Michigan's Save to Win Program Demonstrates Successful Way to Encourage Savings
By Kori Hattemer on 10/10/2013 @ 12:00 PM
In 2009, the Doorways to Dreams (D2D) Fund partnered with eight Michigan credit unions to launch Save to Win ™ (STW), the first large-scale prize-linked savings product in the nation. Accountholders who save using the special balance building 12-month certificates of deposit (CDs) are entered into raffles for cash prizes with each deposit of $25 or more. Four years later, 58 credit unions in Michigan now participate in the program and 40,000 unique accountholders across the state have saved $72.2 million from 2009-2012.
D2D has been tracking the program in Michigan since its inception and recently published highlights from 2012, which emphasize the importance of developing innovative ways to encourage financially vulnerable households to save. Highlights from Year 4 of the program include:
- Accountholders appear to be developing long-term savings habits. Each year, accountholders are given the option to reopen or "rollover" their accounts, and a high percentage of accountholders rolled their accounts over from 2011 to 2012. Ninety-one percent of the accountholders who enrolled in 2009 and were still enrolled in 2011 once again rolled their accounts over in 2012. A high percentage of accountholders who signed up in 2010 (83%) and 2011 (77%) also rolled their accounts over from 2011 to 2012.
- Accountholders used their savings for a variety of purposes. While many accountholders rolled their accounts over in 2012, accountholders also used their savings to meet short-term needs. Account balances decreased in May and September, so accountholders may have used the funds to pay for summer child care or back to school costs. D2D also found that there is a cyclical dip in account balances during the rollover period each year, which may indicate that accountholders are making planned withdrawals between account years.
- STW continues to positively impact financially vulnerable accountholders. D2D defines financially vulnerable individuals as those who are single parents, asset poor, non-savers, or low-to-moderate income. In 2012, these accountholders had nearly identical rollover rates as their non-financially vulnerable counterparts, demonstrating the importance of STW in helping financially vulnerable individuals save.
As other organizations and financial institutions look for ways to empower financially vulnerable individuals to save, STW provides an innovative model for designing a savings product that is engaging and encourages savings habits. The success of STW in Michigan has motivated other states to launch similar programs, and D2D continues to advance prize-linked savings products as a strategy for helping low- and moderate-income individuals save.
To read more about the success of the STW program in Michigan in D2D's recent report, click here.
To learn more about D2D's pioneering prize-linked savings work, click here.
New Opportunity: CFPB’s Innovations Project
By Sean Luechtefeld on 10/07/2013 @ 12:00 PM
EDITOR’S NOTE: Will Tucker, one of our friends at partner organization ideas42, sent this announcement this morning. It’s about an exciting new opportunity being offered by the Consumer Financial Protection Bureau, and I think it will be of interest to many of our readers.
Ideas42 and its partners, the Doorways to Dreams (D2D) Fund, the Center for Financial Services Innovation (CFSI), and the Corporation for Enterprise Development (CFED), are excited to announce a call for prototyping partners on the CFPB Innovations Project. The project seeks to develop and test prototypes of new approaches for helping consumers overcome common decision-making challenges in managing their finances. We’re seeking innovators, businesses, and other organizations to work with us to prototype innovations and evaluate their effectiveness. Prototyping partners will have input into refining the design features of innovations, and will get the opportunity to be part of a behavioral design process led by ideas42 and its team.
The Innovations Project is being conducted by the Consumer Financial Protection Bureau (CFPB), with ideas42 serving as a CFPB contractor tasked with managing this project. Organizations should indicate their interest by submitting a brief letter of interest describing their interests and capabilities via email to firstname.lastname@example.org. Please include “Innovations Project” in the subject line. Please contact us today if you are interested in this opportunity, and make sure you submit your interest by November 8, 2013.
For more information on the project and criteria selection, see http://ideas42.org/CFPBinnovations and http://www.consumerfinance.gov/blog/were-looking-for-innovative-partners-for-financial-education-research/.
Spotlight on Innovation in Entrepreneurship: Microloan Management System
By Heidi Pickman, Guest Contributor on 09/23/2013 @ 03:00 PM
From 2004 to 2010, the microbusiness sector was responsible for over 90% of all jobs created in the US. Microbusinesses (1-4 employees) created a net of 5.5 million jobs, while large businesses (those with greater than 500 employees) lost 1.8 million jobs during the same period.
Despite their crucial role in the economy, only 0.10% of potential microbusiness borrowers are being served. In California, CAMEO’s microlenders struggle to achieve scale. Microlending is expensive for many lenders to sustain and as a result, some of CAMEO’s lenders have left the microloan market. With funding tighter than ever before and increasing need, microlenders have to deliver the same services as economically as possible. Our 28 member lenders made 1,500 microloans in 2012.
Many challenges exist that lead to inefficiencies and high costs of microlending:
- Finding eligible borrowers is difficult.
- Staff spend time on ineligible inquiries and building the pipeline of borrowers.
- Microbusiness owners need extensive business technical assistance before, during and after the loan.
- Microloans often undergo the same ‘traditional’ underwriting process that is used for large loans (i.e., a very extensive process).
CAMEO, as the effective small business CDFI coalition for California, supports the growth and sustainability of microlending by expanding resources and helping to decrease the cost of providing services. We decided to offer Accion Texas’ Microloan Management System (MMS) platform to members as a way to lower costs of microloans.
Accion Texas’s MMS streamlines the cost of underwriting and frees lenders to focus on recruitment and support. The loan turnaround is much faster. Accion’s automated review system allows instant feedback on borrower capacity and history, and underwriting takes three days instead of three weeks.
CAMEO believes that our member CDFIs will benefit in the following ways:
- Improved loan quality through a standardized process that strengthens the lenders’ portfolio
- CDFI’s can focus on spheres of excellence (e.g., business assistance)
- Cost of screening, assessment and underwriting per loan decreases dramatically
- Lender volume expands by 70-300% and thus increases revenues
- Staff can concentrate on loan/deal development
For this project, CAMEO has bundled smaller lenders together in one license, allowing them to post a limited number of applications for a reduced price. As they scale, they graduate to a full license. CAMEO guides lenders through a complicated, multi-agency on-boarding process, then provides ongoing support (e.g., staff training, peer network calls, one-on-one, technology assistance). We are working with four members for the pilot: California Capital, CDC Small Business Development, TMC Development Working Solutions and Women’s Economic Ventures.
Systems change always presents difficult challenges. Organizational behavior and processes and ingrained staff habits are not easy to change. Roles and duties may need to change. Staff may not be used to the algorithm and may need to learn to trust new system. And the incentives to change are not clear.
This leads many organizations to implement MMS partially, which in turn leads to multiple systems and duplicated efforts and masks the benefits of streamlining, speed and consistency.
To work properly, MMS needs executive leadership and systems change. It requires ‘big picture’ thinking about roles and processes. A few DOs and DON’Ts…
DO: Allow access to be open to everyone. Rely on Auto Review for assessment.
DON’T: Make clients jump through hoops before trying Auto Review.
DO: Use MMS for all loans under $50,000.
DON’T: Run two systems or duplicate activity.
DO: Reassign staff and loan committee duties to new ones, such as building the pipeline.
CAMEO believes that in this fast-paced world, we change or become obsolete! Our role is to help our members adopt essential new technology that will help them compete and increase their lending capacity, serve more microentrepreneurs who will create jobs, and build strong, healthy and stable communities.
15 Innovations for Municipal Leaders
By Sean Luechtefeld on 07/05/2013 @ 01:00 PM
Last month, NYU’s Wagner Graduate School of Public Service released Innovation and the City, an in-depth exploration of 15 municipal-level innovations to help city residents live better. From London to San Francisco and places in between, cities everywhere are doing great work to improve the lives of their citizens. The innovations documented by NYUWagner include:
- Boston & Chicago’s Updating 311
- San Francisco’s Kindergarten to College (K2C)
- Chicago’s Innovation Loan Fund
- Denver’s Peak Academy
- London’s Project Oracle
- London’s Spacehive
- San Francisco’s Zero Waste
- Philadelphia, Providence & Chicago’s Digital Badging
- Chicago’s Budget Savings Commission
- Seattle & San Francisco’s Open Data
- Oakland’s City ID Prepaid Mastercard
- Seattle & Santa Cruz’s Accessory Dwelling Units and Basement Conversions
- Michigan’s Prize-Linked Savings (PLS)*
- Los Angeles & Chicago’s Immigrant Export Initiative
- San Francisco’s Commuter Tax Benefit
Two of these innovations—numbers 2 and 13 above—identify asset-building innovations that have the potential to serve millions of low- and moderate-income families. San Francisco’s K2C program, for example, is a pioneer of the Children’s Savings Account movement and is working to create a college-going culture among families with children who face rising tuition costs against already-tight family budgets. Further, K2C’s visibility has helped pique interest around other initiatives, such as CFED’s very own 1:1 Fund.
Likewise, Michigan’s PLS initiative is a scalable means of giving families a hand up. Piloted in a number of cities across the country based on the exciting work of the Doorways to Dreams (D2D) Fund, PLS is the next generation of savings strategies. In essence, PLS offers incentives—like raffles and cash—for individuals who open savings accounts and make regular deposits into them. Not only does this increase the amount an individual or family saves, but it also brings un- and underbanked residents into the financial mainstream by connecting them with safe financial products.
These innovations and the other 13 listed above are chronicled in detail in NYUWagner’s report, which you should download here.
Congressional Briefing on Center-Based Strategies for Moving Working Families into the Middle Class
By Kori Hattemer on 12/05/2012 @ 12:00 PM
United Way of the Bay Area (UWBA), Annie E. Casey Foundation, Local Initiatives Support Corporation (LISC), United Way Worldwide and MDC are leading the way in developing an innovative approach that provides “bundled” services that integrate multiple programs in one place to address the complexity of a person’s financial situation.
UWBA partnered with the Annie E. Casey Foundation, LISC and MDC to present their approach yesterday during a congressional briefing hosted by Congresswoman Barbara Lee, who chairs the Out of Poverty Caucus. The organizations presented the findings that are outlined in the Ladders to Success report UWBA recently published. The report details how United Way and other organizations are providing multiple services under one roof to move people out of poverty.
At the briefing, UWBA highlighted their 10 Bay Area SparkPoint Centers that bundle services to give low-income residents one location where they can access public benefits, receive financial and job coaching, credit counseling and job training, and get referrals to housing, child care and emergency food. UWBA and their partners emphasized the need to find innovative ways to streamline services and shift how government services are administered as Congress works to fix the federal budget.
The Annie E. Casey Foundation created the Center for Working Families model that is being implemented across the country by United Way, LISC and MDC in more than 90 sites. In 2011, these sites provided education, employment and financial services to nearly 13,000 clients and found that clients who received two or more bundled services were two to three times more likely to achieve their economic goals (e.g., obtaining employment, increasing skills, improving credit or starting savings) than those who only took advantage of a single service.
CFED believes that the integration of services presents a tremendous opportunity to impact low-income households by innovating on how, when and where integration occurs – particularly when it comes to embedding financial empowerment strategies. Currently, we are bringing together five social service delivery organizations in an Intensive Learning Cluster and working with them to integrate financial empowerment into the services they provide by leveraging our asset-building expertise and connections to experts throughout the field. We recently published a blog post and brief about our work on this project to date and will continue to publish our findings throughout the Intensive Learning Cluster as we work to build on the integrated service delivery model.
Closing the Divide
By Alan Cantor, Guest Contributor on 10/24/2012 @ 10:45 AM
EDITOR'S NOTE: This post originally appeared last week on the Stanford Social Innovation Review blog. Many thanks to Alan for writing this thoughtful article, and to SSIR for featuring it so prominently on their site.
In this election year we’ve heard plenty about the 47 percent, the 1 percent, and the 99 percent. The expanding wealth gap has become a major election issue, as it should be. Decisions in the coming years about taxes, access to education, jobs, and workers’ rights are intertwined with reversing the growing wealth imbalance.
Undoubtedly the most effective approach to narrowing the wealth gap is political. But is there a role that individual donors can play? There certainly is, but it requires a break from traditional philanthropy.
Let’s imagine a wealthy donor—we’ll call her Mary—who wants very much to help kids from low-income backgrounds have educational opportunities.
Mary remembers her own scholarship to a prestigious university and how that paved the way for her successful career. She wants to give back. And, rather naturally, she puts in a call to the development department at her alma mater. The major gifts officer urges Mary to establish a $1 million endowment in her name at the university. That will spill off about $45,000 a year in scholarship funds, which will underwrite the cost of one student to attend the school each year.
While Mary likes the idea of having her name immortalized at the university she cares so much about, she also decides to consider other, less-traditional options. A million dollars is a lot of money. And helping one student at a time isn’t exactly going to scale, she realizes. She looks for ways to direct those funds to provide real opportunity for more young people.
Mary decides to focus less on the end provider—the university—and focus more on the students and their families and communities.
One solution she comes up with: supporting early childhood programs. Instead of popping a million dollars into the endowment of her alma mater, Mary could give $100,000 a year for ten years to a high-quality nonprofit childcare center to provide scholarships for children from low-wealth families. Instead of the impact being deferred (as all endowment gifts are) and benefitting only one student at a time, as is the case at the university, her gift could enable dozens of children each year to get a quality learning experience at a critical point in their lives. And an annual gift of $100,000 would be a game-changer at nearly any childcare center. (By contrast, a million-dollar gift to a major university barely causes a ripple.)
Then Mary learns that there are now hundreds of organizations around the country providing matched savings accounts—as demonstrated by the more than 1,200 practitioners at last week’s biennial Assets Learning Conference in Washington, DC, sponsored by the Corporation for Enterprise Development (CFED). These programs encourage families with low incomes to save for education, or the purchase of a home, or a business—all assets that will help provide them with long-term economic traction. And each of these programs provides some sort of a match as an incentive to the families.
Mary learns that students with savings accounts are many times more likely to enter college—even if the total in the account is relatively small. Mary imagines the impact if, working through one of these organizations, she were use her million dollars to provide a $2,500 match to 400 students, thereby allowing a broad swath of kids from low-wealth families to attend college. (They may go to a community college, of course, and not an Ivy League school, so a little bit of investment will go a long way.)
And Mary finds out that there’s now there’s a new way for donors to contribute to matched savings programs through a project called the 1:1 Fund. Though still in its early stages, the 1:1 Fund plans to offer donors the chance to invest in the future of American kids in much the way Kiva has democratized investing in microfinance around the world.
Donors like Mary are drawn by nostalgia and convention to consider creating endowed funds at their universities and prep schools. But if they stop to think about it, they will realize that they can affect several hundred times more students from low-wealth families by giving to early childhood or matched savings programs. With the ever-widening wealth gap, we as a society need to break out of the traditional philanthropic mold. I’m hoping that in the coming years dozens, then hundreds, then tens of thousands of donors change course, jettison prestige, and opt for impact.
Prize-Linked Savings to be Featured at #ALC2012
By Joanna Smith-Ramani, Guest Contributor on 09/13/2012 @ 11:00 AM
Joanna Smith-Ramani is the Director of Scale Strategies for D2D Fund, working on the expansion of successful innovation pilots. Prior to joining the D2D, Joanna was the Director of the Baltimore CASH (Creating Assets, Savings and Hope) Campaign, an asset building, tax preparation and EITC coalition in Baltimore, MD.
All too often, the act of saving is seen as a sacrifice and denial. It’s no wonder in that context that when given a choice between saving and spending on entertainment or something “fun,” most Americans choose the fun. It’s about time for Americans to get it all out of saving – an engaging product that powerfully bundles saving, entertainment, and a moment to dream. This bundle is not altogether different from what drives consumers to the $50 billion lottery industry. Imagine how many people could be reached if saving was an exciting game with no risk of losing?
Prize-linked savings (PLS) engages consumers to save by changing the savings experience. Savers are rewarded with prizes and incentives. By doing so, PLS reframes the act of saving into a fun game with real rewards, rules, suspense, and possibility. Different features of the game can be changed or customized to better suit a range of savings products and programs. The PLS game concept has no limit beyond creativity and can be applied in a variety of settings from banks and credit unions to prepaid cards and online financial management systems.
PLS programs began overseas and have been successful in the United States, most notably in Michigan. In 2009, Michigan credit unions participated in the PLS-based program “Save to Win” and rewarded members who saved by entering them into various savings raffles. Annually, one member got the shock of a lifetime when they won a $100,000 grand prize. Michigan credit unions increased their engagement with financially vulnerable consumers and kept them coming back for more – 64% of new savings accounts rolled over from one year to the next. The success of Save to Win Michigan inspired other states and entities to launch similar PLS programs to better serve consumers.
Since the pilot in Michigan, Save to Win (STW) has grown to 58 credit unions, with over 25,000 unique accounts saving more than $40 million. The state of Nebraska signed on to STW at the beginning of 2012 and is showing promising gains. In its first seven months, Save to Win Nebraska has engaged 10 credit unions and opened over 1,300 member accounts. These STW accountholders have saved over $1.1M, representing an average savings of $857. Recent legislation has opened the doors for more states to follow Michigan and Nebraska as they bring innovation to sustainable savings programs. Click here to learn more about Save to Win.
The game frame worked into PLS products has nurtured positive attitudes towards saving and motivated consumers to save for the long term. A new PLS lottery ticket model takes the game concept a step further by offering a “no-lose lottery ticket” offered by the experts in games - a state lottery. A consumer simply buys a designated PLS lottery ticket and the funds are held by the state in a savings account. The ticket is a “win-win” because even if a prize isn’t won, the entire cost of the ticket goes towards a savings fund the consumer can build up and use for their financial needs. The PLS lottery ticket is designed to attract a wider audience with the chance to win, without the risk of losing, generating high levels of excitement and reward-anticipation.
The PLS Lottery Ticket will be debuted at the 2012 Assets Learning Conference, where Doorways to Dreams Fund will be administering their own “lottery” complete with prizes. Join D2D Fund, PayPerks, and MD CASH as they offer insight into the future possibilities of prize-linked savings and how advocates can bring PLS to their state. View the agenda for more information on this session.
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.
Cordes Fellowship Application Window Now Open
By Sean Luechtefeld on 11/30/2011 @ 12:30 PM
Opportunity Collaboration, the annual convening in Mexico which takes place each October, is now accepting applications for their Cordes Fellowships. Cordes Fellows are exceptional social entrepreneurs and nonprofit leaders engaged in poverty alleviation and economic justice enterprises.
According to Opportunity Collaboration’s website, “the purpose of the Cordes Fellowship program is to (a) open doors, minds and networks for emerging social entrepreneurs and nonprofit executives, (b) enrich the Opportunity Collaboration with new, emerging leaders, and (c) infuse the collaborative discussions with a diversity of perspectives.
Applications are being accepted now through January 31. To apply, visit the Opportunity Collaboration website.
New Book: The Innovation Master Plan Framework
By Sean Luechtefeld on 11/28/2011 @ 11:45 AM
Last month, innovation@cfed Strategic Advisor Langdon Morris released a new book titled The Innovation Master Plan Framework: The CEO’s Guide to Innovation. The book is available for purchase here, and we’re excited to congratulate Langdon on his newest work!
To give readers a preview of the book’s contents, Langdon sent us an excerpt from the introduction. Check it out below, and let us know your thoughts in the comments section!
Is there any doubt in your mind about the importance of innovation? Do you feel that innovation is vital to the future of your company? And perhaps to your own future as a business leader?
Since you’re reading this, it’s reasonable to assume that you do. And of course I agree with you.
If you’re thinking about innovation, then it’s likely that you’ve already discovered that the process of innovation is difficult to manage. It’s risky, expensive, and unpredictable.
This explains why Einstein supposedly said, “It’s called ‘research’ because we don’t know what we’re doing.” If we did know what we were doing we’d call it something else, like “engineering,” or “product design,” or “marketing.” And even when we think we do know what we’re doing, the results from the innovation process frequently fail to live up to our expectations.
Further, our innovation efforts must bring improvement not only to our products and services, but also the very processes we use to run the business. Louis Gerstner puts it this way: “In almost every industry, globalization is leading to overcapacity, which is leading to commoditization and/or price deflation. Success, therefore, will go to the fittest – not necessarily to the biggest. Innovation in process – how things get done in an enterprise – will be as important as innovation in the products a company sells.”
CEF Savings Program Provides Savings Opportunities for Homeless
By Alex Biggers, Guest Contributor on 11/07/2011 @ 11:30 AM
The Community Empowerment Fund (CEF) in Chapel Hill, North Carolina began as a microloan program working with the local homeless population. Based on the idea that poor access to capital (even just $60 for work boots or $500 for a truck) could prevent people from accessing economic opportunities, CEF focuses on providing capital that could allow members to break out of cycles of homelessness and poverty. Volunteer students from the University of North Carolina at Chapel Hill are paired two-on-one with a “member” and act as both loan officers and “advocates,” serving as friends, job coaches, housing searchers, much more. Members and advocates meet weekly to discuss goals, options, resources, and make loan payments.
It was at one of these member-advocate meetings that the CEF Savings Program was born. Tommy, a CEF member at the time, had received a cell phone microloan from CEF for a $120. After weeks of making $15 payments, he was almost ready to pay off the loan. On this day, however, Tommy came into his meeting with $320—almost three times the amount of his loan. The advocates were dumbfounded, but Tommy explained that he trusted them to hold his money so that he wouldn’t spend it.
In this moment, we identified a real need in the homeless community: what people were really lacking wasn’t necessarily just income, but possibly a safe accessible place to save their money as well. Especially for people like Tommy who are recovering from substance abuse, having a safe and “off-hands” account could really help facilitate savings and prevent relapse.
While traditional Individual Development Accounts (IDAs) work towards three main asset purchases – homeownership, education, and small business development – we recognized that savings and housing were in themselves assets to the homeless living in and transitioning out of shelters. While staying at shelters, expenses tend to be minimal. However, when it comes time for many residents to move out, they find that despite their best efforts, they still don’t have enough money – for a rental deposit, furniture, utility deposits, and a financial cushion for emergencies. Though some may have enough funds to move into proper housing, many people have a hard time keeping up with their rent while dealing with volatile incomes and unexpected expenses, and many even return to homelessness.
Based on the unique need of our members, we structured the savings accounts to incentivize savings towards anything the CEF members see valuable, be it $2000 for an emergency fund, $150 towards a refurbished laptop, or $900 to move into new housing. CEF members define both the amount of the goal and the asset. Unlike a traditional IDA, the CEF match rate is only 10%. Although low compared to other match savings programs, CEF staff has found that this rate truly does incentivize saving, while still allowing the program to remain flexible and easy to administer.
While many CEF members have had negative banking experiences (having been shut off from mainstream banking due to poor credit or unmet minimum balance requirements), we help put a face to the institution holding member money, while bringing the convenience of a bank to our members. CEF can take deposits and set up accounts from anywhere—be it at the shelter, in the CEF office, during weekly meetings at a coffee shop, or after weekly CEF classes.
The savings accounts are held in a CEF custodian account “for benefit of” each member. There is a 48-hour waiting period for withdraws after the member makes a request to his/her advocate. Like an IDA, this helps prevent “impulse” withdrawals, giving people time to think whether or not it might be an unneeded expense. Unlike a traditional IDA, however, members are still allowed to withdraw without having to start from scratch to receive match funds. CEF believes that a traditional model just would not work for most of its members, who are living paycheck to paycheck.
Also different from most IDAs, CEF runs its financial classes in discussion-based groups, facilitating resource sharing, fostering confidence in what people do know, and providing learning tools to move forward. Beyond financial literacy, these “Opportunity Classes” seek to cultivate knowledge about all of the topics that are involved in reaching CEF members’ goals—effective goal-setting, health and wealth connections, local resources, job readiness skills, and tools to find and stay in housing.
Through a network of strong relationships, assertive individualized support, flexible accounts and matches, holistic education, and self-selected goals, CEF continues to facilitate savings, promote asset-building, and create access to a mainstream financial world for a population normally deemed “too poor” to be served by most IDAs. By continuing to listen to and believe in our members that have believed so much in us, we hope that we can move our community closer to realizing their own self-defined goals and promoting financial stability.
About the author: Alex Biggers is a Savings Program Coordinator at the CEF.
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.
Wanted: Creative Thinking
By Donna V.S. Ortega, Guest Contributor on 09/09/2011 @ 10:22 AM
Letter of Intent Deadline October 3: AARP Foundation Seeks Innovative Ideas on Income
A recent AARP Public Policy Institute fact sheet highlights the murky employment situation for older Americans. The unemployment rate for persons aged 55 and older dipped to 6.9 percent from 7.0 percent between June and July 2011; while the average duration of unemployment for jobseekers aged 55 and older remained above one year. As of July, nearly 54 percent of older jobseekers had been out of work for 27 or more weeks. Faced with job loss and long-term unemployment, 50+ working families are drawing down savings and increasing debt, and with fewer years between them and retirement (whatever that may look like), they have less time to rebuild these lost assets.
To hasten older Americans’ recovery from the Great Recession, and to reverse the downward spiral facing these vulnerable families, AARP Foundation’s Income Impact Area will be investing over $1 million in nonprofit organizations through its Recession Recovery grants. The purpose of this grant opportunity is to identify and fund innovative and strategic business models that begin to build a national network of employment and income support services that address the specific needs of unemployed workers age 50 and older as they recover from the recession and the effects of long-term unemployment.
AARP Foundation seeks to work in partnership with selected grantees to create a new paradigm for delivering meaningful services to older adult workers and to reduce the length and negative impact of long-term unemployment. While helping people obtain jobs offering good wages and benefits is the most critical element of recovery, given the circumstances noted above, obtaining a job is not enough. While dealing with long-term unemployment and with the potential reduction of unemployment benefits, older workers also need access to income supports and social services necessary to meet their basic needs and protect their families’ financial security. The full RFP is now available on our website at http://www.aarp.org/incomegrants. This is a two-step RFP process: Letters of Intent under this grant program are due on October 3, full proposal submissions are by invitation only and will be due on October 17.
This open call for Recession Recovery proposals (as well as our Sustainable Solutions to Hunger Innovation Grants, also open now) represents a new channel and intervention under AARP Foundation’s new mission: The Foundation is dedicated to serving vulnerable people 50+ by creating solutions that help them secure the essentials and achieve their best life. Through thought leadership, direct services, legal advocacy, grantmaking and raising awareness about the particular needs faced by the low-income 50+, we are working to serve the nearly 20 million older Americans who are at risk of not meeting one or more of their basic needs.
Please review and respond to the RFP, share it with your colleagues and help AARP Foundation find those innovative solutions at the national, regional, state and local levels that can help older Americans regain their economic stability. For more information about our grantmaking work, please visit www.aarp.org/foundationgrants.
Spotlight on innovation: Opportunity Fund’s New Take on Traditional IDA Programs
By Gwendy Donaker Brown, Guest Contributor on 08/23/2011 @ 03:00 PM
“I really want to start saving, but I’m not ready to go back to school.” “I’d like some help with saving– not for anything specific - just to have some savings.” I’ve heard variations of this sentiment countless times over the years – from young single mothers, seniors recovering from foreclosure and many people in between. Our clients’ requests for a flexible savings account to get started were based on their understanding that you can’t really think about long-term assets (like a business, college degree or home) without having a basic level of financial stability. And stability means you have savings available in case of life’s emergencies.
We created our newest savings innovation, Start2Save, based on the need we saw within our community. For many applicants (and some of our unsuccessful IDA participants) our existing IDA products simply didn’t take into account their financial reality. In the paycheck to paycheck reality, you are only one unexpected expense (car repair, medical bill etc.) away from falling behind. So in order to have the stability and confidence to dream big, first you need some rainy day savings.
Here’s how Start2Save is similar to traditional IDA programs:
- Savers complete a comprehensive financial education course
- Monthly savings deposits are required - minimum of $20
- Case managers supports savers to work through problems and meet their goals
Here is how Start2Save is different:
- The savings account is the asset – so it doesn’t need to be withdrawn or spent down within a certain time period. Success is when someone is able to build up a savings balance – and rebuild it after the inevitable emergency.
- Smaller savings goal and match amount. Participants aim to save $500 within 1-2 years, which is matched 2:1 (for a total balance of $1,500). This makes the product accessible to people with even lower incomes – and makes it easier to scale due to smaller match requirements.
- No list of “allowed” purchases. Once someone reaches their $500 savings goal, they automatically receive the match in their account. We trust our savers to make the right financial decisions with their own savings – and monitor the accounts as an added protection.
- Wider target population. Rainy day savings is a (far-too) universal need that is relevant at every stage of life. Because Start2Save is privately funded, we’re able to serve individuals without traditional incomes – such as those living on disability or social security income.
- New improved account features. Together with Citi we are piloting their Microfinance Savings Account which (unlike our traditional account structure) offers no deadline to closeout, an ATM card for easier deposits (rather than requiring in-branch deposits), online and mobile access, ability to set up electronic deposits from other accounts, and easy monitoring for outcome evaluation.
We launched Start2Save this spring to very high demand – we’ve already “sold out” the first 50 accounts and have another 100 slots to fill this fall. We’ll be evaluating the program impacts by monitoring savings behavior and interviewing a sample of savers every six months over a 3 year period. Our goal is to show that rainy day savings serves two critical functions:
- Prevention: Savings keeps a minor issue (e.g., needing new brakes for your car) from turning into a major problem (e.g., Inability to pay for car repairs leads to missing work, even risking losing a job or taking out a high-interest payday loan).
- Aspiration: Having some savings set-aside makes it possible to set and achieve longer term goals – you have the confidence to try something new (e.g., take a class to improve your skills) and the reserves to stick with it (e.g., not drop out of class after you have to miss a day of work staying home with a sick kid).
My personal aspiration is that eventually, emergency savings is understood to be an essential piece of the asset-building spectrum – and is offered by IDA programs around the country with full support from both private and public funders.
Gwendy Donaker Brown is Director of Policy & New Initiatives at Opportunity Fund in San Jose, CA. Gwendy helped develop and launch Opportunity Fund’s groundbreaking savings products including Start2Save emergency savings, Saving for Citizenship and customized products for foster youth and single mothers. www.opportunityfund.org.
CFED’s Strategic Plan 2007-2011: An Analysis
By Rashmi Joshi on 07/22/2011 @ 04:00 PM
In January 2007, CFED embarked on an ambitious process to create a Strategic Plan that outlined our work for the next five years. The purpose of the plan was to ensure that CFED fulfilled the promise it made during the time of its foundation- to provide low- and middle-income people everywhere with the ability to be savers, investors, homeowners, skilled workers and entrepreneurs. In order to make certain that that we sufficiently contributed to an opportunity economy, CFED devised its Strategic Plan a strong vision in mind to:
- Provide a reasonable public incentive to every person to save for the future, including every child, starting at birth
- Ensure that every family who desires to own a home has the opportunity to do so
- Provide every person who wants to start a business with the opportunity to access entrepreneurial training and financial resources to generate income and create jobs
The initial version of the strategic plan was grounded in specific strategic goals, framed in measurable terms, to be achieved over a five-year period. Staff were tasked with determining the specific program, policy, research and financing activities that could best lead to the achievement of these goals. In addition, staff set annual milestones that could serve as benchmarks to assess the organization’s progress toward realizing the measurable outcomes in each five-year goal. This series will analyze three of the goals that were integral to the Strategic Plan:
Each year, CFED sought to measure our successes within each goal by gauging the results of performance measures we initially created specific to that goal. For example, in order to assess our success within Financial Security, we referred to our performance within the measure “Number of asset-building opportunities.” Over the next several weeks, we will go into further detail regarding the process of creating measures to determine our performance within each goal, our actual performance and the implications of those metrics for the future.
In the same vein of the objectives we had when drafting the Strategic Plan, our objective in analyzing our successes is to ultimately improve the livelihood of millions of Americans through organized, professional and precise efforts in asset building. We hope that this endeavor will not only provide us with development areas that will tailor our strategic planning in the future, but also will demonstrate, by virtue of our transparency, the pride that we take in our work.
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.
A Nudge in the Right Direction
A Nudge in the Right Direction: Applying Behavioral Economics to Children’s Savings Programs
We all have the best intentions to exercise, keep our New Year’s resolutions (remember those?) and save money…but even our best intentions don’t always translate into action. This is especially true when the goal is a long way off, like saving for retirement or your child’s college education. Most people have some desire to save more money, and most people have the opportunity to access a financial product to make that happen. In an Individual Development Account or children’s savings program, for example, families enroll with the intention of saving money in their program account. Yet we know that many individuals in these programs don’t take full advantage of their incentive funds or drop out of the program entirely. Why is this? Behavioral economics would argue that the desire to save and access to an account are not enough to change behavior.
Our friends at the New America Foundation recently released a report titled Accelerating Financial Capability Among Youth, which examines the psychological barriers to savings and argues that youth savings programs need to focus on more than just access and financial education. According to the paper, “access + education” may lead to advanced knowledge and skills, but it underemphasizes the most challenging component of a savings program: behavior. Programs looking to increase savers participation need to address the psychological barriers – or “biases” – that get in the way of strong savings habits.
Personal finance includes frequent decision-making challenges about spending, saving and borrowing for the future. Yet behavioral research suggests that people are generally present-oriented: we prefer to have things now rather than save to have things later; we have trouble following through on plans when they require ongoing conscious actions, like remembering to make a savings deposit; and we are bad at predicting the probability of future events and risks (like future job loss or an unpredictable medical expense).
Given these biases, saving money isn’t always easy – especially for low-income families. But with the right support, encouragement and a few behavioral “nudges,” savings programs can help combat those inherent biases and guide savers in the right direction. Here are a few suggestions for applying effective, low-cost “nudges” to a Children’s Savings Program:
- Send reminders - Reminders are a simple and effective tool for encouraging positive savings behavior. A recent experiment found that simply texting savers and reminding them to save money increased their savings-account balances by 6%. Programs not already using an automatic texting service can use the service at “Oh, don’t forget…”
- “Set it and forget it” – Automation is one of the most effective behavioral economics tools. Even more so than reminders, automation helps ensure that your “future self” will follow through with your intentions to save. Signing up account holders for automatic deposits, for example, sets in motion a positive, continuous savings habit that doesn’t require the saver to actively and manually make deposits in the future.
- Create a culture of savings – Behavioral economics suggests that individual behavior is strongly shaped by social pressure. Consider providing periodic reports on how much money families have collectively saved or offering friendly competitions among different groups of participants. Rewards can be as simple as recognition in a newsletter or a special party for the winner. These simple “social pressures” can encourage others to actively participate in a saving program.
Experts in the field have only just begun to explore the applications of Behavior Economics in Children’s Savings Programs, but we here at CFED are excited to continue exploring these little nudges and monitoring the big changes they produce.
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