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Financial capability for all

Millions of U.S. families find themselves in precarious financial circumstances, living on the wrong side of the growing income and wealth divide. Despite the recent economic recovery, average wages buy about the same amount of goods and services as they did 40 years ago. The federal minimum wage, adjusting for inflation, buys less today than it did in 1968. Income increases have mostly gone to top income earners. Meanwhile, household wealth is even more concentrated. The top 20% of households own 90% of wealth, with an average net worth of nearly $3 million in 2016. Meanwhile, net worth for the bottom 40% of households is negative $8,900, that is, they owe more than they own.

The implications for people’s standard of living are far reaching. Families are having trouble earning enough income and they lack a financial cushion to get them through hard times. Many cannot afford to invest in their children’s future. Meanwhile, safety net programs that can provide a protection during hard times have been diminished. Cash assistance for poor families reached less than one quarter of families in poverty in 2016, compared to more than two-thirds of families in poverty 20 years earlier.

At the same time, families lack tools to improve their standard of living. An estimated 45 million people do not have a credit history or have unscoreable credit records. This inhibits their ability to obtain loans at reasonable rates, but also curtails their ability to acquire necessities of modern life.

How can millions of financially challenged families be reached with support that can build their capability?

When money poor and credit poor families want to build financial security for their family, they have few places to turn for guidance and support. Well-to-do families buy financial and legal advice, and they also benefit from an array of job benefits and tax policies that build their family’s financial security. Meanwhile, disadvantaged families make do on their own, turning to family and friends, or falling prey to predatory schemes that promise to get people out of financial trouble.

How can millions of financially challenged families be reached with support that can build their capability?

Human service professionals work every day “among the people,” as Nobel laureate Jane Addams pointed out. They are in organizations that serve every kind of vulnerable group, from all walks of life. Tens of thousands of community-based organizations and their staff day in and day out deliver support and services to vulnerable populations. These services include finding emergency housing for homeless families, counseling victims of domestic violence, helping foster youth transition to independent living, providing people with disabilities a vocational opportunity, assisting the formerly incarcerated in finding a residence and a job, and so much more.

With just a modest change in how human service professionals are trained, they could be mobilized to improve the financial capability of disadvantaged populations by providing basic financial guidance and counseling to disadvantaged populations. Assessment of a person’s financial capability could accompany assessments of health and psychological functioning.   These professionals could link families to financial benefits and low-cost financial services, help them manage debt and build credit, and refer particular cases for specialized financial and legal assistance.

Innovators, such as The Financial Clinic and Cities for Financial Empowerment Fund—along with community credit unions and other community-based organizations—are leading the way. They are demonstrating that this strategy for building financial capability is not “pie in the sky”—it can be done, it is happening. The Financial Clinic trains human service professionals in financial coaching techniques through its program called the Change Machine. A randomized study of financial coaching at the Financial Clinic demonstrated that low- and moderate-income clients were successful in saving and paying down debt.

The reality, however, is that poverty is not born of individual circumstances and it cannot be eradicated on the individual level. Poverty is a systemic problem and the voices of human service professionals are also needed on the policy level.

Social workers created Child Development Accounts (CDAs), which today provide an account for all children in Maine, Nevada, Rhode Island, and Connecticut, and soon in Pennsylvania, as well as San Francisco and St. Louis, with New York City and Los Angeles just getting started. The goal of this work is an account for every newborn, with greater public support for children in the poorest families. Human service professionals can help design and shape many other policies and programs that build financial capability for the whole population.

This is in many ways a return to roots. A hundred years ago, a normal part of social work practice was financial—working with newly urbanized families on budgets, consumption, saving, and risks of indebtedness. In this way, social workers played a key role in adaptation of families to industrial society. Unfortunately, social work financial practice was dropped about mid-20th century in favor of more psychological approaches.

By returning to these roots, basic financial capability supports could be made available to literally millions of disadvantaged families that today lack these resources. Social workers, counselors, and other human service professionals can contribute to new practices and policies that build the financial security for all families, not just the wealthy ones.

Photo by Sam Truong Dan on Unsplash

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