link your match plan to a tiered formula for your participants?