In Pursuit of Financial Well-Being: A Conversation on Fairness, Accessibility, and Empowerment
By Miriam Axel-Lute and Harold Simon
Posted on July 25, 2016
In a world of growing financial complexity, predatory products, stagnating wages, and escalating inequality, financial insecurity is a dramatic problem. To kick off our focus on this topic, we gathered a group of leaders who are combating financial insecurity by both working with individuals and changing systems for a conversation on how it all relates and how to balance the big picture and the household-level work.
Taking part in this conversation with Shelterforce editor Miriam Axel-Lute and NHI executive director Harold Simon, were Holly Frindell, senior program manager, National Association of Latino Community Asset Builders; Andrea Levere, president, CFED; Andrea Luquetta-Kern, director of policy and research, California Reinvestment Coalition; Ann Solomon, strategic initiatives manager, Federation of Community Development Credit Unions; andWoody Widrow, executive director, RAISE Texas and NHI board member.
Miriam Axel-Lute: How are movements that are related to economic security—but are more focused on income, like living wages, securing better jobs, or union organizing—connected to work that is focused on asset building and financial capability?
Andrea Levere: The Assets and Opportunity Network is composed of 76 coalitions that operate on the state and local level. In a sample organization or statewide coalition, there’ll be representatives from food banks, advocates for the minimum wage, operators of community tax prep and VITA [Volunteer Income Tax Assistance] sites, people who are working on savings and financial inclusion, and people working on budget and tax. The power of the coalition is really to understand how these different movements and organizations complement each other, and how much they create a necessary and comprehensive set of tools and policies that build household financial security and opportunity.
Woody Widrow: We are one of the members [of the Assets and Opportunity Network] here in Texas. If you look at our board, and at our members, it is that microcosm that Andrea spoke about. We have people from the food bank, people who work for the YWCA. We have partnerships with groups who are working on minimum wage. In order to move up the economic ladder, you need income to increase, but then, when you get the income, [you need] products and services that increase your financial stability [by turning that income] into assets.
A lot of the people we deal with, they want to create savings accounts for retirement, or for their children. One of the largest barriers is a lack of income. We need to address having people have a living wage, and once you have a living wage, then we can create the products and services to give them more assets.
Andrea Luquetta-Kern: I agree. We are starting to really coalesce around both the movement for increasing minimum wage and increasing stability and predictability of income, and coupling that with supportive financial services to turn income into assets.
Just like we need reform on the income side, we need reform on the financial services side. We need to get rid of barriers that get in the way of turning income into assets [for] folks who are receiving income support through TANF [Temporary Assistance for Needy Families]. In California, they’re still subject to the asset limit, and they become ineligible if they have more than $2,000 in certain types of assets. That really doesn’t help. If you have these structural barriers, you’re never going to support asset development.
Miriam Axel-Lute: Is anyone working on getting rid of those asset limits?
Woody Widrow: We’ve been trying. We’ve been tying it to specific products, [such as] children’s saving accounts. We’ve raised the asset limits for a lot of the products from $2,000 or $3,000 to now $11,000. For most low-income people, they’re not going to get to $11,000. But, I agree that asset limits is one of the largest deterrents in getting people to save.
Andrea Luquetta-Kern: In California, we have a bill pending called Remove Barriers to Save and Increase Financial Stability. We first started with increasing the value of a car that you could have. We used the arguments that have been used in other states, including the administrative costs of implementing the asset limits as wasted money and resources. We are making the case that it is a barrier to helping people establish enough assets to not need public benefits anymore.
Miriam Axel-Lute: Income inequality has finally really gotten national attention. Do you feel like the asset side of the equation is also coming into public awareness?
Andrea Luquetta-Kern: Definitely. Darrick Hamilton and Bill Darity out of Stanford just released a study in Los Angeles, and pointed to both the income and the asset differences among minority groups and, most spectacularly, disaggregating the data on Asian communities to really point out the differences between, for example, the Korean community, the Indian community, and the Filipino community. The Korean community in Los Angeles is very asset-poor. Even if they have some differences in income, the amount of assets they have to survive an emergency or to invest in anything is much more like what’s happening in the Latino and the African-American communities.
Things like generational wealth, time, and when the family immigrated all have impacts. But, when we’re talking about the ability of a family to be self-determining financially, invest in themselves, and survive financial emergencies, we’re talking about liquid assets. CFED has done a great job of framing and honing the message. Now, others are providing additional data [so] we can get really deep into specific communities and [understand] what strategies would be needed for communities to accumulate enough assets through income.
Andrea Levere: I think one of the most powerful but also exciting reactions to the liquid-asset poverty metric— which basically measures the ability of a household to exist at the poverty level for three months if their main source of income is disrupted by an illness, a job loss, or other factors—is that it has changed the way people look at financial insecurity from “those poor people” to half of us. In the United States, 44 percent of all Americans are living in liquid-asset poverty.
Harold Simon: Are any of you working with labor unions?
Andrea Luquetta-Kern: We have done some work in Los Angeles with labor unions that are providing support services for their members, looking at the effects of predatory lending, specifically payday lending and overdraft [fees], because we see these products as asset-stripping.
There’s been a lot of creativity and a lot of momentum and support on things like matched savings and programs that get really creative, using TANF as a source of asset building. And while we’re doing this very important work on the asset-building side, we’ve got this siphon, right? The bleeding is just horrible on the asset-stripping side.
Ann Solomon: There’s also a renewed awareness around the need for financial capability and financial services in the workplace. Many of our member credit unions are either historically or currently employer-based. Many of them serve labor unions. Their focus is on meeting workers at their source of income to provide the services they need to carry on their lives, but also to build their assets for the future.
Andrea Levere: When we [CFED] first began several decades ago, the labor unions were very engaged [with] us creating our first development report card for the states. [Since] then, we have not been as engaged, but over the last six months, this has increased again in three different ways.
One has been a real interest among several unions in understanding what products or services can be most helpful to their members. Obviously the role of community development credit unions has been critical in this.
A second has been an interest at the AFL-CIO in children’s savings accounts and how they might support that. This is all [in an] early stage.
A third is how they think differently about particular campaigns they may be engaged in, where they’re addressing particular issues with major financial institutions, and where they can come to the table and offer positive alternatives.
Miriam Axel-Lute: We want folks to believe they can save, and we want to give them the tools to do that but, on the other hand, there are structural impediments and bad actors out there. How much do you bring into the financial capability space the factors that are out of individual households’ control?
Andrea Luquetta-Kern: It is a challenge. We’re [CRC] an advocacy coalition. While our members are doing the asset building, a lot of times it’s [up] to [us to] call out the bad actors, because our funding isn’t dependent on [them]. We invite the banks to donate to our fundraisers, but it’s not program money. We have had banks pull out, threaten, [and] try to buy off our members. We have to be able to call out what needs to be called out. That sometimes can make for an uncomfortable situation if you’re also trying to partner with these institutions.
Holly Frindell: Our member organizations do try to bring a broader context to their one-on-one sessions, acknowledging external constraints. NALCAB [is] a member organization; we really look to gather the experiences of these different organizations across the country. As they’re working with individuals who are trying to overcome their financial difficulties, they’re seeing recurring issues or themes, or potential solutions, which then NALCAB is able to bring to the attention of policymakers.
Ann Solomon: It is a tricky balance because counselors who are working with clients want to make sure individuals feel empowered and feel that the decisions they make will help them advance. We see that counseling works and helps people achieve those goals. But we also weave in the context that what they were experiencing in life is something that we see with others in the community, and we make sure that they understand they’re not alone in those issues.
Similarly, at the national level, we are looking at the data and the trends coming up in those counseling sessions to try to identify issues where there is a need for intervention on a systemic level.
Andrea Luquetta-Kern: Although we’re not a direct service organization, we do get phone calls from folks who are looking for help. A lot of the time, I’m talking with folks about shame. People have really internalized a lot of shame around what they believe their responsibility or obligations have been managing their family’s finances and what they should have known. In ethnic and racial communities, there’s already a lot of stigma about what they should be able to do with the little resources they have based on this narrative of bootstrapping. But, I’ve also talked to lawyers, ad execs, [and] folks who are in middle-income jobs who have internalized a lot of shame about what they should have been able to do.
Going into things with a more critical eye [is important]. It’s not entirely about the consumer’s responsibility for making bad choices.
Woody Widrow: Most of the people we deal with are in crisis. That’s why [there were] 2 to 3 million payday loans last year in Texas. It isn’t because people were not intelligent. In those situations where somebody needs a few hundred dollars [and] they don’t have access to a savings account, they may not know what the interest rate is, but on some level, they just need that money.
Andrea Luquetta-Kern: It’s so important to change that narrative. There’s often this story painted from the industry that people deserve access to credit, and we completely agree. I think what is implicit and argued is that people have choice, and there’s not enough choice.
We are trying to encourage banks to develop small dollar alternatives that are affordable, [to] give people the ability to choose, even in a crisis, products that are safe, because when you’re in a crisis, it’s not a choice, and people are trapped.
Andrea Levere: A book by Jacob Hacker, The Great Risk Shift, is where we ground our understanding of why it’s not the person’s fault. If you look at the last four or five decades, the level of financial risk that has been transferred from institutions to individuals is huge. It makes the individual responsible for managing their own household risk at a level that, in the days of defined benefit pensions and long-term employment and other things, they never had to. This has been exacerbated by the complexity of this financial system and the financial alternatives. One of my favorite quotes is from Michael Sherraden from Washington University, who said, “You give the PhDs at Washington University more than three choices on how to invest their retirement, and they get frozen and don’t do anything.” It affects all of us.
Miriam Axel-Lute: I’m struck by the conversation about shame when it’s not the person’s fault because it makes me think about the term, “financial capability.” It seems like the sector has settled on it, as the current term, but it still sounds to me like it’s implying that the problem is with the people, as in they just don’t have the capability to do what they should do.
Woody Widrow: For a long time, people were talking about literacy and being “financially illiterate.” I think that’s a lot more condescending. Even with public housing tenants, the little amount of money people have and how they budgeted it is amazing to me.
Some of the groups, like NeighborWorks, who’ve been working on success measures, now talk about “financial success” or “financial stability.” I do think it’s helping people develop a roadmap to become financially able to deal with day-to-day functions and to have some future goals.
Holly Frindell: The word “capability” encompasses a feeling of somebody who is both knowledgeable and confident. They have the skills and tools to evaluate their options, and they feel comfortable making decisions based on what they know. “Capability” has a positive connotation, because it builds on both of those two steps to be able to make the decisions that you need to make in your life. It’s definitely a step up from the “literacy” days.
Andrea Luquetta-Kern: I agree. It’s better than “financial literacy,” and I still hear that term quite often, and cringe. But, I struggle with “financial capability” because I think all of the synonyms about capacity and ability still rest with the family, with the individual. We’re missing a term that gets us to the opportunity [part]. People can have a lot of knowledge, and they can have a lot of strategy, but if they don’t have the opportunity to apply that strategy, then it’s all for naught.
Andrea Levere: We just published a book called, What It’s Worth: Strengthening the Financial Future of Families, Communities, and the Nation, and describe this evolution from, “financial literacy” to “financial capability.” The two words we use in the book somewhat interchangeably are “financial health” and “financial well-being.”
Low-income people have as much, if not more, acumen when it comes to making financial decisions as people with more resources. If you ask a low-income person when they walk out of the supermarket what they paid for each good, they can tell you almost to the cent what they spent, because they have to look so carefully at it, whereas when I go to the supermarket, I’m thinking about my next conference call, or something else, and I couldn’t tell you anything.
Harold Simon: Identify some of the big policy issues that are either current or looming and what strategies you’re using to affect those policies beyond collecting and disseminating data.
Woody Widrow: They’re all inter-related. But, we have to shift the savings culture in this society.
We need to be working on more structural products and services that automatically take money out, as we increase income, and try to make it as flexible as possible, whether it’s for emergencies, retirement, for a child’s college savings accounts, to buy a home, or other things. We’re now trying to get employees who are not in a retirement plan to have a structural plan that could go through employers, and other types of mechanisms.
Andrea Levere: [CFED] has been organizing the Consumers Can’t Wait campaign, which really gets at encouraging and supporting the CFPB in their efforts to issue payday lending rules.
The Turn It Right-Side Up campaign builds on data work we’ve done for the last 10 years. A coalition of organizations at the national and local levels [discuss] how the tax code, and particularly how we use our tax expenditures, is widening economic and income inequality, and what must be done.
Last fall we launched the Racial Wealth Divide Initiative with two leaders who joined us from the NAACP. There’s special elements within the Turn It Right-Side Up campaign that look explicitly at how well policies expand or can reduce the racial wealth divide, which requires a different analysis.
Also, Congressman Ben Ray Lujan introduced a bill on financing for students called Save for Success, which addresses some of the inequitable ways we have been financing higher education. It was tied explicitly to the work we’re doing on Turn It Right-Side Up.
Miriam Axel-Lute: Any specific products or services that you hope would exist, or that you would like to bring into existence?
Andrea Luquetta-Kern: One of the things that we’re trying to work on now in anticipation of the overdraft rules that the CRC is going to be working on is changing the narrative on overdrafts. The industry has done a really good job of framing and legalizing overdraft as a service. It’s not even subject to any of the credit rules whatsoever, even though as routinely applied, it does have the same function.
I recently spoke to a small business owner who is routinely running up overdraft fees every month, and he’s built it into how he’s running his business. In California, some of the really high-cost stuff is governed under the California Finance Lenders Law, where there is no rate limit on loans above $2,500. I have seen loans at 188 percent, and it’s very common. So, you have nonprofits that are financing small businesses to get out of those high-cost loans, but they’re also seeing routine overdrafts.
Andrea Levere: One other product is our work on framing out a rainy day Earned Income Tax Credit. How do we provide an incentive to taxpayers who file for earned income tax credit to save a portion of that to help them meet emergency savings needs, and then provide an incentive match for them if they hold those savings for a period of time?
Holly Frindell: One of our members is partnering with a local credit union to implement a loan consolidation credit card based on a card started by Neighborhood Trust in New York City. We often hear about secured credit cards, or alternative small dollar loans. But, the idea behind this is that you’re able to consolidate multiple loans on one card that you then, working in conjunction with a financial counselor or financial coach, set a monthly payment based on your budget and what you can afford.
You’re able to pay that principal off more quickly, [and you] only have one payment each month as opposed to multiple creditors.
Ann Solomon: The federation [is] going to roll out our borrow and save product nationally, which is a small dollar, short-term loan with a required savings component. [We’re] trying to meet the immediate needs that folks have whether it’s an emergency, or even just a shortfall with bills, but also building in that savings component so folks are building assets and credit while getting access to funds immediately. Hopefully the next time something comes up, they have a small nest egg in place so they don’t need to borrow again.
We’ve been piloting that with 12 credit unions over the past year, and saw really positive outcomes both in terms of increased savings and credit, and [we’re] excited to offer that to credit unions nationally. Simultaneously, the federation has been very supportive and welcoming of CFPB’s upcoming regulation on payday [lending]. Our members are offering alternatives to payday loans, but credit unions are not going to make loans to people who can’t afford to pay them back, which is what we know that the payday model is based on. That practice needs to be regulated.
Miriam Axel-Lute: We know a lot of these alternative products cost people a lot of money, and yet there’s often very specific reasons why people don’t want to be banked. How do you navigate those things?
Ann Solomon: Our member credit unions do a lot of work with other community-based organizations to make sure they’re meeting people where they are. Louis Community Credit Unions in St. Louis has established three micro-branches that are within different nonprofit service organizations. It’s convenient for folks who may be going to that settlement house for childcare, or accessing their benefits, to also stop by the credit union and do business. But, it also means that they’re hearing from other folks in their community. Hearing from a trusted source makes a huge difference.
Woody Widrow: We did a pilot in Amarillo, Texas, to try to open up children’s savings accounts. One of the major reasons why parents opened the accounts wasn’t because of the name of the financial institution. It was hearing it from the teachers, the principal, and other key people.
Our other pilot is through the workplace. What we found is people were opening savings accounts [from] the workplace because they had a good relationship with the employer, and the employer was setting it up in such a way to make it as easy as possible.
A lot of our work is now branding through the schools and through the workplace, and we have some payday loan alternatives that’s going through [employers] and public unions.
Andrea Luquetta-Kern: There are some situations in which people are making very rational and smart decisions not to have a bank account or to comingle funds. I see that specifically around folks who are receiving TANF through EBT cards rather than by direct deposit, which is something you can do in California. We have been doing a lot of advocacy over the years to reduce the cost of financial transactions on EBT cards. We can encourage folks to use direct deposit because there are now enough safe products out there to have meaningful choice.
But, even then, Woody’s right. It’s really about trust. For those who are overly policed in their financial behavior, such as folks who receive public assistance, there is a lot of mistrust about all of these financial institutions.
One of the great things about getting direct deposit for your TANF funds is that the state cannot see what’s happening in your bank account, so you’ve gained privacy. But, that’s a long conversation to have, and it is about overcoming this idea that everything is going to be policed.
There are some folks who may have some sort of garnishment. They should be able to keep some funds separate. There are laws that prevent banks from garnishing certain sources of funds. But, by the time most banks realize what’s going on, the damage has been done. In those situations, we don’t want to encourage folks to co-mingle funds, because even though it would be illegal to get those sources of funds garnished, the practicality of [preventing it] would be a nightmare.