A Look at Financial Empowerment in CitiesJuly 15, 2018
For the past five years, I’ve had the opportunity to work with mayors across the country who have come to realize that the economic vitality of their city is tied to the financial stability of their residents. This understanding contextualized with the racial wealth gap, housing crisis, and strain on city and social service budgets among other pressing issues mayors grapple with has spurred the growing field of municipal financial empowerment over the past decade.
Financial instability lies at the heart of many issues families are experiencing, often regardless of income. Here are some national statistics that point to how universal the issue is:
- Almost 1 in 5 American households have zero, or negative, net worth
- 44% of households are not saving for an emergency
- 25% of consumers have a debt in collections
- 65 million adults are disconnected from mainstream banking
While local governments have long played a central role providing social services, such as workforce development and public housing, at the height of the recession they learned the hard way that such financial instability both increases demand for, and decreases the success of, these types of municipal social services. Recent research shows, for example, that families with even a small amount of savings are less likely to be evicted, miss a housing or utility payment, or receive public benefits when income disruptions occur.
I often get the question, “why is this something a city should address?” or, “don’t nonprofits already focus on this?”. Well, cities uniquely must address problems of the magnitude of financial insecurity because such statistics represent people in their community who are in need–and mayors are 1) close enough to constituents to understand these challenges and, 2) are held accountable for delivering large scale, innovative, and effective solutions that help those in need. There is also a lot cities can do. Cities are a trusted voice amidst a sea of scams and predatory actors; they have the authority to regulate products and businesses in the consumer financial marketplace; they are touchpoints for people in need, often controlling the funding, program entry and referral points, and policies for social services.
Still not sure what I mean by municipal financial empowerment? It essentially is a set of tools, primarily programs and policies that cities have adopted to tackle the myriad of social and economic issues correlated to the financial stability of their residents. It is organized into four key areas:
- Savings – Weathering financial shocks and setbacks while saving for the future is a critical step toward financial security.
- Financial Education and Counseling – Professional financial counseling can tangibly improve household financial stability, especially when integrated into social services.
- Banking Access – Accessing a safe, affordable account is key to joining the financial mainstream and keeping earnings secure by saving.
- Consumer Financial Protection – Cities have powerful opportunities to protect residents and their assets from predatory practices, such as payday and title lending, debt collection, and paid tax preparation, which are pervasive and regularly result in cycles of increasing debt and greater financial instability.
There are numerous examples of impactful interventions cities have tested, evaluated and invested public (local, state and federal) dollars in–many of which are being replicated in cities across the country:
- Financial Empowerment Centers (FECs) — which provide professional, one-on-one financial counseling as a free public service — have helped people on parole in Lansing, MI move out of subsidized transitional housing faster as they build savings and budget for moving costs. The country is heading toward 50 FEC cities in the next few years.
- In San Francisco, every public school kindergartener automatically receives a college savings account containing $50 and opportunities to match ongoing contributions – and the Children’s Savings Account movement has spread to over 30 states.
- In New York City, over 1 million tax returns have been filed for free because of the city’s investment in its Volunteer Income Tax Assistance (VITA) program, bringing in more than $700 million in refunds such as the Earned Income Tax Credit (EITC) and tax preparer fee savings.
Now that the crash course in municipal financial empowerment is over, and I’m taking a step away from the work directly to pursue graduate school, I’d like to reflect a bit on my time working with cities on financial empowerment issues and share a few takeaways that might apply more broadly to other city work you may do.
- What has been most provoking and inspiring has been meeting incredibly passionate and selfless public servants, community leaders, advocates, and financial counselors that are in each and every city on the map. These people are in the trenches day in and day out working to improve the financial stability and counter the economic, racial, and social injustices people in their communities experience, all while consumer protections, basic rights, and funding for vital services are being stripped away nationally.
- Mayors and senior city officials have an incredible and often underutilized power to convene residents and stakeholders from all sectors–people want to be at the table and feel like their voices, ideas, and resources can contribute meaningfully to city priorities and pressing needs.
- Similarly, there is a real thirst for private-public partnerships and they can be mutually beneficial, particularly when it comes to testing innovative and tangible ideas. So many of the successful financial empowerment interventions came out of a privately funded pilot.
- Lastly, I cannot stress enough how critical inter-agency coordination is. The “integration”-based approach to financial empowerment services requires that relationships are built across all agencies with relevant touchpoints to residents. I saw the most success when a deliberate effort was made and time was spent aligning goals, formalizing partnership and data-sharing agreements, determining the most appropriate referral mechanisms and links, and getting agency-wide buy-in down to the frontline staff. While this sounds like a lot of work (and it is), it is so worth it.
While the field of municipal financial empowerment is still relatively nascent (10 years officially) and only a small piece of the puzzle when it comes to reducing poverty and instability, a lot can be learned from how it has approached the problem and hopefully can spur other ideas on how to better leverage city services and infrastructure for such aims. It sure has for me!
Matt Spring is a proud CHF ’13 alumnus and serves on the CHF Board of Directors. He most recently worked at the Cities for Financial Empowerment Fund in New York City. The views expressed in this post are his own.