Introducing Marketplace Relief: Products to Help Customers Mitigate Financial Insecurity

Megan Bolado | Assistant Director of Fintech Partnerships | The Financial Clinic

 

Last week, we announced the launch of an inclusive product Marketplace on Change Machine — a diversification of our online platform that enables practitioners to expand their financial coaching work to include the recommendation of safe, effective, affordable products and services for low-income customers.

Marketplace products are evaluated and maintained according to our Seal of Inclusivity, which vets and prioritizes products that build financial security for low-income consumers. The Seal of Inclusivity relies on customer feedback to determine which products are included in the Marketplace over time, and only positive user experience maintains the viability of a given product. In this way, the Seal of Inclusivity is actionable for our customers — a living, breathing process of validation and accountability.

In response to the sudden and widespread financial insecurity triggered by COVID-19, the Clinic launched Marketplace Relief: an initial suite of products and services selected to address the specific sources of financial insecurity facing millions of Americans today. This week, we’re excited to introduce you to the products and services that comprise Marketplace Relief.

  • SaverLife is a product that connects customers with an easy way to save, with potential to win cash prizes. We selected SaverLife because we know the importance of savings and liquidity for our customers, particularly in the face of income volatility.
  • FAIR is a safe, affordable, and inclusive branchless bank. We selected FAIR because access to trustworthy mobile banking gives financial control to our customers who may need quick access to financial resources, including IRS Economic Impact Payments, Unemployment Insurance and more.
  • FitFin is a simple and free budgeting tool that helps customers understand how and where they are spending their money and identifies potential saving opportunities. We selected FitFin because an individuals’ understanding of their spending habits is essential to their financial health, and identifying opportunities to save can be crucial to keeping money in their pockets.
  • UBDI supports customers in using their anonymized and aggregated data as an asset, giving them the opportunity to earn small amounts of money as they use the application. We selected UBDI because it gives its users an opportunity to gain additional revenue without special skills during this economic crisis that has forced many to work remotely, and when any source of income and work can be inconsistent.
  • The Capital Good Fund offers a Crisis Relief Loan intended to help those financially impacted by COVID-19. We selected the Capital Good Fund because the Crisis Relief Loan (eligibility varies by state) helps those struggling to pay for basic needs as a result of the steep economic fallout caused by COVID-19.
  • Propel’s FreshEBT provides a fast and safe way for customers already receiving SNAP or EBT benefits to track and use these benefits. We selected FreshEBT because, particularly in this moment of economic uncertainty, it’s important for low-income customers to be able to track their basic necessities.

Low-income consumer participation in the digital economy is essential to creating a more equitable financial landscape, especially in times of economic downturn. Further, the right fintech products benefit customers in more ways than one, including the ability to manage one’s finances from anywhere and at any time, a greater sense of control over one’s financial life, increased affordability of products and services compared to traditional products, and higher probability of finding a product that meets one’s unique needs.

Better access points to promising fintech products and services for low-income consumers means that the households most heavily impacted by the economic ravages of COVID-19 are better positioned to mitigate financial insecurity in the months and years ahead. Marketplace Relief the Clinic’s first step toward disrupting traditional fintech service delivery and driving participation among low-income customers by leveraging one of our greatest assets — our community of practice on Change Machine.

We’re proud to partner with this initial suite of products, and look forward to learning more about their impact on the financial security of our customers. If you represent a fintech company and would like to discuss your product, please send a note to partnerships@thefinancialclinic.org

Announcing Change Machine’s Marketplace: Driving Low-Income Consumer Participation in the Digital Economy

Mae Watson Grote | Founder and CEO | The Financial Clinic

 

COVID-19 has impacted every aspect of our living and working lives, erasing industries, skyrocketing unemployment, and deepening the economic divide. This drastic and instantaneous shift has also created a digital “new normal” that is being formed and reformed every day by the remaining businesses and their remote workforces.

To address the shifting ground beneath our feet, the Clinic has launched the Marketplace — an expansion of our online platform, Change Machine, which empowers nonprofit practitioners to confidently recommend and connect their customers with trustworthy fintech products and services. The first suite of offerings, titled Marketplace Relief, is intended to mitigate financial insecurity amidst the unfolding economic recession.

All featured products have been rigorously vetted and awarded the Seal of Inclusivity — our set of criteria that determines which products do and don’t appear in the Marketplace. Developed with low-income customers and nonprofit leaders at the helm, the Seal of Inclusivity guarantees that products included on the platform are safe, affordable, and effective for low-income consumers.

Products and services from traditional financial institutions have high premiums (i.e. time and opportunity costs, fees, price of products), while fintech companies often save by avoiding brick and mortar/walk-in services. The latter offer products and services at more competitive rates, and produce those products at a much higher clip. As a result, the market is flooded with fintech products that promise a range of financial support services, but with no clear or systematic method to evaluate products for safety, affordability, and effectiveness among low-income consumers.

The Seal of Inclusivity meets this demand for low-income individuals and the practitioners who serve them, and democratizes fintech in a way that drives a more equitable digital economy. Its design is intentionally utilitarian, offering practical support to practitioners in their everyday work. Not only does it procure products that are safe and user-friendly and underwrite those products on behalf of the practitioners who recommend them, it also puts customers in the driver’s seat. Central to our Seal of Inclusivity is our belief that customers are their own best experts; it is their experiences and collective feedback — combined with changes to their financial security — that ultimately determine which products remain in the Marketplace over time.

The COVID-19 crisis, like other moments of economic vulnerability, attracts predatory actors performing in bad faith. As such, a critical element of the Seal of Inclusivity is the safety and transparency of fintech products. Companies whose products are featured in the Marketplace must be clear and upfront about their services — what is offered, how it’s offered, and how consumers can choose to access the product now and in the future. During the product recommendation process, our customers will be made aware of how the associated fintech company might collect, use, and store their information, as well as how their data is being protected from data breaches or faulty technology.

The ability to manage one’s finances from anywhere, and at any time, lends efficiency and a greater sense of control over one’s financial life. However, many products require special skills or subject matter expertise to be viable, and are therefore inaccessible to segments of consumers. The Seal of Inclusivity means that Marketplace products are designed for ease of use and understanding. Their systems and softwares are recognizable and/or intuitive, and make everyday financial activities quick and efficient. Products in the Marketplace are chosen to meet the distinctive needs of low-income, majority Black and Brown consumers and to remove barriers to participation.

The principles outlined above that form the foundation for the Seal of Inclusivity are intended to be iterative and flexible. As we learn more about what’s important to our customers, practitioners, and fintech companies, we will continue to hone and adjust the process by which products are tested and evaluated. Unlike criteria that have come before us, our Seal of Inclusivity is designed to be actionable for low-income customers — a living, breathing process of validation and accountability.

In this emerging post-COVID economic reality, the digital divide is hardened and deepened; low-income people face additional barriers to participation in the digital economy, and a lack of access to products and services leaves financially insolvent people more vulnerable to predatory actors. Despite the systemic barriers, we know that harnessing the voices of our customers is the only way to forge lasting change. The Marketplace will amplify those voices and up the ante for fintech companies that claim to serve and meet the needs of low-income consumers. Our customers will be the judge of that.

If you represent a fintech company and would like to discuss your product, please send a note to partnerships@thefinancialclinic.org.

For Low-Income Households Facing a Liquidity Crisis, $2 Trillion Won’t Cut It

Mae Watson Grote | Founder and Chief Executive Officer | The Financial Clinic

 

(And Other Things I Told the New York Fed at Last Month’s Community Advisory Group Meeting)

The week before last, I told the Federal Reserve Bank of New York that, much like Jerome Powell and the Federal Reserve have done with our financial systems:  Low-income American families need someone who’s got their back.

My point was that the same urgent policies enacted to stem the economic fallout from the COVID-19 pandemic — emergency measures meant to ensure businesses and markets that the American government has their backs — are just as necessary for the vast majority of American households that, even in a strong economy, live precariously, paycheck to paycheck.

As part of the Community Advisory Group, I and other nonprofit and community leaders advise the New York Fed on issues faced by communities across the second district (and so of course, the views expressed in this article are my own, and don’t reflect that of the New York Fed). It’s no surprise that our most recent discussion was devoted to the ongoing COVID-19 pandemic that continues to escalate across the United States and especially here in New York. The economic toll faced by low-income Americans will be — and has already been — unprecedented.

More than 22 million Americans are now out of work with unemployment filings at record highs. An economist with the St. Louis Fed has projected a potential 47 million could go unemployed this year. If the Fed can resort to unlimited bond-buying programs and trillion dollar market injections, why can’t we go to parallel lengths for low-income families?

Here at The Financial Clinic, the biggest lesson of the pandemic’s ongoing economic crisis is that margins have cliffs. If even in a tight labor market millions of Americans were financially insecure — especially disproportionately vulnerable groups like Black and Brown women — imagine how they fare now.

The deep asset poverty experienced by low-income Americans, coupled with an eviscerated social safety net, means we’re now confronting a future in which many Americans simply won’t recover. This is especially concerning for Black and Latino households, who are less likely to have saved for an emergency and who have a liquid asset poverty rate twice that of white households. These people — like so many of those we serve at the Clinic — have fallen over a cliff and are now in free fall.

Even recent catastrophes offer little guidance. During Hurricane Sandy — which hit poor households especially hard — there was an initial storm. However, once passed, we could begin to assess the destruction and human loss. Or with the Great Recession, as the labor market tightened, we could appreciate how deliberate policy decisions left communities of color out of a full economic recovery. In our current crisis, that assessment has yet to take place, and this free fall makes it hard to grapple with the long-term impact.

Meanwhile, the Clinic is directly responding to our customers who are now in dire financial straits. We’re launching free virtual, financial coaching and expanding Change Machine to further address the needs of those hit hardest by this catastrophe. What is already clear from this work is that families are scrambling. With household budgets in total shock, how will families make rent in the coming months?

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act — which includes direct payments to American workers — is the largest in U.S. history, but it doesn’t go far enough. Low-and-middle-income households are facing a liquidity crisis. Countless are confronting a sudden loss of income while their essential expenses have stayed the same.

Across the last twenty years and over two recessions, rising rents continue to outpace incomes. What we’re now witnessing is the bottom fall out for already-cash-strapped workers. That means cash inflows — like the CARE Act’s $1,200 payments to low-income Americans — are essential, but even most people who live in the Fed’s second district have rent payments higher than $1,200. (In New York, for example, the median rent for a one-bedroom apartment is $2,850.)

The reality is that individuals on fixed or limited incomes lack the resources to take the necessary precautions required by this pandemic. Often they don’t have the ability to buy in bulk. Many live in food desserts — which studies show are disproportionately concentrated among poor, Black neighborhoods — and aren’t able to drive to multiple stores, only to be turned away because the shelves have been cleaned out. 

 So what else can be done to mitigate the pandemic’s economic impact on the most vulnerable among us?

In the weeks to come, the emphasis shouldn’t be on stimulus, but rather putting a total moratorium on all debt and essential payments and penalties: everything from student loans, mortgages and rents, and credit card debt to evictions and utility disconnections. Our focus must be on safety nets and social insurance.  Just as importantly, any cash payments must not count towards actual income that might otherwise disqualify them from essential benefits like SNAP or SSI.

While the future of this crisis remains unclear, we already know what so many low-income Americans need. They need, in other words, what our financial systems have already been assured: a strong safety net and a guarantee that we have their back.

A New Day: Financial Security and the Role of Nonprofits

Haidee Cabusora | Chief Program Officer | The Financial Clinic

 

Today’s talk of fiscal packages comes as critical relief to millions of Americans. The proposed support is intended to help the first circle of victims; those who are affected directly by COVID-19 will receive $100 million in the form unpaid leave, unemployment insurance, and free testing. It pierces through a fog of terrifying health statistics, words repeated over and over again (unprecedented, flatten, video conference), and eerie silence. 

From a government that often seems in political paralysis, decisive action to meet the rising acceptance of a deep economic crisis is relief in its own right.

And the good news doesn’t end there; stimulus packages are being actively debated and negotiated as relief widens to individual checks, sector bailouts, and small business support. These instruments are equally welcome and a sign of a government that sees the need and is willing to meet it.

We may applaud the motivation and the potential $2 trillion on the table, and we may still pause to consider what this means for working poor Americans. For decades, we have seen the slow shift of financial insecurity from governments and employers to low- to moderate-income Americans. Pensions and profit-sharing plans have disappeared. Wages stagnate. Public benefits are not indexed to keep up with inflation.

As long as we separate the deserving poor from the undeserving poor, our national policies will accept poverty as inevitable.

And while crises reveal that margins have cliffs (and that marginalized Americans will eventually fall off the edge), it shouldn’t take a pandemic to remind us that widespread unemployment, loss of income, lack of savings, no health insurance, unpaid sick leave, and insufficient childcare are essential components of financial insecurity. Further, according to a 2018 PolicyLink study, almost half of all people of color are “financially insecure,” living with incomes below 200% of the federal poverty level, with 53% of Latinxs, 51% of Blacks, and 53% of Native Americans considered financially insecure.1 Single mothers are more likely to be “financially insecure” at 71%2, and more specifically women of color who are disproportionately working low wage jobs.3

These factors existed before COVID-19 and, despite current attention to addressing them, will persist long after the pandemic unless we deliberately make different policy choices.

Our responsibility is to look up from the now that dominates and to consider the connections between past, present, and future financial insecurity. For decades, social service organizations and the communities they serve have tackled survival on a month-to-month basis. That experience is our strength today. We are trained and are ready to help. As the health crisis recedes, these same social service organizations will apply their skills to become the first responders to evictions, overrun benefits enrollment centers, and workforce development programs.

But a larger responsibility looms; as we look down the road, big battles will open up in the years to come.  Staying vigilant — not allowing the same placid acceptance that this is a reality of the modern American economy or, worse, subtly blaming the victims  — is crucial. Someone must pay for stimulus packages and the need for more support. When that happens, will nonprofits and those they serve be prepared to make the case through data, stories, and a unified voice? As we have recently learned, it’s never too early to start.

 

 

(1) PolicyLink (2018), 100 Million and Counting: A Portrait of Economic Insecurity.

(2) Ibid. 

(3) Institute for Women’s Policy Research and OXFAM

Margins Have Cliffs: Who will weather COVID-19?

Mae Watson Grote | Founder and CEO | The Financial Clinic

 

Our economy demands that working poor people assume the risks of capitalism, living day-to-day at the margins. COVID-19 will demonstrate that margins have cliffs; deep asset poverty and an eviscerated safety net means we’re facing a future in which many Americans simply will not recover.

Here’s how the Clinic is responding to our customers who are in a financial free fall:

  • Next week, we will launch a series of free virtual offerings for customers and nonprofits, including financial coaching referrals to our programs, community trainings on COVID-19 resources, and access to Change Machine where more than 4,000 practitioners get answers to their questions, exchange resources, and deepen their connections with colleagues.

  • The Clinic is rapidly evolving Change Machine to help nonprofit partners on the front lines expand their reach with virtual coaching services, respond to heightened financial insecurity caused by COVID-19, and drive advocacy and resource-generation grounded in the stories and experiences of their customers.

  • We will equip the field to bridge the digital divide exacerbated by COVID-19. While fintech companies exclude low-to moderate-income consumers, and predatory actors target those same consumers in the face of emergent federal and state relief, the Clinic will be launching an inclusive product Marketplace that empowers practitioners to recommend promising products for their customers.

As we dig deeper with our customers and nonprofit partners on the front lines, we thank you for your engagement and support. Together, we’ll work to emerge from this crisis closer to our vision of a country where ALL are financially secure.

In the wake of the Great Recession, natural disasters, and a government shutdown, the Change Machine community put $42 million back into the pockets of working poor Americans.

Is Uber Offering It’s Drivers Payday Loans?

Mae Watson Grote | Founder and Chief Executive Officer | The Financial Clinic

Employers intending to thrive on the very financial insecurity they create reflects a deeply broken labor market.

In the late aughts, one of the last customers I coached was a man named Jay. Jay’s prison term had ended the year before we met, he was single, didn’t have debt, and held a job delivering paychecks. I was helping him establish a new financial identity, from securing a relationship with a bank to establishing credit history, and identifying a financial goal. Among all my customers, Jay was one of  the more financially secure because, in most months, he could make ends meet.

But building on that foundation and achieving financial mobility was going to be even harder for Jay. Delivering paychecks was a steady gig — he would joke about the holes he’d wear out in his monthly MetroCard from running all over the city — but it was still a gig. He wasn’t an employee and didn’t have benefits. At the end of the day, he was still one paycheck away from abject poverty.

If there were a standard, 40-hour-a-week job with benefits available to Jay, he wouldn’t have thought twice. But he’s a formerly incarcerated Black man from East New York. William Julius Wilson’s field-defining work on race and poverty helps us understand why generations of African American men like Jay have worked at the periphery of the labor market.

Since the advent of the modern labor market, African Americans and women are disproportionately represented in the gig economy.1 Sometimes people take on extra, albeit temporary work because they want to afford a better vacation. Or maybe they need the flexible hours to help care for their families because affordable child care is scarce, or a medical expense needs to be paid. More often than not though, gig work is a manifestation of their marginalization. Sometimes people take on extra, albeit temporary work because they want to afford a better vacation. Or maybe they need the flexible hours to help care for their families because affordable child care is scarce, or a medical expense needs to be paid. More often than not though, gig work is a manifestation of their marginalization.2

There’s no doubt that the margins can be an engine for growth. Tech platforms, for example, have enabled labor markets to be more efficient. “At nearly $1 trillion (approaching 5 percent of U.S. GDP), freelance income contributes more to the economy than industries such as construction and transportation and is on par with the information sector,” according to Upwork and Freelancers Union.

Scores of people have joined Jay’s ranks since I coached him a decade ago. Whether by choice or default, tech-enabled platforms have allowed millions of job-seekers to secure income as gig workers. But these platforms largely exploded in popularity only after the Great Recession, during a period of economic recovery. What happens to gig workers during the next recession or economic downturn?

Between dwindling retirement contributions and rising healthcare costs, workers are shouldering a greater share of the risk and taking on an increasing amount of financial insecurity in the workplace, as Jacob Hacker argues in The Great Risk Shift. As this trend of risk displacement reshapes how workers are paid and compensated, low and middle-income people’s financial insecurity will only be exacerbated.

To wit: Uber Money.

Last November, I was in Las Vegas when Uber announced its push toward financial services at Money20/20. Like a 1980s Milli Vanilli concert, the announcement featured dry-ice vapor and a laser light show.

The smoke and mirrors didn’t end there: “Drivers often start the day in the negative,” said Peter Hazlehurst, Uber’s Head of Payments, “because they have to buy gas. So Uber’s new card will front them $100.”

Wait, what?! That sounds like a payday loan. Smoke and mirrors is one thing for a corporate kick-off event, but no amount of spin should obscure worker exploitation.

Hazlehurst described a small, short-term loan probably unsecured and possibly linked to the driver’s next paycheck. But what distinguishes payday loans from small-dollar loans offered by your local credit union or non-profit lender, and even many credit cards, is their predatory nature and wealth-stripping effect.

The specific terms of Uber’s microloans are not yet available, so an ominous question looms:  Is Uber planning to offer payday loans to its own workforce? The company already has a track record of misleading drivers about the true financial benefits and costs of ridesharing. 

Drivers don’t start the day with a deficit because they need to fill the tank at the top of the day. They start the day with a deficit because they don’t have the proceeds from the previous day to pay for that gas.

Employers intending to thrive on the very financial insecurity they create reflects a deeply broken labor market.  And given rideshare companies’ innovation is the very technology that manages complex systems of data, no entity could appreciate the financial insecurity caused by income that doesn’t cover expenses than the platform itself.  There’s really no better illustration of how design reflects the intent and purpose of the designer.

Uber drivers start the day with a deficit because financial insecurity is the norm for a marginalized workforce. Legally, rideshare drivers are considered independent contractors, but nonprofits we’ve partnered with in the Change Machine community contend that they rarely think of themselves or fully operate as small business owners and operators. Not only are Uber drivers unable to to set their own prices and are closely supervised by the app’s algorithms, but in our experience, drivers readily buy-into Uber’s “earn anytime, anywhere” pitch, as if one is an entrepreneur just by picking up rides in between educational classes, or using the downtime between rides to work on their screenplay.  But below, in 7.5 point font, there’s the rub:  “The opportunity is for an independent contractor” which effectively means that drivers are assuming the risk, but hardly the profit.

From too-low estimates on the accelerated depreciation of the car to unanticipated costs like a license to access the airport, rideshare drivers often spend significantly more than they anticipate. Even when expenses are carefully tracked, real-life expenditures often exceed income — leaving drivers struggling to just break even.

As a result, they’re “lost to rideshare,” said a financial coach working with a workforce development nonprofit in Columbus, Ohio. Coping with all these unanticipated consequences puts the job search or going back to school even farther out, becoming another barrier disguised by the promise of mobility and entrepreneurship.

Uber’s genius is in building a software app to utilize fallow assets, but the company doesn’t help drivers make that mental or operational shift as independent contractors who maximize those assets. Of Uber’s 11 Resources for Drivers (“Get all the information you need to start driving and delivering with Uber”) only one addresses the financial implications. And even then, “Your tax questions, answered,” makes no reference to quarterly income and employment tax payments, how to record expenses like parking, tolls, and gas, let alone advise drivers about the Volunteer Income Tax Assistance, the IRS’s free tax preparation program.  

A decade ago, at least Jay could afford a monthly MetroCard upfront, and nor did his employer introduce by-design, wealth-stripping financial products.  But his financial insecurity, alongside that of most gig workers, is not a foundation for a thriving labor market nor a healthy economy.

 

 

(1) “People of color … are more likely to be in non-traditional arrangements that are lower paid and offer less flexibility to workers.” Gig Economy Data Hub, “Who Participates In the Gig Economy” (Washington, D.C.:  Aspen Institute’s Future of Work Initiative and Cornell University’s ILR School, 2020), bit.ly/2T4wJXn

(2) “More than half of contingent workers (55 percent) would have preferred a permanent job.” U.S. Bureau of Labor Statistics, “Contingent and Alternative Employment Arrangements – May 2017” (Washington, DC: U.S. Department of Labor, 2018), bit.ly/3byrUfo

The Cashless Debate, a Financially Inclusive Perspective

Nevertheless, the move toward a cashless economy is an alarming trend that threatens to penalize poor people. A two-tiered cashless system system that leaves millions of Americans in its wake is inherently inequitable. It’s also unprofitable.

What the 1619 Project Can Teach Us About Financial Security

Mae Watson Grote | Founder and CEO | The Financial Clinic

 

This past August — 400 years after slaves first arrived to North America in the English colony of Virginia — The New York Times Magazine published a 96-page special edition centered on the history and continuing legacy of American slavery. Today, the enduring impact of of slavery is perhaps nowhere clearer than in the financial security field, evidenced by the persistent racial gap in income and wealth.

At The Financial Clinic, our vision is to leverage the experience and knowledge we’ve gained from working with people individually into poverty-alleviating solutions that not only measurably improve individual lives but also address systemic barriers, like the persistent racial wealth gap. As Trymaine Lee writes in the magazine, “Today’s racial wealth gap is perhaps the most glaring legacy of American slavery and the violent economic dispossession that followed.” And the gap is widening — in the past 50 years it’s more than tripled

Interweaving social and economic history, the 1619 Project successfully demonstrates the central role that race has played in the development of American capitalism, and specifically, as Matthew Desmond writes, “a racist capitalism that ignores the fact that slavery didn’t just deny Black freedom but built white fortunes, originating the Black-white wealth gap that annually grows wider.” In his piece on the racial wealth gap, Trymaine Lee notes that even “though black people make up nearly 13 percent of the United States population, they hold less than 3 percent of the nation’s total wealth.”

From speculative banking practices that decimated the savings of Black Americans to exclusionary social programs, the 1619 Project excavates the origins of the widening racial wealth gap. The Civil War, Lee writes, was followed by a period of “economic terror and wealth-stripping,” in response to the North’s victory, during which freed slaves were denied the opportunity to build wealth through policy, law, and violence. During the New Deal, Black Americans were excluded from or discriminated against by many social programs. Created in 1934, the Federal Housing Administration, for instance, enacted a policy of redlining that furthered segregation and refused mortgages in Black neighborhoods. The long-term effects of these policies — including redlining, segregation, and discrimination — are still with us. During the recent subprime mortgage crisis, Black Americans were more likely to be “steered toward subprime loans.” 

Here at the Clinic, the racial wealth gap is a stark reminder of slavery’s legacy, a reality that is apparent in our own financial coaching data. According to our Change Machine data — collected through the Clinic’s online platform delivery model for financial coaching — Black customers have a median asset balance of $400, which is 55 percent lower than the median asset balance of white customers ($900). Moreover, fewer Black customers own wealth-building assets; they’re 8 percent less likely to have savings accounts, 4 percent less likely to have employer retirement accounts, and 5 percent less likely to have IRAs. Our own Change Machine data show that racial wealth inequality plays a critical role in perpetuating generational disparities.

The 1619 Project is as powerful a reminder as any of the structural barriers to wealth-building faced by the people we serve. We couldn’t be more proud of the accomplishments of our work — $90 million back in our customers’ pockets is laudable — but the 1619 Project makes it clear that only by appreciating the deep-seated nature of systemic racism can we begin to close the wealth gap and create transformative change.  We’re aiming to build on our early successes, from the material impact of our financial coaching services, validated by a rigorous study, to public policy victories like New York’s Refund529 law.  Because the barriers are systemic, the solutions we propose must transcend the individual. 

Drawing on the lessons we’ve learned and the values we’ve formed from successfully serving individuals, the Clinic advances field-wide practices and advocates for social policies that pursue racial equity:  

First, can we please put financial “literacy” to rest? Any conversation about poverty that distinguishes between “needs” and “wants” in a household budget fails to appreciate the legacy of slavery. At the Clinic, we’ve been on the forefront of differentiating financial coaching — with its emphasis on people’s lived experiences and actual circumstances  — from financial education. Just as the authors of “Credit Where It’s Due: Rethinking Financial Citizenship” point out, literacy tests have played a perverse role in excluding Black Americans from full political participation, so we should not let literacy tests do the same for financial participation.”

In practice, the Clinic’s work fully appreciates that the barriers people face to wealth-building are not typically about rote knowledge, but structural. In the wake of the recession, more and more have come to appreciate that the crisis on Wall Street, the housing bubble, and the Great Recession were not just a chain of events that occurred because some Americans couldn’t identify a compound interest formula. In fact, structural crises only exacerbated existing inequalities. 

Second, we need to recognize and hold paramount that the people we serve are experts in their own lives. The Clinic actively promotes this idea by ensuring that our customers’ own financial goals are the driver on their path to greater financial security, not programmatic dictates on what  a budget should look like, or the organization’s targets for lowering debt or increasing credit score. Moreover, the Clinic’s social enterprise, Change Machine’s life blood is a community of practice in which the experts are served by a community of experts.

The fact that the communities we serve have been able to consistently and continually make-ends-meet, despite poverty wages and gig jobs, is because they’ve earned an MBA in tough choices, trade-offs and hard decisions. Their expertise is the well from which solutions must be drawn for them to be effective.  

Third, the pervasiveness of racism and discrimination makes it incumbent on our field to collaborate with other disciplines in addressing the roots of this issue. As Nikole Hannah-Jones — the investigative reporter who spearheaded the 1619 Project — told Ezra Klein in a recent interview, addressing poverty alone won’t bridge the racial wealth gap. The idea that class, income or assets-based policies alone can bridge the gap is a fallacy because it assumes that “the primary disadvantage that Black people face is income,” which, she says, “it is not.” Census data, she points out, show that poor white Americans have more wealth than middle-income Black Americans. 

Indeed, our own Change Machine data bear this out too. Regardless of income, Black customers disproportionately lack wealth and assets. This is a lesson that we as financial coaching practitioners must acknowledge, and as such, it is incumbent on us to partner with our colleagues working in education, healthcare, and housing. The customers we serve face a myriad of challenges. Some may have chronic health problems; others face legal and immigration challenges. Others confront daily discrimination. Knowing this — and knowing that racism spans many aspects of life — the solutions we seek must be both ambitious and holistic. 

The wealth gap evident in our own data and whose origins are described in the 1619 Project, is a grave indicator of the work to be done. The 1619 project is a reminder of the historical and economic legacy that leads to racial disparities in assets, income, and debt. As financial coaching practitioners, we recognize the barriers that continue to exist across racial lines, and see our work as part and parcel of a larger commitment to social justice — in the hopes of living up to our founding ideals. 

Data Dive: The Financial Capability Scale & Financial Well Being Scale

Sindhi Polubothu | Assistant Director of Data Analytics and Evaluation | The Financial Clinic

Data Dives:

In each Data Dive, we will analyze a different topic utilizing data collected from our financial coaching platform Change Machine. Change Machine combines our coaching blueprint, outcomes framework, content guides, customer engagement tools, specialized content for at-risk populations, and active community forum under one roof and make them accessible to programs working with individuals and families on their finances. The platform is utilized by hundreds of direct services practitioners across the United States serving over 55,000 customers as of 2019.

Financial Scales Overview:

This Data Dive will look into insights based on data we have collected from the Financial Capability Scale and the Financial Well Being Scale. At the Clinic, the financial coaches and practitioners on our financial coaching platform Change Machine utilize standard scales to measure the financial capability and well-being of their customers. The average customer that comes to see a financial coach in our dataset has the following characteristics:

  • Initial median income of $20,800
  • Initial median debt balance of $6,452
  • Initial median credit score of 601
  • Initial median liquid asset balance of $0
  • 89% identified as non-white
  • 67% identified as female
  • 57% had a highest education achieved of high school GED or less

The Financial Capability Scale was developed by the Center for Financial Security and measures one’s knowledge, skills, and ability to manage financial resources effectively. The Financial Capability Scale consists of 6 questions and an 8 point score scale. At The Financial Clinic, we collected the initial Financial Capability score of 29,015 customers that were seen by our practitioners as seen in the interactive histogram chart below. The average score for our customers is 3.6 which based on the Financial Capability score guide is between a low to moderate score. Interpreting Financial Capability levels based on the results of the scale can be done by using the following cutoffs (1) 0-3 points: Low financial capability, (2) 4-5 points: Moderate financial capability, (3) 6-8 points: High financial capability.

The Financial Well-Being Scale was developed by the Consumer Financial Protection Bureau and measures one’s ability to meet current and future financial obligations as well as if one feels financially secure and can make choices that allow them to enjoy life. The Financial Well-Being Scale used by the Clinic is an abbreviated version which consists of 5 questions and a 20 point score scale. We collected the initial Financial Well-Being score of 2,513 customers that were seen by our practitioners in our system Change Machine. The average score for our customers is 9.1 which is slightly below the mid-point of the abbreviated scale. Per the CFPB Financial Well-being user guide “A higher score indicates a higher level of measured financial well-being, but there is not a specific cut-off for a “good” or “bad” financial well-being score. Unlike credit scores, for example, which are often discussed as a series of ranges (such as 600-650, 650-700, and so on), the CFPB Financial Well-Being Scale scores have not been around long enough for research to have established meaningful ranges for different “levels” of scores.”

Characteristics that Impact Initial Score

Unsurprisingly, we found that people with higher initial incomes and credit scores are more likely to have higher initial scores on both scales. This finding was statistically significant.

An interesting characteristic that had a statistically significant impact on both initial financial scale scores was gender. We found that those who identify as female or transgender had lower initial Financial Capability scores than those who identify as male. We also found females have a lower Financial Well-Being score, and note we did not have any transgender customers who took the Financial Well-Being test. These findings can suggest that those that identify as female or transgender are less financially secure than men and also may mentally feel less financially secure than men. See below for interactive boxplots of initial score distributions by gender.

Impact of Financial Coaching on Financial Well-Being and Financial Capability Scores

To understand the impact of financial coaching on each financial scale score, we filtered the data for customers that had at least two survey records and compared the initial survey score to the final survey score. We found a positive increase in median score for both the Financial Well-Being and Financial Capability Scores post financial coaching as seen in the charts below.

Conclusion

Financial Scales can be helpful tools for financial services practitioners and financial programs to evaluate their customers and impact. Additionally, they can help us understand overall trends and patterns about people’s relationship with their finances. We encourage other programs to implement the Financial Capability Scale and Financial Well-Being Scale into their data collection processes and to compare trends to the ones we have found.

New CFPB Rules Will Fail to Protect Consumers from Predatory Lenders

Michael Dedmon | Policy Manager| The Financial Clinic

Yesterday, the Consumer Financial Protection Bureau (CFPB) announced its intention to rescind key provisions of the Bureau’s 2017 payday lending rules. These changes mean that payday lenders will once again be allowed to make loans without taking a borrower’s ability to repay them into account. Consider this for a moment: this rule change makes clear that payday lenders are free to offer products that are not only not in a borrower’s best interest, but are specifically meant to extract wealth.

The Bureau is also proposing to remove restrictions on “reborrowing,” when a payday loan customer takes out a new loan to pay off an earlier one, which it chose to cap at three successive loans in 2017.  The current regulations were written after an extensive community outreach and consultation process with civil society and with the payday lending industry, and while many of the most abusive practices were left untouched, core elements that trapped borrowers in a cycle of unmanageable debt were significantly weakened.

These proposed rule changes will be disastrous for consumers and they demonstrate that, under Kathy Kraninger’s leadership, the CFPB will continue to side with predatory and abusive lenders at the expense of vulnerable borrowers. “The CFPB’s priority right now should be curtailing the practices that perpetuate the cycles of debt that plague so many of the working poor in the U.S. today, but instead it has decided to look the other way,” says Mae Watson Grote, Founder, and CEO of The Financial Clinic. “The Financial Clinic and our partners see firsthand the way payday and title lending strips wealth from our communities, and especially communities of color. Our coaches are working with customers every day who are saddled with payday loan debt and as a result are struggling to pursue their goals and build their financial security. They have all of the tools and the drive to start that new business, finish their degree, or save for a family vacation – but these unregulated loans turn one financial emergency into a persistent crisis. This is a systemic problem and making sure that customers are well informed just isn’t good enough; it is the job of agencies like the CFPB to make sure borrowers are protected from these abusive loans”

Darren Liddell, the Clinic’s Director of Program Innovation and a long time financial coach, has seen the impact lax regulations on payday lenders can have on customer debt burdens. “The customers I worked with in Miami at Branches during the Urban Institute’s randomized controlled trial had, on average, more debt when they would come in for coaching than the customers we see in New York, and more access to payday loans – some with interest rates over 300% – is definitely a part of the reason why,” he says. “When folks run into a difficult financial situation or an unexpected crisis, sometimes a payday loan seems like the only option. Having simple regulations in place like making sure people can actually pay the loan back or capping the amount of times they can reborrow are really just common sense protections against the worse abuses. The rules CFPB are proposing to rescind now are just the most basic protections every borrower deserves”

The Financial Clinic condemns this proposal in the strongest terms, and will work with our customers, partner organizations, and our peers in the financial security field to fight against this misguided approach. We encourage everyone to get in touch with their representatives in Congress and ask them to publicly speak out against CFPB’s proposed rule changes, and to submit their written comments to the Bureau during the next 90 days.