Financial Empowerment - Improving financial outcomes for low-income households

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Financial Empowerment - Improving financial outcomes for low-income households
Financial
Empowerment
Improving financial outcomes for low-income households
Financial Empowerment - Improving financial outcomes for low-income households
1. WHAT IS FINANCIAL EMPOWERMENT ?

Financial Empowerment is a new                    addressing underlying financial issues          A number of leading edge community
approach to poverty reduction that                that many programs currently ignore or          organizations in Canada have begun
focuses on improving the financial                are not equipped to address.2                   experimenting with more comprehen-
security of low-income people. It is an                                                           sive financial supports for low-income
evidence-driven set of interventions that         To illustrate, few frontline community          people that go beyond financial educa-
have proven successful at both eliminating        or government personnel serving low-            tion alone to address these issues. Such
systemic barriers to the full financial inclu-    income clients are currently trained or         interventions are proving successful at a
sion of low-income people and providing           supported to address key underlying             neighbourhood level, but there are few
enabling supports that help them to               causes of financial vulnerability. In many      resources or strategies in place to deliver
acquire and practice the financial skills         cases, however, these problems are a root       sustainable, scaled approaches.
and behaviours that tangibly improve              cause or a significant aggravating factor
their financial outcomes and build their          in relation to the issues that programs         By contrast, a coalition of 12 major cities led by
financial security.                               aim to address. Consequently, underlying        New York3 has invested in scaled up, city-wide
                                                  financial problems often prevent clients        strategies and programs as part of the rapidly
The Financial Empowerment approach                from successfully achieving their program       growing Financial Empowerment movement in
focuses on community level strategies             goals. These problems include:                  the US.4 Evaluation has shown that these strategies
that encompass five main types of inter-                                                          and programs are tangibly improving the financial
ventions that have been identified as both        • Low financial literacy                       security of low income households.5 More and
necessary for low-income households               • Poor access to neutral and relevant          more US cities are adopting these approaches in
to improve their financial outcomes, and              financial information                       partnership with state and federal governments
effective at helping them to do so. These         • Inability to afford neutral and relevant     and community partners.6
are set out in figure 1 below.                        financial counselling and advice
                                                  • Individual and systemic barriers to
Financial Empowerment strategies are                  accessing mainstream financial services
not designed to replace other important           • Reliance on costly fringe financial
poverty reduction interventions, but to               services
be a complementary set of interven-               • Low or nonexistent savings
tions that, in many cases, can be built           • High household debt-to-income levels
into other existing programs to improve           • No or negative household net worth
their outcomes (e.g. social assistance,           • Low credit scores
employment, housing, settlement…). This           • Failure to file taxes
has become known as the ‘supervitamin’            • Lack of awareness of – or difficulty
effect – boosting program outcomes by                 accessing – government benefits.

Fig. 1    Financial Empowerment Framework1

FINANCIAL EMPOWERMENT FRAMEWORK

1. F
    inancial                2. H
                                 elp accessing   3. S
                                                      afe and               4. Access to       5. Consumer
   Information                  income               affordable                 savings and          awareness and
   education and                boosting             financial                  asset building       protection
   counselling                  benefits and         products                   opportunities
                                tax credits          and services

3 | Financial Empowerment
Financial Empowerment - Improving financial outcomes for low-income households
2. THE CASE FOR FINANCIAL EMPOWERMENT

Financial vulnerability occurs when             For most households, savings and assets         • Reduce poverty
individuals or households have low, no,         are the critical first line of defense          • Psychologically connect people
or negative net worth and, consequently,        against emergencies, unforeseen                     with a viable, hopeful future
are at high risk of going under financially     expenses, and income interruptions.             • Increase personal efficacy and
in the event of a drop or interruption in       Families that have adequate savings and             social influence
their income, unforeseen expenses, or           assets can often successfully weather           • Improve household stability.
curtailment of their credit.                    such setbacks, but households that lack
                                                this security are financially vulnerable and    Proven Financial Empowerment strategies and
Disturbingly, financial vulnerability has       at risk of falling into poverty.                interventions aimed at helping households to
been on the rise in Canada for some time:                                                       build their financial literacy, set financial goals,
• Canadians have the highest debt-             Research has shown conclusively that            grow their incomes, reduce debt, save regularly,
    to-income ratio in the G-7 at over          assets should play a central role in what-      and invest in their future are a critical means of
    163 per cent7                               ever strategies we adopt. Assets not            building more resilient households and commu-
• Nearly 1 in 6 Canadian families have a       only help to build individuals’ hope and        nities, while helping more families move out of
   net worth that is either $0 or negative8     confidence in the present, but also hold        poverty.
• Nearly 1 in 4 Canadians have no financial    the promise of future wellbeing.11 Even
   wealth at all (including savings, stocks,    when economic, institutional, and other
   bonds, RRSPs)9                               factors are controlled for in analyses, the
• Canada’s household savings rate, while       simple possession of assets has been
   rising remains very low at 4.4 per cent.10   shown to help:12

3. S
    UCCESSFUL FINANCIAL
   EMPOWERMENT INTERVENTIONS

In this section we provide more details on each of the five
pillars of the Financial Empowerment framework, together
with American and Canadian examples of high-impact
programs with a track record of success.
3.1 F
     inancial information, education, and counselling

These interventions are aimed at                and information sources and making it           • Neighbourhood, one-stop financial assis-
providing low- and modest-income                easier for low-income people who need help          tance centres offering financial education,
people with free access to high quality,        with their finances to learn about and access       tax filing assistance, help accessing bene-
neutral, and relevant financial informa-        supports in their neighbourhoods or online.         fits, and one-on-one financial counselling
tion, education and counselling services.       Successful interventions include:               • Incorporating financial education into
This is achieved by integrating these           • Financial education and counselling              municipal social services and employ-
functions into other existing programs              networks and referral structures                ment programs to improve outcomes

                                                                                                                  Financial Empowerment | 4
Financial Empowerment - Improving financial outcomes for low-income households
3. SUCCESSFUL FINANCIAL EMPOWERMENT INTERVENTIONS

• Clear shared metrics to evaluate             The Federal Deposit Insurance                 3.2 H
                                                                                                   elp accessing income
    individual/household progress toward        Corporation created Money Smart,                  boosting benefits and
    financial security                          a free financial education curriculum             tax credits
• Standardization and credentialing            for people living on low and moderate
    of financial education and counselling      incomes. Money Smart has reached              These interventions are aimed at
    services and providers.                     more than 2.75 million people since 2001.     quickly boosting the incomes of people
                                                Post-training surveys conducted 6 to 12       living in poverty by enabling those who
Financial Empowerment Centers in                months after course completion found          have not done so, to easily file their taxes
New York City provide individualized finan-     significant positive behavioural changes      and to access government benefits to
cial counselling sessions to low-income         in account opening, achieving saving          which they are entitled. Successful inter-
New Yorkers. Trained financial counsellors,     goals and using spending plans.15             ventions include:
accredited to counsel low-income people,                                                      • Public awareness campaigns to improve
assist clients with debt, budgeting, afford-    In Toronto, St. Christopher House’s               tax filing and benefits take-up
able banking services, and unclaimed            Financial Advocacy and Problem Solving        • Use of technology-enabled tools to
benefits. Since 2008, the program has           program provides individualized financial         increase public benefits screening
expanded to nearly 30 Centers, helping          counselling to low-income clients. In 2012,       and uptake
more than 19,000 people to reduce their         it helped 2,050 people access $3.9 million    • Creation of access points for benefits
debt by over $9 million and to save nearly      in entitlements.16                                screening in high-need communities
$1 million.13                                                                                 • Establishment of free/low-cost
                                                Since 2010, the Canadian Centre for               community tax preparation services.
Financial Opportunity Centers serve 64          Financial Literacy (CCFL) has trained
low-income communities across the US,           over 2,000 community workers from
providing free financial, employment and        over 800 organizations across Canada          The Benefit Bank ® is available in 10
income support counselling. In 2011 alone,      to deliver tailored financial literacy        different US states and allows case
they helped 3,600 people to find employ-        education to low-income people. Those         workers to prepare clients’ income tax
ment, 3,100 to obtain public benefits,          trained showed significant improve-           returns and automatically complete appli-
3,600 to increase their earnings and 6,300      ment in financial literacy knowledge,         cations for state and federal benefits.
to create budgets to reach their financial      skills, confidence, networks and access       Clients have received $1.145 billion in
goals.14 Combining employment counsel-          to resources. The CCFL continues to           refunds and benefits since 2006.18
ling with financial counselling has increased   build the capacity of trainees through
employment placement rates from 30 to           its website, which offers over 100 finan-     EarnBenefits is a web-based applica-
40 per cent. When income support is also        cial literacy education and evaluation        tion, used by more than 80 organizations
added, this rate increases to 47 per cent.      resources in diverse languages.17             in 8 US cities, that connects low-wage
                                                                                              workers to bank accounts and public
                                                                                              benefits such as tax credits, food stamps,
                                                                                              and health insurance. EarnBenefits has
                                                                                              helped over 214,000 households to
                                                                                              access over $287 million in benefits and
                                                                                              income support.19

                                                                                              Make Tax Time Pay is offered by E4C,
                                                                                              an Edmonton non-profit that provides free
                                                                                              income tax preparation and benefit assis-
                                                                                              tance at 26 community sites temporarily
                                                                                              set-up during tax-time. In 2012, over 4,422
                                                                                              tax returns were filed, returning more than
                                                                                              $1.7 million to low-income residents.20

5 | Financial Empowerment
3. SUCCESSFUL FINANCIAL EMPOWERMENT INTERVENTIONS

United Way Calgary’s Benefits Navigator        San Francisco created Payday Plus SF,            3.4 A
                                                                                                     ccess to savings
is a simple online tool that helps people      a safe and lower cost alternative to                 and asset building
to identify benefits they may be eligible      payday loans that provides opportunities             opportunities
for. Depending on their personal situation,    to build credit history and disburses more
individuals can directly access application    than 300 safe payday loans annually. 24          These interventions are aimed at
forms and/or the websites of the benefit                                                        enabling low-income households to
programs that are relevant to them.21          Mutual Assistance Funds, a program               build their human capital and other
                                               offered by the Desjardins financial              assets that can help them to move out
                                               cooperative, provides budgeting consul-          of poverty. This is achieved through
                                               tations and small loans for people in            policies that encourage and support
3.3 Safe and affordable financial             financial difficulty. The average loan is        low-income people to save and programs
     products and services                     $500 with free interest. Over 64,000             that help connect them to appropriate
                                               people have received financial counsel-          savings supports and opportunities.
These interventions are aimed at               ling and over $3.4 million in loans have         Successful interventions include:
improving access to safe and affordable        been granted, with an average repay-             • Short-term and emergency
mainstream financial services and              ment rate over 85 per cent. 25                       savings products
products that meet the needs of low-                                                            • Incentivized savings accounts – e.g.,
income people and reduce their reliance        The Immigrant Access Fund (IAF)                      Individual Development Accounts (IDAs),
on fringe and predatory financial services.    provides safe and affordable micro-loans             post-secondary education savings
Successful interventions include:              for internationally trained immigrants               accounts, and other accounts for uses
 • E stablishing basic financial services     in Alberta and Saskatchewan who need                 such as buying a home or a vehicle
      in underserved neighbourhoods            Canadian accreditation to find employ-           • Promotion of federally registered
•C  reating and promoting low-cost            ment. IAF has made over $5 million in                savings vehicles that support the
    transaction and savings products in        loans, at an average amount of $6,500.               saving of low income people —
    partnership with, or independently         After attending training and finding a               e.g., Registered Education Savings
    of, financial institutions                 new job, participants improved their                 Plans (RESPs) and Registered
•P  roviding affordable credit products       income, with the percentage of borrowers             Disability Savings Plans (RDSPs)
    to reduce reliance on fringe lenders —     earning $40,000 or more increasing from          • Incorporating financial education into
    e.g., small dollar, refund anticipation,   16 per cent to 68 per cent in Alberta.26             municipal social services and employ-
    or auto refinance loans                                                                         ment programs to improve outcomes
• E ncouraging employers to use direct        The Saint John Community Loan Fund                   – e.g., information on savings and earning
    deposit to nudge people to open bank       provides business, employment, and                   exemptions for those on social assistance
    accounts and reduce reliance on costly     affordable housing loans to help indi-               and disability income support.
    cheque-cashers.                            viduals attain greater self-reliance. Since
                                               1999, the loan fund has provided training
                                               in financial literacy and other life skills to   $ave USA is a tax time matched savings
Bank On USA, an initiative to promote          3,400 people. Through its 231 loans total-       program operated through free tax clinics
banking among unbanked populations,            ling $400,000, 108 people were newly             in New York City, Newark, San Antonio and
started in San Francisco and has been          employed, 84 people started a business,          Tulsa. In 2012, over 1600 savings accounts
replicated in over 100 communities             77 people were better housed, and                were opened, with $1 million saved.29
across the US. In four years, San Francisco    69 people returned to school. 27
opened more than 78,000 chequing                                                                In San Francisco, Kindergarten to College
accounts. Once opened, 80 per cent of          Pigeon Park Savings, a branch of VanCity         is a universal matched education savings
accounts remain active with an average         Credit Union, offers affordable savings          account. Launched in 2012, it establishes a
savings balance of $980. Other cities          accounts to low-income and previously            college savings account with a $50 deposit
have seen similar successes. Over two          unbanked clients. Pigeon Park Staff              for every incoming kindergarten student
years, Los Angeles opened 57,000               provide financial advice and encourage           and offers additional matched-saving
accounts, Sacramento 36,000, Seattle-          their 5,000 active members to decrease           incentives to encourage families to save for
King County 43,000, and California as          their reliance on fringe financial services      their college education. More than 8,000
a whole 214,000. 23                            such as cheque-cashers.28                        accounts have been opened to date.30

                                                                                                                 Financial Empowerment | 6
3. S
    UCCESSFUL FINANCIAL EMPOWERMENT INTERVENTIONS

In Calgary, Momentum provides skills               increased take-up rates – e.g. Canada           including foreclosure counselling, forgiv-
training, business development, and finan-         Learning Bond enrollments in Toronto            able emergency loans, and encouraging
cial literacy to help clients build their assets   tripled to over 7,000 families in 90 days.33    lender workouts and assistance to
in five key areas: social, physical, personal,                                                     tenants in foreclosed properties.
human and financial. One thousand eight
hundred participants have invested                                                                New York City’s Department of
$2 million dollars in the acquisition of 1,900     3.5 C
                                                        onsumer awareness                        Consumer Affairs (DCA) enforces
assets (such as: education, housing,                   and protection                             regulation of Refund Anticipation Loans,
and business ownership) since 1999. 31                                                            which are high-interest loans on expected
                                                   These interventions are aimed at               tax refunds offered by tax preparation
SEED Winnipeg’s asset building                     increasing consumer awareness of               businesses. The DCA inspected 800
programs help low-income people                    predatory and fraudulent financial             businesses and issued 2,010 violations
meet their savings goals through money             and business practices and ensuring            for illegal advertising in 2010 alone. 34
management and matched savings credits.            adequate consumer protection
One thousand five hundred and thirty-six           policies and regulations are in                Since 2008, NeighborWorks America
participants have saved over $1 million            place and enforced. Successful                 has provided foreclosure counselling to 1.4 million
with matched funds of over $1.7 million.32         interventions include:                         homeowners. In 2008 and 2009, the program
                                                   • Consumer education and awareness            helped save governments, lenders, and home-
The Omega Foundation’s SmartSAVER                      initiatives to prevent fraud and           owners $920 million.35
marketing campaign promoted the                        financial abuse
Registered Education Savings Plan the              • Regulation, licensing and zoning to
Canada Education Savings Grant and                     contain fringe financial services and
the Canada Learning Bond. Engaging                     limit their proliferation
almost 1,000 service providers, as well            • Local disclosure law enforcement and
as local government and school boards,                 litigation to curb predatory lending
the campaign resulted in significantly             • Foreclosure prevention strategies,

4. F
    OR MORE INFORMATION

Prosper Canada is                                  • Share information on successful
                                                       programs
                                                                                                  Organizations that are interested
                                                                                                  in learning more, would like to take

actively exploring
                                                                                                  part in piloting interventions, or want
                                                   • Adapt and test the most promising           to help build Financial Empowerment
                                                      ideas in Canada with local, regional        capacity in Canada, should contact:
diverse Financial                                     and national partners
                                                                                                  Elodie Young
Empowerment
                                                   • Extract relevant learning and best
                                                       practices for practitioners, funders       Prosper Canada, Program Manager
                                                       and policy makers                          eyoung@prospercanada.org
interventions                                      • Develop relevant training and
                                                                                                  416.665.2828 ext 225.

in order to:                                          resources

7 | Financial Empowerment
REFERENCES

The Corporation for Enterprise Development.
1                                                        13
                                                               loomberg Philanthropies. “Bloomberg
                                                              B                                               25
                                                                                                                    verview of Desjardins’ program http://www.
                                                                                                                   O
Building Economic Security in America’s                       Philanthropies Awards Financial                       desjardins.com/en/a_propos/responsabilite/
Cities: New Municipal Strategies for Asset                    Empowerment Center Grants”. 2013.                     rapport-2012/produits-services-solidarite.jsp
Building and Financial Empowerment.                           http://www.mikebloomberg.com/index.             26
                                                                                                                   F or more information on the Immigrant
2011. http://cfed.org/assets/pdfs/                            cfm?objectid=1A80DB69-C29C-7CA2-
                                                                                                                     Access Fund http://www.iafcanada.org/
BuildingEconomicSecurityInAmericasCities.pdf                  FB8214D63F3AE1B3
                                                                                                                     about-iaf/loan-statistics/
2
    T he Office of Financial Empowerment in New         14
                                                               alker, Chris. Huff, Dana. “Expanding
                                                              W                                               27
                                                                                                                   F or more information on the Saint John
     York City has documented the “supervitamin”              Financial Opportunities: LISC’s Experience
                                                                                                                     Community Loan Fund http://www.loanfund.ca/
     effect it produced by integrating financial              With Scaling Up Financial Opportunity
     empowerment interventions into New York’s                Centres”. 2012. Local Initiatives Support       28
                                                                                                                   F or more information on Pigeon Park Savings
     municipal social service delivery system, radi-          Corporation. http://www.instituteccd.org/              https://www.vancity.com/AboutVancity/
     cally improving the impact of its services. For          uploads/iccd/documents/122012_expanding_               VisionAndValues/ValuesBasedBanking/
     research and evaluation reports, please visit:           financial_opportunity.pdf                              FinancialLiteracyAndBasicBanking/
     http://www.nyc.gov/html/ofe/html/publica-                                                                       BasicBanking/
                                                         15
                                                              F ederal Deposit Insurance Corporation. “A
     tions/research.shtml
                                                               Longitudinal Evaluation of the Intermediate-   29
                                                                                                                   T he City of New York. “SaveUSA Program
3
 Ibid                                                         term Impact of the Money Smart Financial              Implementation: Insights from the Field”.
                                                               Education Curriculum upon Consumers’                  Department of Consumer Affairs Office
4
 F or more information, please visit the website of
                                                               Behavior and Confidence”. 2007 http://www.            of Financial Empowerment. Center for
  the Cities for Financial Empowerment Coalition
                                                               fdic.gov/consumers/consumer/moneysmart/               Economic Opportunity. 2012 http://www.
  at: http://cfefund.org/info/cfe-coalition
                                                               pubs/ms070424.pdf                                     nyc.gov/html/ofe/downloads/pdf/SaveUSA_
5
    F or more information, please visit the website                                                                 Implementation_Brief.pdf
                                                         16
                                                              F or more information about St Christopher
     of the Office of Financial Empowerment in
                                                               House’s Financial Advocacy and Problem         30
                                                                                                                    indergarten to College by the Office of
                                                                                                                   K
     New York City: http://www.nyc.gov/html/ofe/
                                                               Solving program: http://www.stchrishouse.            Financial Empowerment in San Francisco
     html/publications/research.shtml
                                                               org/adults/financial-advocacy/                       http://sfofe.org/programs/k-to-c
6
    F or information on knowledge exchange
                                                          For more information on services provided
                                                         17
                                                                                                               F or more information about Momentum
                                                                                                              31
     activities and initiatives to support replication
                                                          by the Canadian Centre for Financial Literacy:        Calgary: http://momentum.org/
     of effective strategies in other cities, please
                                                          http://www.theccfl.ca/
     visit: http://cfefund.org/                                                                               32
                                                                                                                   F or more information about SEED
                                                         18
                                                              F or information on The Benefit Bank:                 (Supporting Employment and Economic
7
  ECD iLibrary. “Household wealth and indebt-
 O
                                                               http://www.thebenefitbank.org/                        Development) http://seedwinnipeg.ca/
 edness: As a percentage of nominal dispos-
                                                                                                                     programs
 able income”. 2013 http://www.oecd-ilibrary.            19
                                                              F or information about the EarnBenefit solu-
 org/economics/household-wealth-and-                           tion: http://www.seedco.org/programs/work-     33
                                                                                                                    ayar Consulting. “SmartSAVER: Final
                                                                                                                   N
 indebtedness-2013-1_hswlth-table-2013-1-en                    and-family-supports/earnbenefits/                    Evaluation Report”. March 2013. http://
                                                                                                                    www.theomegafoundation.ca/documents/
8
     orissette, Rene; Zhang, Xuelin. “Revisiting
    M                                                    20
                                                              F or information on the Make Tax Time Pay
                                                                                                                    SmartSAVER%20Final%20Evaluation%20
    wealth inequality”. Perspectives on Labour and              program in Edmonton: http://e4calberta.
                                                                                                                    Report.pdf
    Income. Dec 2006, 7:12. http://www.statcan.                 org/2013/07/volunteers-make-tax-time-
    gc.ca/pub/75-001-x/11206/9543-eng.htm                       pay/#.UmCu45TTVfQ                             34
                                                                                                                    ew York City Department of Consumer
                                                                                                                   N
                                                                                                                    Affairs action against Refund Anticipation
9
 Ibid.                                                   T o review the Benefits Navigator offered
                                                         21
                                                                                                                    Loans http://www.nyc.gov/html/dca/html/
                                                           by the United Way Calgary: http://www.
10
      ECD iLibrary. “Household saving rates
     O                                                                                                              pr2010/pr_030210.shtml
                                                           calgaryunitedway.org/main/benefits/
     – forecasts: Percentage of disposable                                                                    35
                                                                                                                   F or information about NeighborWorks
     income”. 2013 http://www.oecd-ilibrary.org/         22
                                                              I nformation about the Office of Financial
                                                                                                                     Center for Foreclosure Solutions http://www.
     economics/household-saving-rates-fore-                     Empowerment in San Francisco programs:
                                                                                                                     nw.org/network/neighborworksProgs/fore-
     casts-2013-1_hssv-gr-table-2013-1-en                       http://sfofe.org/successes
                                                                                                                     closuresolutions/default.asp
11
    Robson, Jennifer. “The Case for Financial           23
                                                               ational League of Cities Institute for
                                                              N
    Literacy: Assessing the effects of financial               Youth, Education and Families. “Banking On
    literacy interventions for low income and                  Opportunity: a Scan of the Evolving Field
    vulnerable groups in Canada.” SEDI (Social                 of Bank On Initiatives”. US Department of
    and Enterprise Development Innovations).                   Treasury. 2011 http://skcabc.org/Banking%20
    2012 http://www.sedi.org/DataRegV2-unified/                On%20Opportunity%20Nov%2011.pdf
    sedi-Publications/The%20Case%20for%20                24
                                                              Ibid
    Financial%20Literacy%20EN.pdf
12
     Ibid

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