Thelma Small: Financial Education at Any Age
By Veronica Weis on 05/07/2013 @ 04:00 PM
Thelma Small with VITA volunteer tax preparer, Stephonie Holmes
EDITOR'S NOTE: Thank you to the Real$ense Prosperity Campaign of the United Way of Northeast Florida for submitting this inspiring tax time story.
This year, Thelma Small of Jacksonville, Florida attended a Super Saturday event held on March 2 by the Real$ense Prosperity Campaign of United Way of Northeast Florida. At 82 years young, Thelma is living proof that improving your financial education and participating in free tax preparation services can happen at any age.
Thelma got her taxes prepared by trained Real$ense volunteer, Stephonie Holmes, and attended a financial education workshop. She was also able to access her credit report through the event. The best part? All of the services were free and the whole process took just a couple of hours.
One of Thelma’s daughters has been using Real$ense for several years. She’s the one who encouraged her mother and sister to this year’s event. Real$ense has really turned into a family affair for Thelma and her daughters.
“Rosalind Brown helped me,” said Small. “I would definitely come back to Real$ense, it’s a great service. I got lots of great information and my taxes are done!”
It's the Economic Mobility, Stupid!
By ThinkProgress on 05/02/2013 @ 04:00 PM
The conservative trickle-down approach to the economy assumes that maximizing rewards for those at the top is the path to both growth and prosperity for the society as a whole. If inequality rises, that does not matter, runs the conservative argument, because absolute levels of prosperity will rise for everyone even if the top gains more.
The progressive approach to the economy is radically different. This approach posits, based on a mass of accumulating evidence, that inequality is not a benign byproduct of growth, but rather a toxic barrier to both middle class prosperity and strong growth in general. In other words, high levels of inequality interfere with the both the quality and quantity of growth experienced by a society. Hence the idea that an economic agenda must concentrate on lifting up the middle class to generate both broadly-shared prosperity and fast growth. The two goals are inextricably linked and one cannot be attained without the other.
Of course, the progressive agenda may be the correct one, but that does not mean it can be easily sold to the public and politicians. It would require a serious reorientation of national priorities and considerable investments in areas like education and infrastructure–spending that is likely to meet considerable resistance in the current environment. Therefore, the question of how to frame the agenda in the political marketplace is key.
One obvious approach is to frame the agenda directly as a means of reducing inequality. Call this the redistributionist approach. This approach is not without merit. Start with awareness of and views about economic inequality.
There is no doubt Americans are aware of rising inequality. In the Pew Research Center’s 2012 American Values survey, respondents were asked if they agreed that today the rich get richer while the poor get poorer. About three-quarters (76 percent) agreed, while just 23 percent disagreed. And the public believes it’s not just the poor who are losing ground to the rich—it’s the middle class as well. In the same survey three-quarters (76 percent) also say the gap between the standards of living of the middle class and the rich grew over the last decade, compared to just 16 percent who think it narrowed.
No wonder that a poll from October 2011 conducted by Pulse Opinion Research for The Hill found that two in three Americans believe that the middle class is now shrinking. And in a Democracy Corps post-2010 election survey, the public endorsed the idea that America is no longer a country with a rising middle class by 57-36. Finally, an October, 2007 poll conducted by political scientists Benjamin Page and Lawrence Jacobs for their book, Class War: What Americans Really Think about Economic Inequality, found 81 percent of the public saying that the gap in wealth between wealthy Americans and the middle class has grown over the last 25 years, compared to just 10 percent who said it has remained the same and 8 percent who said it had gotten smaller.
Of course high awareness of inequality does not necessarily mean that Americans disapprove of it. But further data show that Americans’ high awareness of inequality is indeed matched by high levels of disapproval. For example, in a Pew poll in December, 2011, 61% said our economy unfairly favors wealthy Americans, while only 36% thought the system was “generally fair.” And in an ABC News/The Washington Post poll from January of this year, 55% of Americans said that economic unfairness that favors the wealthy is a bigger problem than overregulation by the government that hurts economic growth. Only 35% of respondents believed the latter was the bigger problem.
Moreover, in an October, 2011 nationwide survey conducted by Greenberg Quinlan Rosner Research and the Center for American Progress Action Fund, the public expressed the following views:
- 81 percent of those surveyed agreed that “Regular people work harder and harder for less and less, while Wall Street CEOs enjoy bigger bonuses than ever,”
- 75 percent agreed that “Our economy works for Wall Street CEOs but not for the middle class. America isn’t supposed to only work for the top 1 percent”
- 72 percent agreed that “right now, 99 percent of Americans only see the rich getting richer and everyone else getting crushed. And they’re right.”
In earlier data from the Page/Jacobs survey, 72 percent agreed that differences in income in America are too large, compared to only 27 percent who disagreed. And 59 percent disagreed that large differences in income are necessary for America’s prosperity. In an October 2008 Gallup poll, 58 percent thought money and wealth should be more evenly distributed among a larger percentage of the people, compared to 37 percent who thought it was fairly distributed.
None of these survey findings are idiosyncratic. Careful academic reviews of public opinion on inequality over time by sociologists Lane Kenworthy and Leslie McCall indicate that Americans have typically been aware of inequality, sensitive to its increase over time and generally disapprove of the levels it has reached on our society.
So, beyond a shadow of a doubt, the public is both aware of rising inequality and disapproves of it. Naturally enough, given these sentiments, the public would also like to see something done about this problem. In a November 2011 poll from the Public Religion Research Institute, 60 percent agreed that “our society would be better off if the distribution of wealth was more equal.” And 63 percent believed that “we need to dramatically reduce inequalities between rich and poor, whites and people of color and men and women.”
But it does not follow from all this–awareness, disapproval and the felt need for action–that the public would necessarily be happiest with a direct attack on inequality as implied by the redistributionist frame. On the contrary, in the February, 2009 Pew economic mobility survey, by an overwhelming 71-21 margin, respondents though it was more important to ensure everyone has a fair chance of improving their economic standing than to reduce inequality in America.
That preference for economic mobility over direct mitigation of inequality is also suggested by results of another question in the same survey. By 71-27, Americans agreed that greater economic inequality means that it is more difficult for those at the bottom of the ladder to move up the ladder. That is what Americans object to most vigorously about economic inequality: that it makes economic mobility more difficult. In other words, for most Americans what we have is not an inequality crisis but a mobility crisis. This is confirmed by results of a recent series of focus groups on inequality conducted by Greenberg Quinlan Rosner. Participants tended not to connect their economic difficulties with wealth and income inequality but bemoaned, more than anything else, the rising cost of middle class expenses like housing, transportation, medical care and college relative to lagging wages and salaries. This middle class squeeze, which prevents them from moving ahead in life, is what primarily concerns them.
The mobility crisis touches something very, very important to Americans. Americans retain a deep faith in their personal ability to get ahead even in adverse circumstances, provided they have a fair opportunity to do so. Here are some results from a survey I helped conduct for the Economic Policy Institute in March, 2006. That poll found that 69% thought they had already attained the American Dream or would attain it in their lifetimes (note: this figure was actually higher–75%–in a CAP poll conducted in February, 2009 after the financial crisis had hit). And while 60% rated themselves between poor and middle class now on a 10 point economic scale (1-5), 59% said they would be between middle class and wealthy (6 to 10) within 10 years. Finally, while 80% described themselves as working class, middle class, or lower class today, 44% believed it was very or somewhat likely that they would become wealthy in the future.
This personal optimism can and does co-exist with negative views about the overall state of the economy. In the EPI poll, respondents were asked whether economic uncertainty and inequality or success in achieving the American Dream characterizes the economy today. Here is the choice posed by the question:
- Most people today face increasing uncertainty about employment, with stagnant incomes, paying more for health care, taxes, and retirement, while those at the top have booming incomes and lower taxes
OR
- Our economy faces ups and downs, but most people can expect to better themselves, see rising incomes, find good jobs and provide economic security for their families. The American dream is very much alive.
By 2:1 (64%-32%), respondents selected the first statement about increasing uncertainty as coming closer to their views. But of that group that said that increasing uncertainty, rather than achieving the American Dream, characterized the economy, an amazing 63% nevertheless thought that they themselves would achieve the Dream.
This personal optimism and aspirational outlook is broadly shared across social groups. For example, 69% of the white working class and 74 % of the white middle class believed they have reached or will reach the American Dream, as did 67% of women, 72% of men, 66% of blacks, and 74% of Hispanics (blacks and Hispanics were less likely than whites to believe they had already attained the Dream, but made up for it by being more likely to believe they will attain it in the future).
This aspirational outlook helps explain a stunning finding from the Page/Jacobs survey. A whopping 97 percent agreed (including 85 percent who strongly agreed) that everyone in America should have equal opportunities to get ahead. This is as close to a consensual viewpoint as you find in American public opinion, suggesting the power of a mobility, rather than redistributionist, frame for the progressive economic agenda.
The mobility frame has a strong connection in the public mind to the need for government action. In the 2011 Pew economic mobility survey, an overwhelming 83 percent said they wanted the government to either provide opportunities for the poor and middle class to improve their economic situation or prevent them from falling behind or both. In the same survey, education, a central part of the progressive economic agenda, loomed especially large as a way the government should help provide those opportunities. Ensuring all children get a quality education was rated the highest among options to help people get ahead (88 percent rated it as one of the most important/very important). And improving the quality of elementary and secondary education and making college more affordable were two of the top four options for preventing downward mobility (84 and 80 percent, respectively, one of the most effective/very effective).
Other options that rated highly in this or the 2009 Pew economic mobility survey included promoting job creation, providing basic needs to the very poor, reducing the costs of health care, helping small businesses and business owners, more job training programs and education for adult workers, making it easier to save for retirement and early childhood learning programs. All these mobility-promoting steps are central, of course, to the progressive economic agenda.
In conclusion, the mobility frame lends itself to an “aspirational populism” that makes explicit the argument that current levels of inequality are not just unfair but directly interfere with mobility and economic growth. Not only is there a growing body of economic evidence for the argument but it accords well with the common sense of voters. And perhaps the common sense of an increasing number of politicians. As the President himself has remarked (April, 2012 speech in Florida):
"In this country, prosperity has never trickled down from the wealthy few. Prosperity has always come from the bottom up, from a strong and growing middle class. That’s how a generation who went to college on the GI Bill — including my grandfather — helped build the most prosperous economy that the world has ever known. That’s why a CEO like Henry Ford made a point to pay his workers enough money so that they could buy the cars that they were building. Because he understood, look, there’s no point in me having all this and then nobody can buy my cars. I’ve got to pay my workers enough so that they buy the cars, and that in turn creates more business and more prosperity for everybody."
That about says it all.
The Best Way to Spend 3 Extra Minutes
By Sean Luechtefeld on 05/01/2013 @ 03:00 PM
Our friends at the Urban Institute just released this powerful three-minute video explaining just how pervasive the burgeoning racial wealth gap is. It uses CFED's findings in our Upside Down report to illustrate how, despite spending $400 billion on asset-building incentives, the federal government still fails to reach the populations who need support in building wealth and financial security. Seriously, this will likely be the three most powerful minutes you'll spend today.
We Got 99 Problems...
By Daria Sheehan, Citi Foundation, Pamela Chan and Ethan Geiling on 04/22/2013 @ 04:45 PM
Insights from behavioral economics can transform the way we design programs in the asset-building field, and we’re interested in learning how. That’s why CFED, ideas42 and the Citi Foundation launched the Behavioral Economics Technical Assistance (BETA) Project and issued a request for proposals (RFP) in late 2012 from organizations interested in piloting behaviorally-informed interventions. Working with the selected pilot sites, we hope to also develop technical assistance tools for other organizations in the field.
Through the RFP process, we received 99 proposals from organizations across the country. Today, we released a brief that examines themes among these 99 proposals, explores common challenges and lays out next steps for the BETA Project.
With 99 applications from a diverse set of organizations, you might expect an infinite range of different problems and program challenges. Interestingly, we found that many of the problems organizations reported are quite similar. Almost all of the problems fell into four broad categories:
- Low take-up of a program or service. For example, many programs offer financial education classes or credit counseling, but have problems convincing individuals to enroll in these programs.
- Clients fail to follow through on intentions. For example, many programs work with individuals to create “action plans” or similar roadmaps to help people achieve their financial goals. Yet individuals do not follow through on these plans.
- Clients have trouble prioritizing savings or changing savings habits. For example, some organizations were interested in leveraging tax time to help people save, since individuals often get a windfall tax refund.
- Clients have difficulty making economically beneficial financial decisions. For example, many organizations are trying to help individuals manage and repair credit, usually through one-on-one financial counseling.
Although many of the problems identified in the proposals were similar, we believe that the underlying reasons why these problems exist could be very different for each organization.
For example, take the problem of getting more people to sign up for a financial education class. If the class has a good curriculum, and has led to successful outcomes, why is it hard to get people to sign up?
It’s easy to assume that the underlying reason for this problem is about the advertising and promotion of the program, and that if more people knew about the program, more would sign up. However, the reality could be that people know about the program and had the intention to sign up, but did not act upon it. In this case, it would not matter how effective a new advertising campaign is—the problem was not the advertisements.
All behaviorally informed interventions start with a statement of the problem. Over the coming months, the BETA Project will share lessons from our three selected test sites: Neighborhood Trust Financial Partners (New York), Cleveland Housing Network (Cleveland) and Accion Texas (San Antonio). We’ll start by analyzing the original problem statement provided by each of the sites in their application:
Designing effective solutions ultimately depends on how we represent the problems. That means that we must disentangle the core challenge from preconceptions or hidden assumptions. Stay tuned for lessons on how we take these original problem statements and refine them into the core challenges that can be addressed by behavioral diagnosis and design.
By sharing insights from these sites, we hope more organizations will come to appreciate how accounting for client behavior in the context of service delivery can greatly impact program outcomes.
Click here to read the full brief.
Income and Wealth in America Across Generations
By Sean Luechtefeld on 03/11/2013 @ 12:45 PM
EDITOR'S NOTE: We received notification of this first-of-its-kind tool from the folks at the Pew Charitable Trusts. We think it's a great way to show the cross-generational economic mobility of American families. Credit to the Pew Charitable Trusts for the content of this blog post.
This interactive tool by The Pew Charitable Trusts’ economic mobility project displays not only which Americans are more likely to exceed or fall short of the income and wealth held by their parents, but—for the first time—by how much. It provides a unique way to analyze absolute mobility in America and drill down into the specific effects of education level, race, and number of earners present in a household. Select findings include:
- 83 percent of Americans exceed their parents’ family income by at least $1,000.
- Half of Americans exceed their parents’ family wealth, and 47 percent have at least $5,000 less wealth than their parents.
- Having a college degree is associated with absolute upward mobility at all income and wealth thresholds and is especially important for upward wealth mobility from the bottom.
- Blacks are less likely to experience absolute upward income and wealth mobility than are whites.
- A greater proportion of dual-earner families surpass their parents’ family income than do single-earner families.
To check out this exciting, interactive new tool, visit the Pew Charitable Trusts' website.
The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide
By Tatjana Meschede, Guest Contributor on 03/06/2013 @ 11:00 AM
EDITOR'S NOTE: CFED invited Tatjana to offer this guest blog post on IASP's groundbreaking new study on the burgeoning racial wealth gap.
Wealth inequality has become central to the debate over whether our nation is on a sustainable economic path. New research by Brandeis University’s Institute on Assets and Social Policy (IASP) shows the dramatic gap in household wealth that now exists along racial lines in the United States. The IASP study, “The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide,” followed 1,700 working-age households over what is now a 25-year period – from 1984 to 2009. This approach offers a unique opportunity to understand what happens to the wealth gap over the course of a generation and the effect of policy and institutional decision-making on how average families accumulate wealth.
This new study found the wealth gap almost tripled from 1984 to 2009, increasing from $85,000 to $236,500. The median net worth of white households in the study has grown to $265,000 over the 25-year period compared with just $28,500 for black households. The dramatic increase in the racial wealth gap has accelerated despite the country’s movement beyond the Civil Rights era into a period of legal equality and the election of the first African-American president. The resulting toxic inequality now threatens the U.S. economy and indeed, American society, the study concludes.
Setting out to determine what is driving the disparity today, IASP was able to statistically validate five fundamental factors that together account for two-thirds of the proportional increase in the racial wealth gap. Those five factors include the number of years of homeownership; average family income; employment stability, particularly through the Great Recession; college education; and family financial support and inheritance. While marriage is another factor that was studied, its impact is quite small. Unmistakably, the rise in racial wealth inequality cannot solely be attributed to personal ambition and behavioral choices, but rather reflects policies and institutional practices that create different opportunities for whites and African-Americans.
The report recommends that policymakers take steps such as strengthening and enforcing fair housing, mortgage and lending policies; raising the minimum wage and enforcing equal pay provisions; investing in high-quality childcare and early childhood development; and overhauling preferential tax treatments for dividend and interest income and the home mortgage deduction.
These findings are discussed in detail in the report, which is available here. For more information, please visit iasp.brandeis.edu.
CFED Awarded $125,000 Grant from Capital One for Innovative Asset-Building and Microenterprise Services Initiative
By Kristin Lawton on 02/08/2013 @ 11:16 AM
Funding will be used to advance the financial security and upward mobility of low-income entrepreneurs.
CFED announced a $125,000 grant today from Capital One Financial Corporation to support work to identify new scalable opportunities to help disadvantaged entrepreneurs achieve upward economic mobility. The grant will facilitate a partnership between CFED and several microenterprise organizations, including Accion Texas, Inc., the California Association for Micro Enterprise Opportunity (CAMEO), the Enterprise Development Group (EDG) in the Washington, DC metro area, and others. Through these partnerships, CFED will promote emerging practices that service providers can implement to ensure that their clients have access to the financial products and skills they need, and are actively using them to make their businesses stable and sustainable.
“Accion Texas, CAMEO, and EDG, all high-performing, innovative leaders in serving low-income entrepreneurs, will be able to elevate their promising practices and cross-pollinate ideas that can help clients achieve financial security and upward economic mobility,” said Andrea Levere, CFED president. “Capital One’s leadership and support is making it possible to extend the project’s impact beyond our four active partners and reach the wider field of microenterprise practitioners, policymakers and financial institutions.”
The Capital One grant will fund a number of the project’s core activities and products in 2013 including:
- In-depth interviews with key staff at the four partner organizations to learn about their clients’ specific financial capability and product needs, and the operational opportunities and obstacles that affect capacity to deliver new solutions.
- Small group convenings to share our findings and identify ways to replicate effective innovations.
- The development of public education materials, such as an Emerging Practices Guide, a Policy Analysis Report, and several Field Innovation Briefs to be disseminated to policymakers, practitioners, financial institutions and other key stakeholders to make them aware of field developments and opportunities to support promising approaches.
“CFED is a leading national intermediary with decades of experience that combines expertise in both microenterprise and asset building to create synergies in support of microenterprises and the self-employed,” said Daniel Delehanty, senior director, Community Development Banking at Capital One. “Through Capital One’s Investing for Good program, we continue to work with organizations like CFED to help microentrepreneurs grow their businesses through capacity building and integration of innovative financial capability training and support that ultimately helps to create more jobs and stimulate local economies.”
About Capital One
Capital One Financial Corporation, headquartered in McLean, Virginia, is a Fortune 500 company with more than 900 branch locations primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia, and the District of Columbia. Its subsidiaries, Capital One, N.A. and Capital One Bank (USA), N. A., offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients. We apply the same principles of innovation, collaboration and empowerment in our commitment to our communities across the country that we do in our business. We recognize that helping to build strong and healthy communities - good places to work, good places to do business and good places to raise families - benefits us all and we are proud to support this and other community initiatives.
CFED Applauds Reappointment of Richard Cordray to Head the CFPB
By Kristin Lawton on 01/24/2013 @ 04:23 PM
Cordray speaking at the Assets Learning Conference. Click here to listen to his remarks.
Washington, D.C. — With Richard Cordray as Director, the CFPB has provided essential protections that can change the financial lives of all consumers, with particular focus on the underserved and vulnerable citizens of this country. CFED applauds President Obama for his renomination of Cordray to a full term as director.
CFED is eager to continue working with the CFPB to protect consumers, enhance the financial capability of those struggling to get ahead in a challenging economy and fully participate in the financial mainstream so they can buy homes, attend college, start and grow businesses and achieve financial self-reliance.
Richard Cordray is an excellent choice to lead CFPB. His years of public service have led him to develop deep expertise in consumer protection. As the Attorney General of Ohio, Cordray was a national leader in fighting foreclosure scams. He has won praise from consumer advocates and bankers alike and will provide a much needed "financial cop on the beat" to protect consumers, grow our economy and avoid another financial collapse.
CFED empowers low- and moderate-income households to build and preserve assets by advancing policies and programs that help them achieve the American Dream, including buying a home, pursuing higher education, starting a business and saving for the future. As a leading source for data about household financial security and policy solutions, CFED understands what families need to succeed. We promote programs on the ground and invest in social enterprises that create pathways to financial security and opportunity for millions of people. Established in 1979 as the Corporation for Enterprise Development, CFED works nationally and internationally through its offices in Washington, DC; Durham, North Carolina; and San Francisco, California.
Improving Economic Mobility Through Increased Savings
By Sean Luechtefeld on 01/07/2013 @ 05:00 PM
Last month, Diane Calmus, Research Assistant in the Center for Policy Innovation at the Heritage Foundation, published a discussion paper titled “Improving Economic Mobility through Increased Savings.” The paper, which you can download here, explores different innovative programs that encourage American households to set aside money for large purchases, unexpected emergencies and comfortable retirements.
Among the innovations explored in Calmus’ report is the Save to Win program. Using the gratification of a lottery to foster longer-term savings, the Save to Win pilot in Michigan gave borrowers entries into the lottery according to how much they had saved. The more a family saved, the higher the odds that they’d win the prize. This notion of prize-linked savings, currently being pioneered by organizations like the Doorways to Dreams Fund, have demonstrated that the potential of winning a prize, no matter how large or small, is a significant incentive to encourage regular saving behaviors. In its first three years, the Michigan pilot yielded a savings of $8.5 million among 11,500 savers.
These and other innovations are the cutting edge of improving financial security at a time when asset poverty is all but pervasive. As Calmus concludes, “saving money is not easy, but it is important. Innovative programs of the sort outlined in this paper, if implemented, can and will engage Americans in setting aside money.”
To read the full range of innovations cited by Calmus, visit the Heritage website.
The Asset Building Narrative Is in the Works
By Evelyn Burnett, Guest Contributor and Helen Leung, Guest Contributor on 11/28/2012 @ 12:30 PM
EDITOR'S NOTE: This post originally appeared on Living Cities' blog The Catalyst. Read the original post here.
It is no surprise that many people zone out when they see statistics, but love a good story. The asset-building field is crafting its story, creating the narrative and casting new characters. As the field forms the statistics into a compelling narrative, it is imperative that equity play a leading role. Recently, the Assets Learning Conference sponsored by the Corporation for Enterprise Development (CFED) brought together over 1,300 government leaders, service providers, bankers, and funders to discuss trends, lessons, and best practices for expanding economic opportunity for low-income families. We gained significant insight into the burgeoning field of asset building that we would like to share with you.
CFE defines assets as tangible and intangible economic resources – a home, savings in a bank account, a college education – that can produce value for their owner. Assets are important because they provide the ability to weather a job loss as well as the potential to move up the economic ladder. Someone new to the asset-building field might ask, how can we focus on assets while the basic needs of low-income families are unmet? Michael Sherraden, author of Assets and the Poor, argues that assets have economic, social and psychological power that income alone does not. Assets are the foundation for achieving financial sustainability and escaping poverty. Here are some observations from the conference:
Communities thirst for practical tools. Rather than theories, leaders want tools and action plans. Living Cities designed and moderated a standing-room-only session called “Embedding Financial Empowerment into Social Service Delivery.” Program Associate Helen Leung moderated the panel featuring our Income & Assets Working Group grantees and grant evaluator. The panel highlighted the ways Louisville and Seattle are integrating financial empowerment into their homeless-service continuum for low-income people. Our audience was intrigued by our unconventional focus on the process of helping people manage their assets rather than just the products that dominate the field. Our panelists highlighted various emergent processes in asset building, including cross-sector partnerships, improved contract requirements for social-service delivery, and training on financial empowerment approaches. Ultimately, what matters most is perspective. Seattle’s Senior Mayoral Advisor Jerry DeGrieck, a leader in municipal financial empowerment, commented that “folks are more comfortable talking about sex and drugs than financial empowerment for low-income people.” In order for financial empowerment to succeed as an asset-building strategy, practical tools must be complemented by education, technical assistance and provider training.
Growing race and gender wealth gaps must be addressed. Data strongly link wealth inequality to income inequality. Wealth confers benefits that income does not. Wealth can generate further income, be used as collateral for loans, be passed from generation to generation, and help weather financial crises. Wealth inequality is distinct from income inequality and much more severe. Dr. Mariko Chang, author of Shortchanged: Why Women Have Less Wealth and What Can Be Done About It, states that white families have 18 times the wealth of Hispanic households and 20 times the wealth of African American households. The gender wealth gap is similarly severe. Women have less wealth and disposable income, yet are more likely to be the sole custodial parent and to support more people. For both women and minorities, there needs to be increased focus on the “wealth escalator” – the transition potential from income into wealth. Closing racial and gender wealth gaps is imperative. Strategies to closing these gaps range from access to employment and appropriate financial products, policy interventions that remove asset limits on public assistance and greater focus on product innovation and outreach.
Social capital is not reserved for only the rich. A theme that emerged repeatedly, especially among service providers, is the need to leverage social capital – the value derived from social networks. A big challenge is that lower-income populations have different and arguably more limited types of social capital. For example, 80% of available jobs are never formally advertised and therefore remain inaccessible to people without extensive social networks. Innovative programs piloted by Boston Rising and the Family Independence Initiative help strengthen and broaden social connections for low-income individuals. Both organizations challenge the field to invest in programs that build social capital and encourage support networks among family and friends. The successes of these efforts demonstrate the unleashed power of social capital when applied to lower-income communities’ financial empowerment and asset building strategies.
Unfortunately, most systems we rely on for prosperity are obsolete, and overhauling the systems that support low-income people is incredibly difficult. We believe that asset building practitioners and advocates have to stop working around systemic problems and face wealth and gender gaps head on. There is great potential in moving innovations in financial empowerment and social capital from the periphery to the mainstream and to scale. So, as the asset-building field pens its story, we suggest integrating the points made here into the storyline. The key mandate is that the narrative compels actions on behalf of low income people.
New Report: The Right Choices to Cut Poverty and Restore Shared Prosperity
By Katie Wright, Guest Contributor on 11/20/2012 @ 05:00 PM
In the coming weeks and months, Congress will consider the fate of tax cuts for the wealthiest Americans and the fate of critical health, nutrition, education, and income supports that provide a pathway to the middle class. As can be seen in the video above, low-income families across the country have a lot on the line in this debate.
The newly released Half in Ten Report, “The Right Choices to Cut Poverty and Restore Shared Prosperity” provides critical data and policy recommendations to inform this debate. The Half in Ten Report sheds light on how our nation is faring on key indicators of cutting poverty and expanding opportunity for all, tracking progress from 2010 to 2011 as well as longer-term trends at the national level and for every state. The report, the second in an annual series, also offers recommendations to move the indicators in the right direction and expand the middle class, even as we cut our long-term deficits.
The Half in Ten Report website also includes features like fact sheets on each indicator, state data and rankings, and a Poverty and Opportunity Profile on the Latino Community.
Highlights from Understanding Prepaid Cards
By Lebaron Sims on 10/10/2012 @ 12:30 PM
The prepaid card industry is largely new, and has only recently begun to be seen as a viable instrument in the asset building field. As the field is still emerging, it has become popular among low-income consumers, prompting a need for additional research on its use and effectiveness as an alternative to traditional financial instruments. The popularity of the topic was evident upon walking into Washington 3 for the 2012 ALC’s Understanding Prepaid Cards and Improving their Role in Improving Consumer Outcomes session. Though the session got off to a bit of a late start, moderator Dan Quan (CFPB) kept things moving without missing a beat, and even allowed for a robust and thought-provoking audience discussion after the presentations. Though the discussion was indeed lively, the true focus of the session, and what made the session truly worth attending, was the research.
Stephanie Wilshusen (Federal Reserve Bank of Philadelphia) led off with an overview of her paper, Consumers’ Use of Prepaid Cards: A Transaction-Based Analysis (released just last month, by the Philadelphia Fed’s Payment Cards Center). Using the most recent data from the Federal Reserve Payments Study, Ms. Wilshusen and her co-authors’ findings on the dissemination and use of prepaid cards are truly remarkable. The analysis, which looked at 15 separate card programs grouped by type and enrollment method, shows that prepaid card use is most prevalent at fast food locations, grocery stores, and gas stations, with dollar value of purchases staying relatively consistent across the various prepaid card types. In addition, cards with direct deposit vary greatly in usage life and intensity from those without the feature. Retail cards with a direct deposit feature demonstrated an increase in usage life of over 300 days compared to those without – a remarkable amount of variation. Lastly, the research showed that cards with regularly scheduled value loads are active for longer periods, and have more transactions and value loads.
Next up was Sarika Abbi (D2D Fund), whose paper, “Expanding Financial Access: Emergency Savings on a Prepaid Card” features findings from the “Rainy Day Reserve” intervention. The Rainy Day Reserve is an emergency savings pocket designed to help low-income prepaid card consumers create and maintain a fund for use after experiencing an unexpected economic shock. Partnering with Plastyc Inc., a prepaid card company, D2D was able to implement the system, which was designed to meet three primary goals: to find and drive takeup, ensure the use of the service, and help consumers both maintain their savings for emergency purchases and rebuild their savings after use. Ease of use was also paramount, so the program was designed with limited barriers to entry (no minimum balance or deposit requirement) and features like pop-up reminders designed to influence user behavior. The results of the study show that these low barriers to access were the primary reason for using the service for 49% of users. The Rainy Day Reserve saw over $5.4 million in deposits through over 59,000 transactions, indicating both a demand for the service and a high volume of activity among users. The pop-up reminders also served as effective deterrents to anti-saving behaviors, with a third of respondents indicating that the message requiring a “yes/no” response before withdrawing money from their Reserve successfully deterred them from going through with the transaction. Though the intervention is ongoing, these preliminary results are inspiring. With over 4.4 million unbanked and underbanked households using general prepaid cards, introducing a savings component could be an effective means of both incenting responsible financial behavior and introducing underserved populations to more sophisticated financial instruments.
Romy Parzick (CFSI) closed out the presentations with a discussion on fee disclosures. With median number of fees charged on prepaid cards at 15.5, and with a surprisingly minimal level of overlap among these different types of fees, disclosure and transparency is a pressing issue for users, and must be rectified with prepaid cards are to become further incorporated into the financial mainstream. Ms. Parzick’s presentation and paper, “Thinking Inside The Box”, outlined a number of practical and demonstrable changes to current industry practices. All prepaid cardd companies have a list or box in which they disclose fees, but the format and locations of the box vary. Generally speaking, companies only disclose about 85% of all fees in this box, and only half disclose third-party fees (i.e., reload network) at all. The report offered five required policy recommendations to increase transparency:
- Simpler language (8th grade language or lower)
- Thoughtful design and formatting (larger type, no jargon or legalese)
- Balancing simplicity and comprehensiveness (the most commonly incurred fees should be included in box, but a full list should be readily available)
- Balancing pure disclosure and financial capability (encouraging positive use)
- Clear and consistent placement, with standard categories
With the CFPB now open for business, and with prepaid cards moving both into the mainstream and onto their radar, we may very well see these regulations put into place soon, particularly if the asset building industry embraces the model and helps to take it to scale. Of the many sessions I was fortunate enough to attend over the three days of the ALC, this was by far my favorite. The audience interaction was fantastic, the research was engaging, and the policy implications were exciting. I can’t think of a better way to close out my 2012 Assets Learning Conference!
First Look: FDIC Releases New Unbanked Data
By Ethan Geiling on 09/13/2012 @ 12:00 PM
The number of unbanked and underbanked Americans has grown slightly since 2009, according to new data released by the FDIC yesterday.
More than eight percent of U.S. households – or approximately 17 million adults – are unbanked, up from 7.6% in 2009.* The number of underbanked households rose to 20.1% - or approximately 51 million adults – which is slightly higher than the 18.2% of households in 2009. Overall, the combined number of unbanked and underbanked households jumped three percentage points from two years earlier.
Unbanked rates by geography
Although the unbanked rate appears to have increased and decreased in many states, the FDIC reports that the change is only statistically significant in three states: West Virginia, Wyoming and Minnesota. Because of changes to the survey methodology, underbanked rates from 2009 and 2011 are not directly comparable. However, the proportion of households using Alternative Financial Services did increase in eight states – Alabama, Nevada, Arkansas, Georgia, New Jersey, South Dakota, Vermont, and Rhode Island – and decreased in Alaska and the District of Columbia.
The FDIC looked at unbanked rates in the 71 largest Metropolitan Statistical Areas (MSAs). Of these 71, there was a statistically significant change in seven of them – the unbanked rate increased in five and decreased in two. The FDIC does not speculate about why rates may have changes in these cities.
Use of savings accounts
For the first time, the FDIC examined differences in checking and savings account usage. A large chunk of Americans (29.3%) do not have a savings account, which is seen as a major opportunity for financial institutions. Some interesting trends also emerge when you break down the data by different subgroups. About half of Black and Hispanic households do not have a savings account, compared to about one-quarter of Asian and white households. The majority (61.0%) of the lowest income households (those making less than $15,000) do not have a savings account, compared to less than 10% of households making $75,000 or more a year.
Future banking plans
The FDIC asked unbanked households whether they plan to open a bank account in the near future. The majority of households (61.7%) said that they are not likely to open an account. However, households that previously had a bank are more likely than never-banked households to report that they will open an account.
One of the most interesting findings from the FDIC’s report is the reasons that unbanked households want to open accounts. The top three reasons are:
The third reason – to save money for the future – is particularly noteworthy, and suggests that many low-income people have the desire to save, but lack the vehicle to do so.
There is far too much rich information in the FDIC’s report to cover in a blog post. However, next week Keith Ernst from the FDIC will be at CFED’s Assets Learning Conference presenting on findings during the Applied Research Forum Kick-Off. If you’re attending the ALC, we encourage you to attend this session to learn more!
Giving Context to Unbanked Data
By Sean Luechtefeld on 07/06/2012 @ 10:30 AM
It’s no surprise that CFED cares about financial access, and our work to promote Bank On is premised on the idea that building assets is infinitely easier with a bank account. The reason why is simple: having free or low-cost access to one’s own money is better than paying to use one’s own money.
Though the concept is simple, it’s sometimes hard to conceptualize just how dramatic the difference between having a bank account and not having a bank account can be. This is why I was so excited to find that my friends at The Sociological Cinema had posted a helpful infographic the other day providing some context about the difficulties of being unbanked. The infographic does an excellent job of visually representing the data, so I’m sharing it with readers here.
I hope you find this infographic helpful. There’s a ton more at The Sociological Cinema, so be sure to follow them on Facebook and check out their photo album on poverty issues.
Alternative Financial Services Aren’t Just for Low-income People
By Sean Luechtefeld on 06/12/2012 @ 02:30 PM
As the Bank On Site Administrator, one of my jobs is to keep up with news about Bank On and other financial access initiatives. Like everything else in my life, I do this with Google. Among my Alerts for ‘Bank On’ are notifications that “the bank on 14th Street was robbed” and “you can bank on the Celtics winning the Eastern Conference Finals.”
Imagine my surprise, then, when one Alert was about financial access but didn’t have to do with Bank On. In an article published on May 23, Spectrem’s Millionaire Corner highlights findings from a report that concludes that middle-income Millennials – and not just low-income individuals – rely on alternative financial services. For example, the rate of prepaid debit card use is as high for those making between $50,000 - 75,000 per year as it is for those making under $25,000 annually.
What struck me about this article – aside from the obvious omission of Bank On initiatives despite the article being titled “Millennials Bank on Alternative Financial Services” – was that no mention of alternatives to these “alternatives” was made. In other words, the Think Finance report and Millionaire Corner’s accompanying recap simply state that use of pawn shops, payday lenders and the like is ubiquitous among a wide swath of the population, but no discussion of how we might approach this problem exists. In fact, the data aren’t even presented as a problem at all.
But, a problem it is. That a sizeable barrier exists not only for low-income people but also for somewhere around half the population would seem like impetus enough to do something. Yet, inaction has been the path for policymakers who see the issue simply as a challenge among many rather than as one of the largest factors preventing people from building assets.
Luckily, there is good news: an alternative to predatory lending practices and products that keep people from accumulating wealth exists in the form of the Bank On USA initiative. The 70 or so state and local Bank On initiatives have proven immensely important, and their value should be expanded at a national level so financial access can be a reality for everyone in the United States, not just the people lucky enough to live in the select locales where enough support for the initiative exists.
Of course, as I see it, there’s another takeaway from the Millionaire Corner article: if you’re going to talk about financial access and put “bank on” in the headline, at least reference Bank On so I don’t get overly excited when sifting through my daily Google Alerts.
Asset-Building and the Racial/Gender Wealth Gap
By Inemesit Imoh on 06/08/2012 @ 02:30 PM
Perspectives from the National Council of Negro Women’s National Convention
On Thursday, May 24, I participated in a workshop at the National Council of Negro Women (NCNW) 55th National Convention. The workshop panel entitled Exploring Public Policy Solutions to Narrowing the Race/Gendered Wealth Gap also featured NCNW Executive Director Avis Jones-DeWeever and James Carr, Chief Business Officer of the National Community Reinvestment Coalition.
Each of our presentations highlighted aspects of the growing racial and gender wealth gaps--the differences between the median net worth of individuals of different racial and ethnic groups, and between men and women. Ms. Jones-DeWeever framed the conversation by explaining the history of the racial and gender wealth gaps and how both grown substantially as a result of the recession. Mr. Carr explained the origins of the foreclosure crisis and how deeply it impacted communities of color. Finally, I spoke on the various other dimensions of the wealth gap, particularly around the inability of people with disabilities and young adults to invest in themselves.
Attendees brought up several issues that impact their communities:
- The lack of sustainable employment and income in communities of color makes it extremely difficult for households to consider saving and/or investing in themselves.
- The foreclosure crisis has devastated minority households’ primary source of wealth, homeownership, and has greatly set back the decades of progress minorities had made to improve their economic mobility.
- Young people of color with low-income and low-wealth families face difficult decisions for their college education—high levels of debt or no college at all.
The discussion among presenters and attendees revealed that the racial wealth gap is a significant problem that impacts people of color on a daily basis and also limits opportunities for long-term wealth building. Throughout the conversation, attendees emphasized their interest in identifying public policies that can help narrow the wealth gap. Some of those include:
Employment and Wages
When high quality jobs are not available within a community, many people turn to self-employment and entrepreneurship. These small businesses are often supplementary sources of income for workers whose traditional jobs aren’t sufficient to make ends meet. There is a successful national network of service providers who help these business owners maximize their income, grow their businesses, and achieve their entrepreneurship goals. The federal government and many states provide some support for this field, but could do more. In particular, research demonstrates that providing technical assistance to businesses that are not finance-ready is a particularly important intervention, but also difficult to support through private donations and fee-based service delivery. Governments should therefore provide more for technical assistance and training targeted at new entrepreneurs.
Housing
Owning your own home has long been considered the hallmark of the American Dream. Families must have access to services that help them make this dream a reality. Families with limited means could qualify for an individual development account program in their area, which are matched savings programs designed for low-income households to save and purchase an asset, including a first home. Research has found that IDA programs can improve homeownership outcomes for low-income households.
Education
A college education is a proven tool in improving someone’s economic security and mobility. Research shows that savings is a powerful strategy for increasing the likelihood that students will attend and complete college. One way to make college more affordable for low-income students is to create incentives for them to save in tax-free 529 college savings accounts. Several states have already taken steps to encourage college savings for young residents within their state. In addition, when paired with a savings account, financial education gives children and young adults a stronger and more tangible chance to test financial decisions. CFED has examined how states use their public education systems to improve personal financial literacy and lists financial education policies and standards by state.
New Resource: FDIC Model Safe Accounts Pilot Final Report
By Sean Luechtefeld on 05/30/2012 @ 11:30 AM
Last month, FDIC released the final report from its Model Safe Accounts Pilot, a one-year exploration into the costs and sustainability of lower-cost, electronic transaction and savings accounts. The final report is now available online and it’s an excellent read for anyone interested in financial access.
ATM image by BigStock Photo.
“Safe Accounts,” according to the report, have limited maintenance costs because they focus on electronic payments and do not come with paper checks. This isn’t only a win for the financial institutions offering the accounts, though; they prevent overdraft or nonsufficient funds fees, meaning that accountholders can save a great deal of money while still having easy access to their money. During the yearlong pilot, 662 transaction accounts and 2,883 savings accounts were opened.
The findings of the pilot suggest that among the over 3,500 Safe Accounts opened, retention rates were particularly high, especially when compared with other financial products. Further, individuals with transaction accounts maintained an average balance of $243, while average monthly balances for savings accounts varied according to account design. These findings and others lead FDIC to the conclusion that “opportunities exist for financial institutions to offer save, low-cost transaction and savings accounts to underserved and LMI consumers.”
Full data on participating institutions and account structure, along with more detailed findings, are available in the report, which is available for download here.
How to Sell Lawn Seed. Or, The Importance of the Client Perspective
By Sean Luechtefeld on 05/09/2012 @ 01:15 PM
This is a re-post of a piece that CFED's Chief Program Officer, Ida Rademacher, wrote for ACCION International's Center for Financial Inclusion's Expert Exchange. CFED is honored that Ida was invited to join CFI's conversation and wishes to extend special thanks to Sonja Kelly.
A mentor of mine once told me, “If you want to sell a man lawn seed, talk about his lawn, not your seed.” It’s not hard to see how this applies to financial inclusion. To state the obvious, “If you want to sell a woman financial services, talk about her needs, not your products.” What are her risks? What products does she need at various points in her life? What does she need to know in order to be able to choose the options that best meet her needs?
We often fall into the trap of thinking about banking from the perspective of the banks. Especially now, having come through a financial crisis in which banks maintained a starring role, we frequently hear people equating financial stability with fiscally responsible bank action. But in the end, markets are about people. So an additional part of the product development equation has got to be based on solid consumer-facing research —their lawns, not our seed.
And here are some figures from recent surveys about the “financial lawns” of families in the US:
- Over half of the population in the US with a credit score has what can be considered a subprime score. In some states, that number closes in on 70%.
- One in four Americans either have no bank account, or are considered “underbanked,” meaning even though they have an account, they still use alternative and largely unregulated financial products and services that are often very costly. In the African-American community, the number of un- and underbanked households rises to one in two, or 50%.
- Nearly half the population isn’t confident they could find a way to scrape together $2,000 if they had an emergency.
- Less than half of American workers participate in any form of employer-based retirement plan.
These statistics are evidence of a broken system. That is why CFED advocates for an approach to financial inclusion in the U.S. that incorporates the transaction, credit and savings needs of low- and moderate-income individuals over their life course as a critical part of the input that informs the offerings of the financial services sector. A similar understanding should inform policy solutions so that every individual has an opportunity to save and invest in a better life for themselves and their children. The good news is that if we focus our efforts on meeting these needs of individuals – allowing them to fully participate in and contribute to the mainstream economy – our financial systems around the world will be far more stable as well.
Why Bank On Programs Need Financial Institutions
By Michelle Nguyen on 04/11/2012 @ 11:30 AM
Last week, CFED released a report called Partnerships You Can Bank On: Sustainable Financial Institution Engagement in Bank On Programs, which, for the first time, investigates the sustainability of Bank On programs from the perspective of the financial institution.
Before we get into what that means, let’s step back a second. To unpack that sentence, we need to know what Bank On programs are, why they are important and why financial institutions are integral to these programs.
With approximately 8% unbanked households and another 18% classified as underbanked, there are about 30 million American households that are financially underserved. (Side note: Data on the number of un- and underbanked households at the city/county/metro level can be accessed through a new online data tool at JoinBankOn.org.) Financial access initiatives aimed at connecting unbanked consumers to mainstream banking products have proliferated in recent years, and Bank On programs have become the fastest growing strategy to address concerns about the number of households operating outside the financial mainstream. These are voluntary, public/private partnerships between local or state government, financial institutions, and community-based organizations, and the goal is to provide low-income un- and underbanked people with low-cost starter or “second chance” bank accounts and access to financial education.
Bank On programs are almost primarily locally based and operated, though, in recent years, several state and regional programs have formed. While local government and nonprofits provide marketing for the campaign, offer financial education, and connect unbanked consumers to the program, participating financial institutions agree to create affordable, mainstream checking accounts for unbanked consumers in their communities. However, a key assumption underlying the Bank On model is that financial institutions can serve these consumers in a way that is sustainable to their business operations. This assumption is critical to the success and longevity of the Bank On approach.
As more municipalities and states start Bank On programs, some facets of the model that have been key to its strong local appeal – local innovation and decision-making authority – are also becoming challenges to further scale and sustainability. In particular, as the volume of requests to develop unique, customized products and data tracking reports for multiple local markets increases, and as funding requests continue to mount, it is becoming increasingly challenging for national and regional financial institutions to negotiate, coordinate and manage their participation in Bank On.
The report explains in more detail about specific challenges that financial institutions face in terms of product design and program requests, along with the value of participating in the program. To read the full report, click here.
Vote for CFED to present at CFSI’s 7th Annual Underbanked Financial Services Forum!
By Michelle Nguyen on 04/04/2012 @ 01:00 PM
We need your help! In February, I submitted a proposal to lead and moderate a roundtable session at CFSI’s 7th Annual Underbanked Financial Services Forum in San Francisco from June 13-15. Roundtable sessions are informal discussions focused on a specific underbanked topic, and I proposed a session to discuss engaging financial institutions in Bank On programs, largely informed by a new CFED report called Partnerships You Can Bank On: Sustainable Financial Institution Engagement in Bank On Programs.
The proposed session would explore a key assumption underlying the Bank On model that financial institutions are able to serve un- and underbanked consumers in a way that is sustainable to their business operations. To the extent that financial access initiatives, like Bank On, need participation from private markets, we have much to learn about engaging financial institutions to serve this market sustainably.
Here’s where we need your help. CFSI is putting the proposed roundtable sessions to a public vote and, for each of four themed tracks, will select and brand the winning session as “Voter’s Choice.” CFSI will then select 8-12 proposals from the remaining entries as additional roundtable discussions. For information about all the proposed sessions, click here.
Vote for CFED’s session here (within the “Embrace Inclusion” track)! Voting comes to a close at midnight on April 13, so please spread the word. Thanks, and we appreciate the support!
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