Efforts to help low- and moderate-income people improve their financial circumstances often focus on offering tailored, personalized feedback about how to save more money or get out of debt. But some of these well-intentioned endeavors seem to have a blind spot. Signing up for a personal finance app to better manage a budget or enrolling in credit score counseling requires a certain degree of initiative. The problem is that many people struggling to make ends meet are either unaware that help is available or don't have the time or energy to seek it.
How to reach these individuals was a hot topic at the Federal Reserve Bank of Philadelphia's community development conference last week. At a panel on innovations in financial inclusion, Jonathan Mintz of the Cities for Financial Empowerment Fund explained how his organization is trying to give unbanked people the chance to improve their finances.
The CFE Fund's Bank On 2.0 initiative partners with municipalities to tap into pools of people who already receive government services such as cash transfers or public housing. The organization then offers people enrolling in government programs the opportunity to simultaneously sign up for affordable accounts with banks and credit unions.
"People often mistake those who are in financial difficulty as people who need education," Mintz says in a phone interview. "But what they really need is opportunity. Laying out the appropriate banking opportunities, savings opportunities and debt-reduction opportunities are all well-absorbed by people in need."
The CFE Fund is putting that philosophy in action this summer with a program that aims to increase young adults' access to financial services. The Summer Jobs Connect program, formed in partnership with Citigroup's Citi Foundation and the cities of Los Angeles, Miami, New York, Chicago and San Francisco, is a municipal summer jobs program that doubles as a financial inclusion initiative. As youths between the ages of 14 and 24 enroll in the program, the CFE Fund will give them the chance to sign up for banking services. The organization will also look for ways to use the summer jobs program as an opening to teach young people about saving, budgeting and other financial management skills.
"The promise of the program is that it can be more than a summer job and be a launchpad into the financial mainstream," Mintz says.
The CFE Fund hit upon this approach when former New York City mayor Michael Bloomberg began the Opportunity NYC conditional cash-transfer program in 2007, Mintz says. The three-year program gave low-income families cash payments that were contingent on behaviors like going to the dentist or regular school attendance. Around 55% of the program's roughly 3,000 participants were unbanked at its outset. The CFE Fund gave participants the chance to sign up for an account while they registered for the program. Approximately 96% of people who previously lacked bank accounts said yes. Two years later, 95% of participants who had signed up for accounts were still enrolled in them.
"It really underscored the idea that leveraging those moments works at a massive scale," Mintz says.
This approach to financial inclusion has the potential to make a big impact because it recognizes and removes the barriers that can prevent low-income people from connecting with helpful services. Other initiatives that are serious about helping low-income people improve their financial heath need to follow the CFE Fund's lead.
"You have to make it easier for people to do the right thing," says Gur Huberman, a professor of behavioral finance at Columbia University. Financial decisions tend to be complicated because the products themselves are complicated, he says. People who are busy with their jobs, families and other pressing matters "don't want to spend hours a day studying personal finances."
Whether the goal is to help people qualify for a mortgage or deal with debt collectors, financial inclusion efforts should be proactive about finding ways to interact with targeted groups rather than waiting for people to come to them. Huberman suggests that one effective strategy could be for banks to send regular text messages reminding customers to pay their bills, then automate the process by allowing them to transfer funds with the touch of a button.
Another presenter at the Philadelphia Fed conference also suggested that technology has the potential to engage with people who might otherwise not seek financial assistance. Ramy Serageldin, the chief operating officer of the mobile banking app provider Moven, explained that his company's app gives instant financial feedback each time customers make a purchase. Moven hopes to encourage saving and increase awareness of problematic spending patterns by interacting with customers at a target amount of three to five times each day.
While the product wasn't designed specifically for people in underserved communities, Serageldin says it serves a real need. "People at lower income levels still have the desire to better themselves and to eventually save," Serageldin says. "If we can help them understand the impact of the purchases they're making or make better decisions or find a better deal, that could help them."
But while Moven might be a useful tool for low-income populations, it will only make a difference if people are aware of the option and willing to engage regularly with it. To that end, the company is looking to partner with more nonprofits and government agencies.
"If people are receiving aid from their city or state or federal government, if you can attach a helpful app or program, that will make it all the more impactful," Serageldin says.