Innovative Idea Champion Patricia Johnson Authors Op-Ed
By Patricia Johnson, Guest Contributor on 12/19/2011 @ 11:30 AM
I’m hopeful the Occupy moment will evolve into a less grungy, more strategic political movement to lessen economic disparities in the United States. A more realistic vision is that it could unite the 99% to work together on solutions that don’t require negotiation with the 1%, or even Congress.
I’ve got a suggestion that doesn’t cost much, doesn’t need a government agency to run it, and could help reinvigorate our cities: hire teenagers.
Nationally, youth unemployment hovers around 20 percent. In neighborhoods where low-income African-American and Latino youth are the majority, unemployment approaches 40 percent for people under 24 years of age.
I teach at Game Theory Academy, a nonprofit I founded to make economic education more relevant, and accessible to marginalized youth. In our classroom conversations, we discuss topics such as how the economy works, how students can act in their own best interest, and the opportunity costs of doing nothing, rather than working or pursuing education. Students often ask me, “Hey, Trish, can you find me a job?”
Among students at Game Theory Academy, a shocking 63 percent report not having any kind of part-time job. When I was 15, I got a job at a local real-estate office answering phones. I worked at a copy shop the summer before college. But it’s not the 90s anymore, and businesses don’t hire teens the way they used to.
The receptionist answering the phones at the local real estate office is easily twice the age I was when I did that job. I've never seen a teen at the register at the copy shop near my office. Adults need those jobs too, but could they use some support from an eager teen?
The U.S. Small Business Administration reports that small businesses generated 64 percent of all jobs created in the last 15 years. If they are the engine for growth, then small businesses are in the best position to take the lead on ending youth unemployment.
Back of the envelope: if a local, small business hires one teenager for ten hours per week at ten bucks an hour, the cost is about $100 per week, plus some supervision expenses. Assuming 50 weeks of work in the year, that costs $5,000 and change.
Oakland, where I am based, is home to 25,000 youth ages 15 to 19, and at least 10,000 small businesses. If each of those businesses hired one job-seeking teenager, we could make a huge dent in that 40 percent youth unemployment number. Do the math in any city, and it’ll add up.
What impact will this have?
Youth are local spenders. They ride the bus. They buy snacks and go to movies. If our young workforce spends in Oakland and nearby cities, that’s estimated to be close to $500 in annual sales tax revenue per youth – or $6 million total. Imagine the effect if cities in every state joined this call to action.
A majority of juvenile crimes are property crimes. Teens who earn money have less incentive to steal and deal drugs. A paycheck shifts the risk-reward ratio. They are too busy. They have money in their pockets and a sense of opportunity.
Teens who work are more likely to find and sustain jobs as they age into adulthood. Studies show that unemployment as a youth leads to a lifetime of lower wages. It also lowers life expectancy. Give youth jobs now, and they will have higher lifetime earning potential - and the habit of employment and better health. Once you’ve had a job, you want another one.
Dust off an apron or a clipboard and invest $5,000 in our nation’s youth, and in your own business. They might surprise you with the value they add.
Patricia Johnson is the founder of Game Theory Academy. The Inclusive Economy thanks her for sending us this recent op-ed.
RAISE Texas College Savings Contest Worth Smiling About
By Stephanie Halligan on 11/03/2011 @ 03:30 PM
Saving for college can be a daunting task; so much so that, sadly, many families forgo it altogether. Yet, recent reports show that children "with a savings account in their name are approximately six times more likely to attend college than those without an account."
And that got our friends at RAISE Texas thinking about how they could help make creating post-secondary education savings accounts easier. For the first time, starting this December 5, RAISE Texas will kick off their statewide 2011-2012 Save ‘n SMILE Family Video Contest. Winners will receive actual tuition startup dollars --- in their own names --- an innovative idea we here at CFED are pretty excited about!
For one grand prize winner, RAISE Texas will create a Texas Tuition Promise Fund award of $2,000 on behalf of the child. That means $2,000 to kickstart his or her Texas state 529 plan, which can be used towards prepayment of undergraduate resident tuition and required fees at any Texas public college or university. Just think... for some Texas state community colleges, that could be an entire year of tuition covered! Two runners-up will also receive Texas Tuition Promise Fund awards in the amount of $250.
"It's all about helping our fellow Texans to get started... by taking the intimidation of college savings out of the picture, families will learn that they can do it. And we can help," said RAISE Texas Executive Director, Woody Widrow.
Our partners at RAISE Texas are asking: What would winning $2,000 towards college savings mean to YOU?
If you’re a practitioner serving clients that could benefit from this opportunity, please feel free to pass this contest information along:
1. Create a video, three minutes or less, that shares what a RAISE Texas $2,000 college savings account deposit would mean to your family. What does your child want to be when he or she grows up and how can a college degree help achieve his or her dreams?
2. Upload your video to your YouTube account. Don’t have one? Creating an account is easy and free, online at www.youtube.com.
3. E-mail email@example.com your video’s URL, your full name, address, phone number, e-mail address, and the age of your child who’d benefit from winning, by January 20, 2012. One submission per family, please.
4. Vote on your favorite videos starting January 30, 2012.
5. Winners will be announced February 20, 2012.
6. View the complete contest rules and eligibility requirements online at www.raisetexas.org/savensmilefamilyvideocontest. Submissions must meet eligibility requirements to qualify for contest entry.
Photo credits: Texans Care for Children & Any Baby Can
We Recommend ‘Mission: Innovation'
By Lauren Stebbins on 10/06/2011 @ 12:15 PM
Around here, we’re always looking for new and interesting resources relating to innovations in our field. Earlier this week we came across ‘Mission: Innovation,’ the newest blog from The Chronicle of Philanthropy.
Okay, so perhaps we’re a little biased because CFED President Andrea Levere is one of the featured innovators. But, more importantly, we really like that they have featured innovators. It’s a really fun way of highlighting nonprofits (in our field and in others) that approach their work from unique and changing perspectives. Like the Chronicle itself, it’s premised on the idea that collaboration leads to more robust ideas that we can all benefit from.
So, when you’ve got the chance, check out Mission: Innovation – we think you’ll like it!
Innovation Update: Access to Healthcare Network
By Anne Li on 09/12/2011 @ 11:00 AM
Sherri Rice's work with Access to Healthcare Network continues to grow. AHN has already provided affordable health care with dignity to 10,000 Nevada residents who have limited incomes but who are not covered by Medicaid or other programs. They pay affordable monthly premiums and in return they receive the care they need at highly discounted rates offered by hospitals, doctors and other health care providers under a "shared responsibility model" where government, providers, employers and employees ("the working poor") share responsibility.
AHN is now beginning to expand from northern Nevada into the Las Vegas metropolitan area and continues to offer a limited number of Health Individual Development Accounts (IDAs) in which the member's savings toward health expenses are matched by philanthropic dollars. In another demonstration of innovation, Sherri is working with a local community college to develop a new degree program targeting lower-income Hispanic and other young people that will lead directly to real jobs with local employers as Patient Navigators or Care Coordinators. The new credential will qualify graduates for living-wage jobs with bilingual requirements. Financial education and asset building will be incorporated into the curriculum.
Listen to Sherri on her weekly radio program by searching podcasts at KTHX 100.1 FM, Reno, NV.
Innovator Towarnicky Points Out Flaws in WSJ Article
By Anne Li on 07/21/2011 @ 03:30 PM
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
CFED Innovator Featured in Webinar
By Anne Li on 07/13/2011 @ 10:30 AM
Yesterday, Rural Dynamics, Inc., headquartered in Great Falls, Montana, featured former CFED Innovator-in-Residence Mindy Hernandez in a webinar called “Applying Behavioral Science to Asset Building Programs: What Works and How We Can Learn More!”
As they see it, “the success of almost all anti-poverty efforts depends on changing behavior in some way - from wanting people to save more, wanting folks to finish college or hoping for increased attendance to job training classes. Yet, so few of these programs and policies are informed by the science of HOW and WHY people behave the way they do. Mindy decided to change this standard, exploring and utilizing the insights from behavioral science, focusing on the WHY and the reasoning behind the often surprising decisions we all make - and applying these insights to the challenges facing the asset building field. The potential is powerful.”
You may want to read Mindy’s report on her CFED Innovation Year. It provides many great insights into principles of behavioral economics and how they are being put to use to make asset-building programs more effective.
You may also want to mark your calendar for Rural Dynamics’ Mobilizing Rural Communities Conference, September 14 - 15 in Great Falls, the ‘Electric City.’ Check out who is speaking and what 2009 participants had to say.
Recording Now Available: Financial Empowerment through Employer Engagement
By Anne Li on 06/20/2011 @ 11:00 AM
The recording from last Wednesday’s webinar, Financial Empowerment through Employer Engagement, is now available. To access the recording, follow these steps:
- Visit this Microsoft LiveMeeting website.
- When prompted, enter your first name and the Recording ID: 4T3P92.
- Do not enter a Recording Key – public access has been granted.
If you have any questions, don’t hesitate to ask us by sending an email.
I’d like to once again thank our presenters – Leigh Phillips, Cathy Beyda, Eugénie FitzGerald and Ida Rademacher – for what I’ll think you find was a fantastic conversation about how the employer payroll process is a key point for delivering financial services to low- and moderate-income individuals. I’d also like to thank all of you who attended – your participation made the webinar a great success!
Innovator Abell Makes a Move
By Anne Li on 06/14/2011 @ 11:00 AM
Hilary Abell, executive director of WAGES – Women's Action to Gain Economic Security, announced that her last day there would be May 31. WAGES is a 15-year old, Oakland, California-based nonprofit that builds worker-owned green businesses that create healthy, dignified jobs and build assets for low-income women. Until her departure from WAGES, Abell had been a CFED as Innovator-in-Residence, working on a strategy for WAGES' model to achieve national influence and impact.
"Under her leadership, WAGES has grown steadily, successfully launching two of our four worker-owned green housecleaning businesses, as well as laying the groundwork for start-up of the fifth this year and continued growth into the future," say Loren Rodgers and Maria Soria, WAGES board representatives.
"These years at WAGES have been the most gratifying of my career," says Abell in her announcement. "I have cherished the opportunity to work directly with our members these eight years and to learn from their professionalism, their strength and resilience, their growth and their pride. WAGES socias have inspired others across the country to pursue the cooperative dream, and I know they will continue to do so."
Abell is planning to take a short sabbatical before finding new ways to pursue her commitment to women's entrepreneurship and cooperative worker ownership. We extend our very best wishes to her and to WAGES.
New Event: Employer Engagement Webinar
By Sean Luechtefeld on 05/17/2011 @ 01:45 PM
CFED and the San Francisco Office of Financial Empowerment are excited to announce a webinar titled Financial Empowerment through Employer Engagement: Opportunities, Challenges and Next Steps, to take place Wednesday, June 15 from 3 – 4:30 pm EDT. The webinar will feature the findings of research highlighted in a new report, Financial Empowerment through Employer Engagement: Migrating a City to a Paperless Payday, and the discussion will include the authors of this report along with other experts working to bring paperless payday efforts to fruition.
Leigh Phillips, Manager, San Francisco Office of Financial Empowerment and Eugénie FitzGerald, project consultant for the Office of Financial Empowerment, authored the report, which describes original research with businesses and employees designed to understand the impact of direct deposit and electronic pay on businesses and low-income employees throughout San Francisco. FitzGerald and San Francisco Treasurer José Cisneros were among the inaugural class of CFED Innovators-in-Residence, a role designed for creative individuals to bring their concepts to application and scale with assistance from CFED.
Ida Rademacher, CFED’s Vice President for Policy and Research, will introduce and moderate the webinar. Also presenting will be Cathy Beyda, Attorney and Chairperson of the American Payroll Association’s Government Affairs Task Force on Payroll Cards and the Association’s Paycard User Group.
Sign up now for the webinar, which will provide insight into research with businesses and employees about the benefits of and challenges from direct deposit and electronic pay, as well as the implications for future action by city leaders, businesses, state policymakers, advocates and others interested in building assets and financial security for low- and moderate-income individuals.
PLAY Motivates Children to Save
By Anne Li on 05/02/2011 @ 10:00 AM
We want to congratulate Margaret Libby, executive director of Mission San Francisco Community Financial Center, recipient of two national awards. The Dora Maxwell award for social impact and a Desjardin award for innovation and leadership in youth financial education were recently presented to Mission SF for PLAY and Make Your (MY) Path.
PLAY and Make Your (MY) Path are both designed to build savings, savings habits and shift child and youth aspirations – ultimately to support children and youth to uncover and achieve their full potential. Margaret has shared this link to a four-minute ABC News video that features young PLAY savers and their parents talking about why they save. Children learning from their peers, and the littlest savers called “Big Dreamers” are two great reasons to watch.
Mission SF Community Financial Center is the non-profit affiliate of Mission SF Federal Credit Union. The Center’s aim is to expand economic opportunity and access to financial services by:
- Raising awareness of affordable, quality financial services as an alternative to high-cost financial providers
- Providing education about financial planning and management
- Increasing income and earning power of low-wealth individuals and business owners
- Improving community financial services, resources and opportunities through partnerships and education
In some more exciting news, effective April 8, 2011, Mission SF Federal Credit Union became a division of Self-Help Federal Credit Union. Self-Help Federal Credit Union is part of the non-profit Center for Community Self-Help family of organizations founded in North Carolina in 1980. Since 2008, Self-Help Federal Credit Union has been building a network of branches throughout California serving the state’s working class families.
The Savings Exchange
By Kim Pate on 04/19/2011 @ 01:30 PM
Filene i3 Product – The Savings Exchange
In April of 2010, I joined a team of innovative credit unions through the Filene i3 (Ideas, Innovation, Implementation) program. My collaborators on the i3 team included Jackie Edwards, Connexus Credit Union, Wausau, Wis.; Tamela Meade, American Airlines Credit Union, Fort Worth, Tex.; Jon Reske, UMass Five College Federal Credit Union, Hadley, Mass.; and Alison Wolf, FAA Credit Union, Oklahoma City, Okla. Building on CFED’s work on the expanded Saver’s Tax Credit, we developed The Savings Exchange. This product is a savings group to help people learn about savings, encourage each other to save and take advantage of tax-time savings opportunities like the Saver’s Tax Credit, the Earned Income Tax Credit and the Child Tax Credit.
A coalition of credit unions formed by the Filene Research Institute and partially funded by the National Credit Union Foundation (NCUF) is implementing the Savings Exchange Pilot. This pilot, open to credit unions interested in joining the coalition, will help credit union members save for the future through savings groups that provide a structure and incentives to save. Filene recommends the program for credit unions active in the Volunteer Income Tax Assistance program, paid tax services, and with the Investor Education in Your Workplace program, which is sponsored by the Investor Protection Trust and supported by NCUF. For more information about the Savings Exchange Pilot, visit http://filene.org/blog/post/SCPN.
Ed Ablard Advocates for Veterans
By Anne Li on 04/13/2011 @ 10:30 AM
It is exciting to learn that Ed Ablard's advocacy with Pentagon Federal Credit Union, which has a branch right at the Veterans Administration Medical Center here in Washington, DC, may have resulted in a policy whereby the PFCU will now open an account for a veteran even without an initial deposit. The credit union manager told Ed that she has personally witnessed the problems of unbanked veterans receiving and quickly spending benefits and other payments, and that made her open to working with Ed to find a solution. On a recent visit with another veteran, an account was opened without a hitch. This is a first step toward enabling an unbanked, homeless veteran to be able to receive payments with a degree of security and with a greater chance of saving for future needs.
Ed, a CFED Innovative Idea Engineer who is a practicing attorney who does a lot of pro bono work, receives referrals of homeless veterans from a faith community-based meals program. He will personally introduce potential clients to the credit union. Over time, he hopes to gain a base of ‘banking the unbanked’ experience to share with others who are also concerned about veterans’ welfare.
Ed also continues to work on the development of a trust instrument that would create greater financial security to veterans. He reports that recent cases he has handled show the barriers to transferring assets to a trust from insurance and employment annuities. These barriers negatively impact families of pensioners of modest means who would benefit from the control of the flow of proceeds from the annuities implicit in a trust instrument.
Innovating to Meet Our Customers' Needs
Posted on 04/06/2011 @ 02:30 PM
Guest Blogger Tracy Fischman, Executive Director at AccountAbility Minnesota, described last week how asset-building opportunities can be integrated into free tax assistance. AccountAbility Minnesota has been a partner in this effort with CFED’s Self Employment Tax Initiative (SETI). Minnesota Senator Al Franken visited recently to learn about their work and speak with tax preparers and clients.
In today’s blog post, Tracy shares some of her organization’s newest innovations.
AccountAbility Minnesota serves as an incubator for new and innovative approaches to address asset building for low-income communities during tax time. We are willing to try new approaches, within scope, in determining what savings tools work for our customers. We know, through experience and data, that saving is key to economic mobility. Research shows that the unbanked are much more likely to open a bank account when they have money available.
We launched our financial services and products in 2006, when we began offering Express Refund Loans – a low-cost alternative to pricey Refund Anticipation Loans (RALs). We built in a savings component by coupling the loans with free savings accounts, available regardless of credit or banking history. In 2007, Financial Planning Association of Minnesota volunteers began to offer one-on-one financial counseling to our customers. In 2010, we introduced a benefits screening tool at some of our tax clinics to help customers identify public supports they may be eligible for.
Also, we aim stay on top of predatory products that low-income consumers are purchasing at tax time and offer low-cost, safe alternatives. With the help of our colleagues, we keep our finger on the pulse of our customers’ behavior and changes in the field. As our readers likely know, one such change is within the RAL market. Due to the IRS’ removal of the debt indicator, which we used as a tool to determine if a portion or all of a customers’ Federal refund will be garnished, we discontinued offering our Express Refund Loans this tax season. We are hopeful that predatory RALs will be eliminated, and given the bad publicity and possible court case related to RALs this year, perhaps this will be the case. Yet our collective work in finding ways to meet the needs of low-and moderate-income consumers is perhaps more critical now than ever.
This year, we are piloting the following services and products at our tax clinics. In doing so, we continue to learn what tools are helpful and what obstacles exist for our customers to start on, or move further along, the path of saving and asset building.
- Low-cost prepaid debit cards: Partnering with a local community bank we offer low-cost prepaid debit cards to our customers – regardless of their credit or banking history. Taxpayers who open a card at one of our tax clinics are able to upload their refund onto the card to receive it faster. We continue to offer savings accounts through this bank and other financial institutions, too.
- Saver’s Credit and retirement product pilot: We were one of two organizations nationally chosen to partner with the National Community Tax Coalition (NCTC) and Abt Associates to participate in a research pilot project designed to increase the use of the Saver’s Credit. The Saver’s Credit is a nonrefundable credit of up to $2,000 for taxpayers contributing to a retirement account. As a part of the study, we offer a retirement product at one of our tax clinics, and seek to understand whether or not eligibility for a tax credit can initiate retirement saving at tax time. We have also partnered with another large employer in Minnesota who is promoting free tax assistance, the Saver’s Credit and their own retirement product to their employees. Our customers are participating in a survey and focus groups around the credit as well.
- Benefits screening: With the recent recession, we’ve seen more individuals qualifying for our services for the first time, which means they may also qualify for public benefits for the first time. At three of our tax sites, we are piloting an opt-out screening during the intake process for customers, automatically offering to screen for public benefit they may be eligible for. We offer the services on an opt-in basis at four other tax sites.
More to learn about the savings behavior of our customers
Throughout the season we have seen changes in the demand for savings products. Our linkage to savings accounts – regardless of banking or credit history – is essential, but as a standalone product not sufficient to move people up the financial security ladder.
Following tax season we will reflect upon and analyze our results. It has been a tax season of learning that has left us with questions to be answered.
We also have new information about the savings experiences, behavior and interest of our customers through a comprehensive evaluation of our financial services program. This evaluation will be finalized in the coming months, and is designed to help us better understand how to meet the needs of our customers. The evaluation includes a quantitative review of data of nearly 1,000 of our customers who have opened savings accounts through our program since 2006, as well as a qualitative exploration of customer needs through focus groups and surveys. The final report will be available in May, and we will present the results at a number of local and national conferences and forums, including the NCTC conference in Chicago this June.
As we wrap up and reflect upon the tax season, we will take what we’ve learned in the tax clinics, through our evaluation, and from our colleagues in the field as we continue to innovate to meet our customers where they are on their path to saving and growing assets.
Ideas, Innovation and Implementation
By Anne Li on 03/30/2011 @ 11:00 AM
Over the years, CFED has found sympathetic resonance with partners in the credit union movement, based on a shared interest in building the assets and financial security of individuals and families. Over the past year, we teamed up with Filene i3 (Ideas, Innovation, Implementation), which is committed to strengthening the credit union industry through the development of new products, services and business models.
Denise Gabel, Chief Innovaton Officer of the Filene Research Institute and CFED Innovative Idea Engineer, met with Kim Pate, CFED’s Vice President for External Relations, and Anne Li, CFED’s Program Director for Innovation, more than a year ago to brainstorm how to work together to promote innovation. From that conversation came an invitation from Denise for innovation@cfed to propose five consumer-focused financial solutions that needed labs for testing. The fruits of the creative efforts of five Filene i3 teams are described, together with other innovations, in a new report authored by Gabel titled Key Findings: Blueprints for Innovation.
- CFED Innovative Idea Champion Diane Browning worked with an i3 team to look at Retirement Bonds. While many of today’s headlines focus on financial problems such as credit card debt and mortgage foreclosures, the next looming issue could easily be caused by a lack of planning for retirement. Low- to moderate-income individuals and those who work for small businesses are likely to be particularly hard hit.
- Kim Pate worked with two i3 teams. Savings Exchange: The current structure of retirement incentives within the U.S. tax code does little to help those who have the fewest resources. The majority of the nation’s $367 billion in asset incentives helps households earning more than $80,000 a year (for more, read CFED’s report, Upside Down). While the 60% of American taxpayers making less than $38,000 share less than three percent of these benefits, the top one percent of households – whose average income exceeds $1.25 million – receives more than 45% of the subsidies.
- The Signal: Simply living to full life expectancy will disable an estimated 65 – 75% of Americans, who will need help managing benefits and understanding asset growth limits so their benefits stay intact. Given the complexities of disability benefits, consumers have to go to multiple websites and agencies to determine their benefit levels and asset limits. It is confusing, time-consuming and frustrating – and the margin for error is great.
- CFED’s Savings & Financial Security Program Director Leigh Tivol and Innovative Idea Champion Rimmy Malhotra worked with a team on Goalmine(TM) College Savings. For the first time in generations, young adults in the United States are no longer attaining post-secondary education at a higher rate than their parents. For students in low-income households, the challenge of obtaining a college degree is especially difficult. Families making less than $20,000 per year face an average cost burden of at least 44% of their annual incomes for four-year public universities, even after factoring in grant aid.
- CFED Senior Program Manager for Applied Research Kasey Wiedrich worked with a team on MI-COOP. For over 17 million Americans, the path to the American dream includes a manufactured home. With an average cost in 2009 of roughly $63,000, today’s manufactured housing offers an affordable entry into home ownership. This low price, relative to a site-built home, underscores how manufactured housing can help more families build assets and achieve affordable housing. Sadly, there are a number of obstacles in obtaining traditional financing on a manufactured home, specifically when the borrower is unable to afford a significant downpayment.
You can read about the innovations, from problem to solution, as well as the work of the other Filene i3 teams in Key Findings: Blueprints for Innovation by Denise Gabel. The publication is available for free download for a limited time only through the special innovation@cfed link, found here.
Integrating Asset Building Opportunities
Posted on 03/22/2011 @ 01:00 PM
Our guest blogger today is Tracy Fischman, executive director at AccountAbility Minnesota. This highly innovative organization has been a partner with CFED’s Self-Employment Tax Initiative (SETI). As this year’s April 18th tax deadline draws near, certain for-profit tax preparers are marketing “refund anticipation loans” or similar products which are overpriced and inappropriate for most people, so Tracy’s information is particularly timely.
AccountAbility Minnesota was founded in 1971 by a group of justice-minded accountants who believe that a person’s ability to access quality tax preparation and financial services should not rely solely upon one’s ability to pay. Enlisting the help of hundreds of volunteers, the organization offers free tax preparation and financial services at 13 sites in the Twin Cities that enable low- and moderate-income individuals and families to maximize the opportunity that tax time provides. (Customers can use our online clinic finder to find a list of locations, schedules, and eligibility.)
In 2010, we helped 11,000 taxpayers received $21 million in refunds. We also trained 15 organizations throughout Minnesota who in turn helped another 9,000 taxpayers receive an additional $14 million in refunds. At AccountAbility Minnesota, we recognize that it is expensive to be poor. The customers we serve – whose average income is $13,400 – too often have to spend their money just to access it. And tax time is no different. As such, we’ve adopted strategies to promote economic security through the tax preparation process. With tax credits designed to significantly boost incomes of low-wage earners, tax time provides a unique moment to begin or continue a conversation about saving. It also offers an essential alternative, by way of education and services offered, to paid preparers and fringe – often predatory – financial products they offer, like the Refund Anticipation Loan.
The money-moment that tax time provides
AccountAbility Minnesota is uniquely positioned to reach underserved families and communities with financial education and information about saving, money management, developing and keeping a budget, planning and more. Tax time is a prime time to educate and offer services that can put people on a path towards financial security – empowering them to make informed and effective decisions that reflect their individual circumstances. Over the years, AccountAbility Minnesota has innovated and partnered with other organizations and financial institutions to expand its financial services, offering non-predatory services and products that promote savings and asset development. Our financial services include free savings accounts, low-cost prepaid debit cards, free credit reports, financial planning and benefits screening.
Update on Refund Anticipation Loan market
As previously referenced, may low-income taxpayers are targeted by paid preparers offering costly products that promise fast refunds. In recent years, the most common product has been the Refund Anticipation Loan (RAL). RALs are short-term, high-interest loans secured by a taxpayer’s expected tax refund. According to the National Consumer Law Center, 8.4 million persons in the U.S. spent an estimated $738 million in RAL fees in 2008. This year the IRS has terminated access to its debt indicator – a tool used by tax preparers and related financial institutions that offered information about whether a taxpayer will receive their federal refund and therefore was used to determine whether to underwrite a RAL. Thus H&R Block is not providing RALs this year but Jackson Hewitt and Liberty Tax Services (and possibly others) are still offering the product. We were excited to see that the FDIC has recently notified both Jackson Hewitt and Liberty Tax Service that their RALs are “unsafe and unsound.” As the RAL market shifts, other products are popping up in its place, such as the Refund Anticipation Check (RAC). A RAC is a temporary bank account that is opened to allow for direct deposit, and taxpayers’ refunds are then uploaded onto a prepaid debit card or they are issued a paper check. In 2008, about 12 million taxpayers received a RAC at a cost of $360 million. With information provided by our partners studying this market, we are keeping an eye on RALs, what the FDIC’s recent notice will mean, and what products are popping up in its place. We will continue to innovate, offering financial services and products that meet the financial needs of our customers.
In a future Blog, Tracy will describe some of AccountAbility’s latest innovations. Please let us know your thoughts and questions on Tracy’s message.
Exciting Lessons from a Year of Behavioral Experimentation: A Look at What We Learned
By Genevieve Melford on 03/14/2011 @ 11:00 AM
Over the next few weeks we are thrilled to post early excerpts from a paper to be published this spring by 2010 Innovator-in-Residence, Mindy Hernandez.
For her Innovation Year, Mindy partnered with select asset-building organizations to create innovative projects. With each organization, Mindy walked through the programs' goals and processes to target critical leverage points, propose behaviorally-informed design changes and evaluate each intervention as rigorously as possible.
The soon-to-be-released white paper describes the surprising, exciting and potentially powerful lessons from her Innovation Year. The paper also includes helpful hints on how practitioners can design, implement and evaluate similar behavioral interventions in their own programs.
Upcoming blog: We learn the outcome of the Campaign for Working Families (CWF) study in which Mindy and CWF designed an intervention to help self-employed clients at the CWF tax site prepare for tax day with the hope that better preparation would lead to higher tax refunds.
- Does preparation really lead to bigger refunds for self-employed VITA clients?
- What works in getting self-employed clients to prepare? And what's that worth in dollars?
The results are exciting and surprising. Check out the next post for more details!
Obama's Budget Includes Social Impact Bonds
By Anne Li on 03/09/2011 @ 10:30 AM
We noticed a highly innovative development called social impact bonds in the U.K. last year, and we weren’t the only ones. President Obama’s FY 2012 budget includes a similar innovation. Up to $100 million would be invested in a “pay for success” approach in seven pilot areas including, among others, job training, education, juvenile justice and care of children’s disabilities. The amount would be set aside from existing department budgets and would be spent only if the programs work.
The following article, reproduced in its entirety from the New York Times, provides more information. Please Comment to share your thoughts about this new and different way for public dollars to be spent toward addressing social needs.
For Federal Programs, a Taste of Market Discipline
by Davis Leonhardt, New York Times, February 8, 2011
Wouldn’t it be nice if taxpayers could somehow get a refund for government programs that didn’t work?
Instead, the opposite tends to happen. Programs that fail to make a difference — like many of those that train workers for new jobs — endure indefinitely. Often, policy makers don’t even know which work and which don’t, because rigorous evaluation is rare in government. And competition, which punishes laggards in the private sector, is typically absent in the public sector.
But there is some good news on this front. Lately, both American and British policy makers have been thinking about how to bring some of the competitive discipline of the market to government programs, and they have hit on an intriguing idea.
David Cameron’s Conservative government in Britain is already testing it, at a prison 75 miles north of London. The Bloomberg administration in New York is also considering the idea, as is the State of Massachusetts. Perhaps most notably, President Obama next week will propose setting aside $100 million for seven such pilot programs, according to an administration official.
The idea goes by one of two names: pay for success bonds or social impact bonds. Either way, nonprofit groups like foundations pay the initial money for a new program and also oversee it, with government approval. The government will reimburse them several years later, possibly with a bonus — but only if agreed-upon benchmarks show that the program is working.
If it falls short, taxpayers owe nothing.
The first British test is happening at Her Majesty’s Prison Peterborough, where 60 percent of the prisoners are convicted of another crime within one year of release. Depressingly enough, that recidivism rate is typical for a British prison.
To reduce the rate, a nonprofit group named Social Finance is playing a role akin to venture capitalist. It has raised about $8 million from investors, including the Rockefeller Foundation. Social Finance also oversees three social service groups helping former prisoners find work, stay healthy and the like. If any of those groups starts to miss its performance goals, it can be replaced.
For the investors to get their money back starting in 2014 — with interest — the recidivism rate must fall at least 7.5 percent, relative to a control group. If the rate falls 10 percent, the investors will receive the sort of return that the stock market historically delivers. “It’s been only a few months,” says Tracy Palandjian, who recently opened a new Social Finance office in Boston, “but the numbers are coming in O.K.”
Antony Bugg-Levine of the Rockefeller Foundation told me it had invested in the project for two main reasons. One, it expected to get its money back and then be able to reuse it. Two, if social impact bonds work, they have the potential to attract for-profit investors — and vastly expand the pool of capital that’s available for social programs.
Clearly, social impact bonds have limitations. For starters, it’s hard to see how private money could ever pay for multibillion-dollar programs like Medicaid or education.
Just as important, the execution of any bond program will be complicated. It will depend on coming up with the right performance measures, which is no small matter. Done wrong, the measures will end up rewarding programs lucky (or clever) enough to enroll participants who are more likely to succeed no matter what.
But whatever the caveats about the bonds, the potential for improving the government’s performance is obviously huge. That’s true in education, health care, criminal justice and many other areas.
A recent review found that 10 major social programs had been rigorously evaluated over the past two decades, using the scientific gold standard of random assignment. Only one of the 10 — Early Head Start, for infants, toddlers pregnant women — was a clear success. Yet all 10 still exist, and largely in their original form.
Jon Baron, the president of the Coalition for Evidence-Based Policy in Washington, points out that the social problems addressed by antipoverty programs have not gotten much better in years. School test scores have barely changed. College graduation rates for low-income students have stagnated. The poverty rate is as high as it was in 1981. Median household income is lower than it was in 1998.
“If we just keep funding social programs the way we have been,” Mr. Baron says, “there’s not a lot of reason to think we’ll have much success.”
The Obama administration’s seven pilot programs would create bonds for, among other areas, job training, education, juvenile justice and care of children’s disabilities. Nonprofit groups like Social Finance could apply. So could for-profit companies, said the White House official, who asked not to be named because the president had not yet released next year’s budget. The $100 million for the bonds would come out of the budgets of other programs, to stay consistent with Mr. Obama’s announced freeze on non-security spending.
Officials in Massachusetts and New York are looking at similar ideas but have not yet decided whether they will issue bonds.
Beyond the impact of any single program, the bonds have the potential to nudge all government agencies to pay more attention to results. Mr. Obama, after all, campaigned as a reformer who wanted to create a sleek, efficient “iPod government.” He has had some success, like the expansion of a program — backed by years of solid evidence — in which nurses go to the homes of new at-risk parents to counsel them.
Over all, though, the administration has not done enough to improve government efficiency. Put it this way: If someone asked you how Mr. Obama had made government work better, would you have an answer?
Making government work better will be all the more important in the years ahead. The free market is not going to solve many of our biggest problems, be it stagnant pay or spotty medical care. And government — in Washington and locally — is going to be financially squeezed for a long time.
There never was a good excuse for wasting billions of taxpayer dollars on programs that didn’t work. But now, especially, there’s no excuse.
Eva Margolis Makes Exciting Move
Posted on 03/03/2011 @ 09:00 AM
Innovative Idea Champion Eva Margolis was one of the many stars of the Innovation Marketplace at the 2010 Assets Learning Conference. She was also one of the inspirational innovators who shared their “assets moment” visions in the Opening Plenary. She recently let us know about her move to a new position in the following letter:
I hope this finds you all well! I may have had the chance to speak with you informally about my departure from AccountAbility Minnesota (AAM), but I wanted to write to formally express my gratitude, share my excitement for this new opportunity, and reassure you that AAM’s financial services initiatives will not be affected by this transition. I will greatly miss working for AAM, which has always been an organization I deeply believe in and have enjoyed working for. I am thankful for the opportunities to grow personally and professionally during my 5 years with the agency, and I am especially grateful to have worked with such inspiring, insightful minds –especially regarding asset development and financial empowerment! Please know that I have deep respect for your work and the services you provide to communities.
I regret leaving AAM at the height of tax season and in the middle of the exciting work we are doing around asset building and increasing access to financial services. However, the opportunity to continue similar work through the Eastside Financial Center, which is a program of Lutheran Social Service of Minnesota, was rare and one that I could not pass up. I am looking forward to continuing the work towards economic justice and expanding access to underserved communities in this new capacity. My last day of employment with AAM will be March 4, 2011. During this transition time, I will be working closely with Tracy Fischman, our Executive Director, to ensure our programmatic and operational requirements continue to be met after my departure.
It truly has been a pleasure working with you through AAM and I look forward to keeping in contact with you through my new role.
With great respect,
We wish Eva the best and look forward to staying connected with her in her new role. We also will continue to feature the innovative work of AccountAbility Minnesota, especially with respect to connecting low-income households with asset-building opportunities at tax time.
A Green Foundation for Community Development
By Anne Li on 03/01/2011 @ 01:20 PM
‘Green’ development and ‘green’ jobs present exciting opportunities for innovation that will benefit lower-income people. Several ideas in CFED’s Innovation Portfolio explore the green economy. For example, check out Leonard McCollum’s and Chuck Shannon’s work with Green Business and Prisoner Re-entry and Ted Howard’s efforts with the Evergreen Cooperative Initiative in Cleveland, OH.
Coming up on March 10 – 11 in New Orleans is an interesting conference called Strengthening the Green Foundation: Research & Policy Directions for Development & Finance. It is co-sponsored by Tulane University's new Master of Sustainable Real Estate Development Program and the Federal Reserve Bank of Atlanta's Center for Real Estate Analytics. The two sponsors invite researchers, industry practitioners, and policymakers to participate in a conference to advance the understanding and improve the practice of green development and finance.
The conference aims to influence the national dialogue on green building and will bring together top scholars and practitioners to investigate core issues surrounding green development and assess the tools, costs, benefits, and opportunities in financing green development. Discussions will focus on underwriting and valuation of green development projects, the role that real estate industry organizational structure plays in supporting green development, the application of green standards to real estate portfolio management, and green measurement criteria and certification issues.
Climate change is not the only concern driving the ‘green’ focus today. Rising energy costs, and the need to find long-term operational cost savings by consumers large and small – state and local governments who are feeling acute budget squeezes, companies and individual households like yours and mine – are another reason to explore and implement ‘green’ development approaches.
This conference looks like it should produce some interesting ideas and information. For more information, go to the conference website.
Mercado Global Links Guatemalan Women to U.S. Consumers
By Anne Li on 02/18/2011 @ 09:11 AM
Some of the excitement at the Innovation Marketplace of the 2010 Assets Learning Conference came from the fact that visitors could exercise their market skills by buying unique products and services. Mercado Global was one of the Marketplace’s featured International Innovations. Founded by Ruth DeGolia when she was a student at Yale, Mercado Global is a cutting-edge nonprofit, Fair Trade organization with an innovative approach to fighting poverty and empowering indigenous women in Guatemala’s highlands by connecting their artisan cooperatives to sales opportunities in the U.S. on an unprecedented scale.
I was not the only visitor who was drawn to Mercado Global’s Innovation Station by beautiful glass necklaces and bracelets, handcrafted by women’s cooperatives in Guatemala. Thanks to generous support from the Levi Strauss Foundation, Mercado Global also supplied all 1,100 attendees with hand-woven conference bags. Ruth reports that Mercado Global has recently started advanced technical trainings with their weaving cooperatives, which will enable more women to participate in current and future orders of woven goods. Over the next few months, these artisans will be learning a new technique on the foot-loom called the “panalito” technique. This complicated technique will help them build their skills of weaving with finer threads to create more complex scarves, which is perfect for new fall styles that will be carried by Levi’s.
Barbara Quieju, Mercado Global’s training program coordinator, reported, “At first, a lot of the artisans were slightly intimidated by the complex technique but soon they were laughing and easily picking up the new skills. The days were long but the artisans were excited and grateful to be learning a new technique.”
“The fabric of this scarf is different than what we usually make, it is a good thing that we are being taught how to loom well.” - Anju Siona
“This opportunity is a gift for me because now I am going to be an expert at foot looming.” -Fabiola Mendoza
“This technique seemed difficult, but when I did it it was not so complicated. We did not loom this well before.” – Saloj Guarcax
The work of Mercado Global illustrates the interconnectedness of decisions we make in our households, communities and country, as part of a global economy. And the efforts of Ruth DeGolia and her colleagues in the U.S. and Guatemala are examples of the kind of creative energy to spark innovation that will help us all to expand economic opportunity around the corner and around the planet.
Photos, courtesy of Mercado Global.
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