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The Inclusive Economy

This April, Join Us As We Work to Put All Families on the Pathway to Financial Capability

By Jennifer Medina and Parker Cohen on 04/10/2017 @ 10:00 AM

Tags: Financial Capability, News

In 2015, President Obama proclaimed April to be Financial Capability Month. Each year since, CFED has embraced this month as an opportunity to reflect on our efforts to help individuals and households build financial capability and traverse pathways toward financial security. Last April, we introduced the Financial Capability Lifecycle, which highlights the universal, expected and unexpected life events that trigger decisions that impact us financially. While these events force decisions at the individual level, they are influenced by many structural and systemic factors, including institutional practices and local, state and federal policies. To celebrate Financial Capability Month this year, CFED is engaged in a month-long campaign to boost awareness about the many factors that influence one’s financial life and about how all of us can play a role in fostering prosperity for more families.

Financial capability is defined as the capacity—based on knowledge, skills and access—to manage financial resources effectively:

  • Knowledge means understanding financial concepts and knowing where to go for support. For example, do I know how to open and use a checking or savings account, or how to create a budget? If my family is interested in purchasing a home, can I locate and attend a first-time homebuyer workshop?
  • Skills means putting knowledge into action. For example, can I make regular savings deposits and track monthly spending? Does my family know how to pull our free credit reports and focus on addressing errors on those reports and reducing our debts?
  • Access means resources—including tools, products and services—are available and accessible to help consumers manage finances effectively.

Of the three elements of financial capability, the access part of the equation is the trickiest. While being motivated to strengthen your financial footing may help inspire you to take action, access to opportunities—including employment, education, homeownership and business ownership—is a significant contributor to a household’s ability to advance economically. When access is limited, demonstrations of knowledge and skills will only take individuals so far.

Let’s take Anna, for example. Anna knows how to open a bank account and set a savings goal, but lives in a banking desert and doesn’t have access to a branch to establish the account. Perhaps she also has a black mark on her ChexSystems report, and as a result, her bank won’t offer her a product that meets her financial needs. Even if she manages to open an account, she’ll likely have concerns about whether saving might affect her eligibility for public benefits. Without access to the right products, services and incentives to save, Anna may continue to rely on costly alternatives, such as check-cashing services or payday loans.

Here’s another all-too-familiar story: The Henderson family wants to buy their first home. They save for a downpayment, clean up their credit and take a homebuyer education class—but struggle to get a home loan due to discriminatory lending practices. Making matters worse, home prices are soaring in their community and most properties are out of reach. Imagine what this might do to their chances of buying a home that appreciates in value and provides an opportunity for their family to build and transfer wealth for future generations.

While many of these issues, particularly barriers around racism and discrimination, are particularly intractable, successful strategies have emerged to tackle aspects of these problems:

  • Bank On coalitions connect unbanked and underbanked consumers to financial institutions that offer safe and affordable financial products and services.
  • As a result of advocacy efforts, nearly all states have raised or eliminated asset limits in at least one key public benefit program (i.e., TANF, SNAP or LIHEAP), removing a huge barrier to families’ ability to save.
  • Organizations are advocating locally and statewide for increased affordable housing supply or are working to advance creative solutions, such as developing or partnering with community land trusts to provide affordable homeownership opportunities.

Given the significance of the challenges—and opportunities—along the pathway to financial well-being, we hope you’ll consider joining our Financial Capability Month campaign between now and the end of April. Here are three easy ways you can get involved:

Thanks for all you do—this month and year-round—to help connect more U.S. families to the knowledge, skills and access they need to build a better life!

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