NEW YORK — The National Federation of Community Development Credit Unions (Federation) released a report that delves into the financial struggles faced by very poor individuals, those with annual household incomes below $20,000.
Titled "From Distrust To Inclusion: Insights Into The Financial Lives Of Very Low Income Consumers," the report was designed to determine if such people constituted a market segment "separate from low- to moderate-income consumers and to investigate how socially-minded financial institutions could best meet the needs of these consumers."
Funded by the Ford Foundation, with support from the Annie E. Casey Foundation (a group that focuses on the plight of U.S. children), the Federation's study featured interviews with people at four financial institutions that serve the very poor: Community Check Cashing in Oakland, Cal.; Guadalupe Credit Union in Sante Fe, N.M.; Self-Help Community Trust/Prospera in San Jose, Cal.; and St. Louis Community Credit Union in St. Louis, Mo.
"Many of the very low income people we interviewed found their way to a participating financial institution because they were experiencing a financial crisis or a life crisis with financial implications, " said Kirsten Moy, senior fellow with the economic opportunities program at the Aspen Institute. "It was only after their immediate crisis had been resolved that the very low-income consumers we interviewed were receptive to more traditional financial solutions like counseling, budgeting or saving. Very low-income consumers were only able to move ahead when a trusting relationship was developed with the staff of the credit union."
Aside from the importance of trust and the value of relationships, the Federation study revealed other realities about the economic life of the very poor: instability and volatility of income is the norm for these consumers; while very low-income consumers are aware of and access information through mobile technologies, few trust making decisions or transactions via mobile banking platforms; very low-income consumers still depend largely on cash; traditional budgets are not helpful in managing household finances; products and services must fit within the context of a very low income person's life, not just their financial profile.
"Everyday mission-driven financial institutions, particularly credit unions, search for the right mix of products and services to help members of their low-income communities gain financial independence," said Federation President/CEO Cathie Mahon in a statement. "Most of our efforts have focused on developing new scalable products and technologies, but very low-income people value trusted relationships most. Individuals and communities will benefit if our industry can increase the financial stability of the very low income. Improvements can only be expected when we are able to develop products and services that mesh with and support the unique circumstances of these consumers' lives."
According to PovertyProgram.com, some 12.7% of Americans (about 37 million people) live below the poverty line. In addition, about 5.6 million children are in extreme poverty.
The full Federation report can be found here:
