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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

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

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. 

Three Myths About Working Poor Households and How They Build FInancial Security

By Mae Watson Grote | Founder and CEO | The Financial Clinic

Based on remarks delivered to the Federal Reserve Bank of New York’s Community Advisory Group on 11/15/2017

We all know what happens when we assume. Yet, American society continues to place the burden of working poor people’s financial insecurity exclusively on their own shoulders.

The age-old “pull yourself up by your bootstraps” mentality–built on the belief that because economic and social mobility were achieved by some, they can be achieved by all–assumes that those who failed to achieve financial security made “bad choices” that caused their insecurity, or worse, that they must not be working hard enough.

Like all direct service practitioners, we know how entirely false this belief is. Our customers are hard-working and resourceful.  They navigate a world of enormous complexity, and their financial insecurity is most often caused by systemic policies and beliefs that build a seemingly insurmountable barrier to success.  

So let’s start by breaking down those assumptions, and busting these three popular myths:

Myth #1: Financial education, on its own, alleviates financial insecurity, and addresses systemic barriers and gaps in wealth building.  

There are gaps in Americans’ financial knowledge.  According to economists the vast majority of Americans, regardless of income level, do not have the requisite knowledge to handle their own finances.

However, year-in-year-out experience building relationships with our customers has demonstrated that they are incredibly savvy in their ability to stretch low, and often volatile, incomes to keep food on the table and roofs over their families’ heads.  So why do working poor people continue to suffer under the weight of financial insecurity? Because they face unique systemic barriers that higher income and wealth alleviate. For example, a sudden medical emergency may deplete a person’s savings, leaving them vulnerable to predatory financial institutions which ultimately force them even deeper into debt. Therefore, addressing gaps in financial education, alone, isn’t an effective approach to addressing financial insecurity.

Instead, we believe that building financial security, rather than focusing on knowledge for knowledge, should be the focus through financial coaching, which is built by goal-oriented steps that enforce an individual’s existing strengths for practical results.

A landmark national study commissioned and funded by the Consumer Financial Protection Bureau, An Evaluation of the Impacts and Implementation Approaches of Financial Coaching Programs, proved that financial coaching has a measurable difference in the financial security of working poor people. In the study, the Clinic’s financial coaching model saw participants–earning an average of $24,000/annually–gain an average $1,721 increase in savings, a $1,009 decrease in debt, a 33-point increase in credit score, along with decreased levels of financial stress, and increased satisfaction in financial states.

The Clinic’s approach starts and ends with the financial goal. Financial education alone does not determine or actualize a financial goal. In financial coaching, we use the goals as critical drivers for customer accomplishments.  They allow us to address the complete picture of an individual’s finances–including consistent savings, lowering cost of banking products and services, establishing a credit history or increasing a credit score, lowering debt, and enough year-round tax planning to have saved a portion of a refund for a financial goal to be met–while shining a spotlight on the systemic barriers to financial mobility.

Myth #2: There are bad financial goals.  

We believe that our mission to build financial security for working poor people is best accomplished by helping customers achieve their “forward-thinking, strengths based, and passionately-held” financial goals.  The most important driver to success is whether the financial goal answers these customer-defined criteria:

  • Is your goal rooted in a problem of your past, or does it reside in an opportunity in your future?
  • Does it leverage your strengths, including the intangibles?  
  • Are you passionate about it?  Would you move heaven and earth to make it happen?

It does not matter if the financial goal is thought of by a financial coach, or any other objective perspective, as “good” or positive for the customer.  Once our customers establish their “North Star,” we’ve discovered that the ability to accomplish all other areas of financial security is there.  

Take, for example, the story of one of our customers Alan Braverman (a pseudonym).  At the time he started meeting with his Clinic financial coach, Alan was unemployed, but receiving SNAP and SSI benefits.  He was also in danger of eviction so he was working with a homeless-prevention program on a relocation plan; additionally, he had child support arrears which caused a portion of his tax return to be seized.

Alan’s financial goal was to buy a plane ticket to his home state for a long-awaited visit with his extended family.  To someone on the outside looking in, it may seem like buying a plane ticket should be a secondary financial goal to paying down existing arrears.  However, when viewed through the lens of an actionable financial goal–one that it is “forward-thinking, strengths-based, and passionately-held”–a myriad of paths to financial security are illuminated.  Indeed, while Mr. Braverman was working to achieve his goal, he was also able to set up a budget to pay off his arrears while simultaneously saving a portion of his tax return towards his financial goal. In the end, after several months following his payment plan,  Mr. Braverman ended up overpaying for his arrears, and receiving a refund which he saved, getting him 75% of the way to his goal. By working towards his passionately held financial goal, Alan was able to build the habit of saving. This new habit and instilled confidence will serve him long after he reaches this first financial goal.  

Myth #3:  Working poor families should not, or cannot pay down debt and build savings concurrently.

While achieving financial goals is at the heart of the Clinic’s anti-poverty mission, the clearest indicator of progress is consistent savings and building assets.  More traditional financial planning and counseling models often take a traditional, rational economic approach, and thus stress the need to pay down existing debt before building savings.  Here at the Clinic, we know that assets can shore households against volatile income, give purpose and meaning to budgeting, and help keep people from taking on bad debt in difficult times.  

Our customers build confidence and have an improved outlook on the future when they begin to save.  Here is an example pulled directly from one of our coaches: Elena Meyers (pseudonym) is a single mom who first came to see us about a year ago. She had $104k of debt in the forms of collections, bills from her daughter’s school, personal loans, and credit cards, and felt she was being crushed under the weight of it all. She admitted that her debt, and lack of savings, was partially due to a habit of mindless spending. Along with causing her to amass debt, this mindset was keeping her from achieving her goals of establishing an emergency savings fund, purchasing a home, and paying for her young daughter’s education. Over the course of five coaching sessions, Elena was able to not only turn her monthly deficit into a $153 surplus, but also immediately start saving $25 a month while still paying down her debt.

If we are to truly build a more equitable American future, we must first start by addressing root causes of poverty, inequality, and insecurity, which must be done concurrently with debunking commonly held ideas about why people in poverty struggle to improve their financial wellness.  It’s critical that we as a society (1) fully understand the reality of working poor people and families struggling to make ends meet and (2) continue breaking our assumptions so we can identify solutions that actually work.

At the Clinic, we see the incredible impact our financial coaches have on our customers’ financial lives — they provide the necessary support to not only overcome a financial crisis, but also to gain a new confidence and develop the right habits for a lifetime of financial security. By removing our assumptions about the individuals, we see that working poor people nationwide are struggling against a system that creates more barriers to financial security than it removes. Our collective priority moving forward must be to meet those systemic problems head-on and influence lasting policy changes that will support the millions of families we cannot serve directly. We’ve already seen the difference here in New York through Refund529. I invite you to join us as we bring policy conversations national through our financial security ecosystems — what systemic barriers are you seeing in your community?  Together, we can create the financially secure nation we all deserve, no matter our income level.

Please share your stories of and suggestions about busting myths about low to moderate income households with us on Facebook and Twitter.