The Hidden Costs of Being Poor
Feb 03, 2011
For low-income people in many communities, affordable financial products such as credit at non-usury rates, financial information and opportunities to build savings are out of reach. Mainstream financial products frequently do not meet the needs of low-income consumers, who often make do using alternatives like check cashers and rent-a-centers, and by navigating a complicated web of requirements to access existing, public support. A recent report by CFED outlines why expanding access to mainstream banking and wealth building opportunities should be included among the efforts of policymakers to combat poverty.
The report profiles the efforts of the Cities for Financial Empowerment (CFE) - a coalition of 11 municipal governments that focus on advancing family economic security by prioritizing helping low-income families stabilize their financial lives. The report also provides examples of strategies incoming city mayors and local government officials can use to help families in their communities become financially stable.
Asset accumulation and savings rates were low before the economic downturn, and the Federal Reserve estimates that U.S households lost a total of $14 trillion in wealth, nearly a quarter of all personal wealth, between 2007 and 2009. In CFE cities, about 16 percent of consumers had household incomes below the federal poverty level, yet fully 40 percent of consumers were asset poor, meaning that they did not have net assets to survive at the poverty line for three months.
Often with little investment, local government can financially empower residents by simply aligning city policies and incentive structures. Mayors are especially well positioned to align policies to reduce unintended costs that can often mean the difference between people making ends meet and falling into debt. This strength comes from their ability to convene stakeholders, initiate social marketing campaigns, legitimate initiatives and products, and tap in to and align federal and state resources with local efforts.
This work can have a real impact on low-income families. Each city in the Coalition is meeting these challenges differently. In New York City, for example, Financial Empowerment Centers offer one-on-one financial counseling. In Savannah, Ga., city officials support four Center for Working Families sites, which improve access to financial literacy and asset building programs, income and work supports and workforce services. And Seattle connects individuals with financial education, counseling, access to benefits, financial services and asset building through its SkillUp Washington/College for Working Adults collaborative. In each case, a local commitment to reducing the costs of being poor is streamlining services, reducing transactions costs and making strides to improve quality of life.