With support from The Rockefeller Foundation and in partnership with the National Association of Counties, the Bipartisan Policy Center has spent months conducting interviews and roundtables across the country with local leaders who are developing innovative solutions to improve economic security in their communities. This blog is the fourth in a series highlighting those innovations, focusing on innovative programs that attempt to build financial resiliency to help families weather financial disaster.
Financial innovation is not only the domain of big corporations, it can also involve local organizations trying to find ways to lift the financial outlook for individuals and families. In our work with local leaders trying to improve economic security across America, we found many organizations creating innovative financial products focused on helping households and families gain financial stability and supporting economic resilience.
Financial innovation can involve the application of technology to make financial services faster, cheaper, and more effective.
It might mean approaching financial challenges from a new angle. Financial innovation can be found in both the private and public sectors.
In the credit union industry, for example, new companies we interviewed have developed products to help their customers through difficult times and to build stronger financial cushions. One company has developed a “cash flow insurance” tool to help people who find themselves out of work (or unable to work) for long periods of time. Another firm rapidly analyzed data to quickly offer small dollar loans to customers after discovering that many credit union customers, even those with relatively high incomes, were relying on payday lenders to meet short-term liquidity needs.
Similarly, the Filene Research Institute developed the Employer-Sponsored Small Dollar (ESSDL) program to work directly with employers to grant employees access to loans through payroll deductions. This program helps employees during financial crunches and improves their credit scores. Small and large employers, across a variety of industries, have used the ESSDL program, which started in Wisconsin but is attracting attention outside the state. In Nashville, for example, a report by the Mayor’s Economic Inclusion Advisory Committee cited ESSDL as a model to be expanded.
Other efforts to expand financial stability include the Bank On initiative run by the Cities for Financial Empowerment Fund. It works with coalitions in different cities to connect the “unbanked and under-banked” to mainstream financial services. In Mobile, Alabama, for example, Bank On South Alabama (BOSA) has been running for four years.
The local coalition includes city and county officials, financial institutions, and community organizations, united in the objective to reduce financial service fees and make it easier to build savings accounts.
Financial education for customers is also provided, with the BOSA initiative helping people learn about financial products that will work best (and safely) for their own situations.
Another notable program is a five-city pilot that the National League of Cities (NLC) is running called Local Interventions for Financial Empowerment Through Utility Payments (LIFT-UP). In St. Petersburg, FL, the program identified residents who were delinquent on their water bills and offered them a chance to restructure their utility debt in return for meeting with financial counselors and receiving financial education. In the event of financial hardship, utility bills are sometimes the first payments that families might defer, but skipping these payments can make financial recovery even harder, especially as fees accumulate. Cities also incur costs in shutting off (and turning on) water service and paying debt collectors.
An evaluation of this LIFT-UP program by researchers at the University of Wisconsin-Madison found a win-win for residents and cities: the likelihood of payment went up, outstanding balances were generally reduced, water shutoffs declined, and implementation was cost effective for cities. In this case, innovation involved approaching financial difficulty from a new angle, and working closely with other organizations (utilities) that are an important part of families’ financial lives.
Income volatility in the United States is high. Two years ago, the JPMorgan Chase Institute found that 55 percent of Americans experience changes in monthly income (both up and down) of more than 30 percent. The share is highest among young adults (ages 18-24) and those in the lowest income quintile. Such volatility makes it difficult to build economic resilience and get ahead—yet it may increase as more Americans participate in “alternative work arrangements,” especially temp jobs, contract work, and the gig economy. These trends may also exacerbate cash crunches among Americans with little to no savings.
Efforts to make financial innovation help economic mobility require public policy support to grow and expand. Testing, deployment, and expansion can be limited by financial regulation not tailored to the goals of different approaches. Federal and state government should work together to ensure that innovations can develop across the country to help build up the resiliency and predictability of people’s finances.