We have a lot of book lovers at Prepare + Prosper (P+P). We all get super jazzed when we come across new books that have pertinence to our work and provide new perspectives about what we do and the lives of the people we work with every day.
In that spirit, we’ve been reading three new books – ones that we want to chew on and apply to our work because they are so germane. These books include:
- The Financial Diaries: How American Families Cope in a World of Uncertainty, by Jonathan Morduch and Rachel Schneider;
- The Unbanking of America: How the New Middle Class Survives, by Lisa Servon; and
- Toxic Inequality: How America’s Wealth Gap Destroys Mobility, Deepens the Racial Divide, and Threatens Our Future, by Thomas M. Shapiro.
The timing of their release is auspiciously in sync with P+P’s, and my own, intensifying focus on helping build financial power and resiliency with our constituents. I had an opportunity to hear the authors of The Financial Diaries and Toxic Inequality speak at a summit hosted by the Aspen Institute’s Financial Security Program. Our colleagues there are among our many great partners around the country looking to create opportunities and platforms for building system-level change and for expanding best practices around financial and economic mobility and inclusion.
The reality of uncertainty and myth of mobility
To begin, I started with The Financial Diaries. It’s a compelling, thought-provoking, moving, and sometimes heart-wrenching portrayal of the lives and struggles of 235 families – families who live different lives yet experience many similar financial hurdles which often define circumstances, choices, opportunities, and barriers.
One overarching theme in The Financial Diaries is the growth of income volatility as a disruptive force that creates uncertainty and strain on families. Challenges of liquidity and managing cash flow make life difficult, and affect the choices families make. Short-term priorities may undermine long-term goals, and consequences may be compounded by penalties and fees and growing stress and anxiety.
What’s more, many households lack a savings cushion to overcome a financial shock. The lack of liquid savings and overall assets are even more pronounced in communities of color. African American households hold on average seven times less wealth and Latino households six times less wealth, than White households in the United States.
The notion of mobility – the idea that households can build stability and savings for the future by following a linear arc into retirement – feels increasingly out of reach for many families. The reasons for this growing volatility are varied. The labor market has shifted dramatically over the last two decades, with significant growth in the service and retail sectors. Many jobs in these sectors simply offer less stability, certainty, and reliability.
It is not surprising, given this context, that according to The Pew Charitable Trust and a recent survey, 90 percent of respondents indicated that financial stability is more important to them than mobility. Given the prevalence of volatility, cash flow mismatches, and setbacks, households understandably long for financial security and control.
For example, one participant in The Financial Diaries, Jeremy, had been employed for several years in a full-time job but without consistency in pay. When a new opportunity arose – a job that was further away for the same hourly wage – he took it because there was more consistency and certainty in his schedule. With this certainty came less paycheck variability. One participant in The Financial Diaries also referenced the ways in which paycheck swings can affect and lead to swings in critical benefits like food support. This woman’s household income swung 70 percent from high months to low months – a swing that was on par with most of the families featured in the book.
Solutions
So what are some solutions, and what is P+P doing to intervene and disrupt this pattern of uncertainty? As a starting point, we know people strive to be agents in their own lives, that they want tools and champions to support them so they can navigate and have control and power in their lives. To advance this, we strive to be facilitators of savings, champions for our stakeholders, and supporters of change-making and agency.
More specifically, we are:
Supporting savings at tax time: Tax time for many can be a catalyst for savings. Customers can save into existing savings accounts, new accounts we help them open, by purchasing U.S. savings bonds, or by opening new myRA retirement accounts. P+P has found that supporting households in saving small amounts, for unexpected emergencies, and for their future are compelling and effective. Since we started tracking savings several years ago, our savings rate has gone up significantly, and today approximately 1,000 customers commit to saving some of their refund each year.
Building financial confidence through financial coaching: Today we serve more than 200 participants per year through Money Mentors, our volunteer-based financial coaching program that gives people the time and space to consider and move forward with sound financial decisions. P+P’s volunteer financial coaches build longer-term relationships with participants in order to track spending and savings, improve credit scores, decrease reliance on predatory financial products, and increase participants’ self-confidence around finances. Money Mentors also incorporates peer-led sessions and peer leadership.
Building financial inclusion: We are leading an initiative, called Financial Access in Reach or FAIR, which is a cross-sector, collaborative approach to increase the financial health and wealth of Minnesotans and decrease their use of wealth-stripping financial products. We are partnering with Guaranty Bank to test and pilot a three-part FAIR financial solution that includes a checking and savings account and credit builder. We’ve enrolled 50 people in a test phase, and will roll out a larger pilot in the late summer, whereby partner organizations and companies will be trained to distribute the products. The plan is to embed behavioral-based technology to support consumers in working toward their goals and build financial confidence along the way.
Join me in reading
As we engage with partners like the Aspen Institute, and move on to the next book on our shelf (I just started The Unbanking of America last night), I hope you will join me and our staff in reading and discussing what you learn. We hope to hold a gathering in the future but in the meantime, please email me at tracy@prepareandprosper.org with your reactions, thoughts, and/or comments.
