In an effort to explore how these issues are playing out in the Bay Area, the SF Fed, in partnership with the Center for Financial Services Innovation, the Citi Foundation, and the San Francisco Office of Financial Empowerment, hosted a regional conversation on “Building Financial Resilience in the Bay Area,” centered on the recently released book The Financial Diaries: How American Families Cope in a World of Uncertainty. Rachel Schneider of CFSI and Jonathan Morduch of New York University, the book’s authors, kicked off the discussion by peeling back the layers of the standard measures we so often rely on, such as annual income or poverty and unemployment rates. By following the day-to-day financial lives of 235 families from across the country, TheFinancial Diaries paints a vivid portrait of the rise of income and expense volatility and the importance of a predictable paycheck and a savings cushion (not in the traditional sense of a retirement nest egg, but rather a resource to draw down in the near-term when income and expenses inevitably get out whack). In fact, a majority of American households would prefer financial stability to a higher income.
A panel of local experts reflected on these themes through the lens of the Bay Area, hitting on topics such as soaring housing costs and increasing homelessness, the difficulties of low-wage jobs in a high-cost area, and the need to foster equitable economies that work for people of all races and incomes. Charise Fong, COO of the East Bay Asian Local Development Corporation, described the incredible volatility in the Oakland housing market over the past decade, from the home price run up in the mid-2000’s to the devastation of the foreclosure crisis that wiped out generations of wealth building efforts in West and East Oakland, as well as the most recent crisis of homelessness increasing 39 percent over the last two years in Alameda County, all in the face of increasing financial fragility at the household level. “This level of housing and income volatility and instability is translating into a public health crisis,” said Fong. Speakers also pointed to possible interventions and solutions, such as how employers need to be engaged to improve the pipeline of lower-income workers into good paying jobs, efforts such as San Francisco’s Retail Workers Bill of Rights, and the necessity of improving the safety net for low-income people.
It was evident across the entire discussion that the issues of financial instability, housing, jobs, health, education, and financial services are deeply interwoven and must be considered holistically. “There is no magic pill we can take to fix everything—but if we continue to work in silos we will never reach our North Star,” said Brandee McHale, President of the Citi Foundation. The SF Fed is committed to fostering cross-sector approaches that expand economic opportunity for lower-income Americans, and regional conversations like this one are critical for evolving our collective understanding of how to change the narrative around economic insecurity and build financial resilience for all.
Multisystemic Therapy® (MST) and Nurse-Family Partnership® (NFP) are two of the most effective social interventions ever developed. MST is an intensive family counseling program that prevents juvenile offending and reduces juvenile recidivism. Multiple rigorous outcomes evaluations prove that MST results in 59% fewer re-arrests, 68% fewer days of incarceration, 57% fewer drug-related arrests, and 43% fewer days on adult probation.
NFP provides pre- and post-natal care by home-visiting nurses to first-time poor and low-income mothers. Meta-analysis of numerous rigorous outcomes evaluations prove that NFP participants experience improved prenatal health, fewer childhood injuries, fewer subsequent pregnancies, increased intervals between births, increased maternal employment, and improved school readiness.
However, despite the fact that MST and NFP have both been around for more than thirty years, they still reach less than 5% of their respective eligible populations. We desperately need them to become much more widely available, but relentless fundraising and advocacy over many years haven’t been able to amass the enormous resources and expertise needed to scale them commensurate with unmet population needs.
What would happen if they reached 50% in, say, ten years?
It’s widely accepted that incarcerating children leads to poor life outcomes, including violence and recidivism. Expanding MST to half of all eligible families could effectively dismantle the “school-to-prison pipeline,” which swallows up some 60,000 at-risk youth every year. MST could keep most of these troubled kids safely at home and in school, with greatly improved prospects.
From 1996-2013, NFP served more than 77,000 participants. By 2031, NFP projects those enrollments will have the direct effect of preventing “an estimated 500 infant deaths, 10,000 preterm births, 13,000 dangerous closely spaced second births, 4,700 abortions, 42,000 child maltreatment incidents, 36,000 intimate partner violence incidents, 90,000 violent crimes by youth, 594,000 property and public order crimes (e.g., vandalism, loitering) by youth, 36,000 youth arrests, and 41,000 person-years of youth substance abuse.” Scaling NFP would transform correspondingly more lives.
But reaching only 1 out of 20 eligible families is never going to move the needle. When problems are overwhelmingly difficult, EARN co-founder and chief executive Ben Mangan says, “we often declare success despite the fact that our impact is embarrassingly small compared to the size of the problems we are trying to solve.” The president and CEO of The California Endowment, Dr. Robert K. Ross, shares a trenchant example: “the juvenile justice and criminal justice systems trudge along, engaging in business as usual and all but ignoring the evidence-based practices that are staring them in the face—programs that cost less and keep communities safer.” And while Congress appropriated $2.1 billion for the Maternal, Infant and Early Childhood Home Visiting (MIECHV) program, Jon Baron, the former president of the Coalition for Evidence-Based Policy (and current vice president of evidence-based policy at the Laura and John Arnold Foundation) informed a key subcommittee chairman that the law had been written so broadly that it “allowed a number of unproven and/or ineffective program models to qualify as ‘evidence based.’”
The direct and long-term savings from MST and NFP far exceed the cost of providing them. Nationwide, the average annual cost of out-of-home placement for one juvenile offender is nearly $90,000, while MST costs less than $10,000 per family. From 2004-2013, the Florida Redirection Project provided MST (and two similar programs) to nearly 10,000 at-risk youth and their families. Sending those kids into juvenile detention facilities, group homes and other “residential placements” would have cost the state nearly $247 million. Instead, two independent evaluators determined that, by keeping more than 70% of Redirection program completers safely at home and in school, Florida spent only $65.4 million, saving the state more than $181 million. The Annie E. Casey Foundation has bemoaned the fact that “no state has ‘scaled up’ any of these evidence-based models to serve all or nearly all youth who could benefit.”
The same is true for NFP, which prevents $7.30 in future federal and state governmental expenditures over 18 years for every $1 invested. By 2031 (just 14 years from now), NFP projects the 77,000 enrollments in NFP from 1996-2013 will reduce estimated spending for Medicaid, welfare and food stamps by $3 billion, at an aggregate cost of roughly $1.6 billion for NFP’s services.
These facts, which have been confirmed by multiple rigorous cost-benefit analyses over many years, make innovations like MST and NFP quite special. I call this select group of well-proven prevention and early-intervention programs that can more than pay for themselves “certified evidence-based programs,” or CEBPs. As the two charts above show, we know how well these two programs work, how much they save, and when and where those savings come from to an extent far beyond programs that have not acquired similar levels of evidence.
Still, it’s all well and good to say that we know, with the highest levels of confidence that social science can muster, that CEBPs work exceptionally well and save much more than they cost. But capitalizing on those potential savings to expand CEBPs by orders of magnitude will be neither simple nor straightforward. I’ve presented the case for doing so in a new report Scale Finance: Industrial-Strength Social Impact Bonds for Mainstream Investors, published by the Center for Community Development Investments at the Federal Reserve Bank of San Francisco.
Scaling CEBPs commensurate with unmet needs within a decade will require exponentially greater amounts of investment than existing SIBs have been able to raise. The only place to get that kind of funding is from mainstream capital markets, which have remained a bridge too far for current SIBs. Leaders from across the social investment sector say that SIBs are “incomprehensible to mainstream investors.” I concur with Rod Schwartz’s assessment that this must change before “banks, investment banks, insurers, private equity firms, the venture capital industry, [and] fund managers” can “get off the side-lines and get into social investing.”
Scale Finance SIBs would focus on the accelerated expansion of a defined set of proven programs to effectively eradicate, over time, some of our most pervasive, intractable and ruinously expensive social problems that we already know how to fix. Asset owners and fund managers would work with CEBP developers to scale a select group of proprietary programs like MST and NFP that could be expanded with high model fidelity at their maximum feasible growth rates. Repayment of principal plus risk-adjusted, market-rate returns would be contingent upon the achievement of agreed social impacts and governmental savings that substantially exceed program and financing costs.
The paper shows how Scale Finance SIBs could dramatically reduce the mass incarceration of juvenile offenders, which costs approximately $5.7 billion every year. A SIB pro forma is presented for a prototypical state that currently spends $100 million annually on juvenile detention and other custodial placements. (There are more such states than you might think.) In the example provided, a Scale Finance SIB raising $65.6 million from mainstream investors could replicate Florida Redirection to provide MST and related CEBPs to 5,000 at-risk families over five years, cut placements in half, pay investors a 10% annualized return, and return net savings of nearly $91 million to the state.
Scale Finance would be a market-driven, commercially-focused version of the standard SIB model that would satisfy the fiduciary obligations of mainstream investors. Since the returns—financial and societal—would be in “lock-step”, Scale Finance could also provide the kind of ample and enduring deal flow that has been the foremost obstacle to the institutionalization of outcomes-based funding. Sir Ronald Cohen and William A. Sahlman suggest that successful social impact investing requires investors to “find the same courage the early institutional backers of the venture capital industry found.” The objective of Scale Finance would be to help mainstream capital markets find this courage, so they can build a robust 21st century social infrastructure that the public sector is no longer willing to build or sustain through direct spending or sensible borrowing.
While I readily agree with those who think government should fund these programs directly, I’m convinced (for reasons discussed in the paper) that it’s not capable of doing so. Given the choice between continuing to abandon 95% of the people who need these proven programs and asking mainstream investors to try, I choose the latter.
Anybody who has ever logged on to LinkedIn knows there’s a difference between the job you want, and the job you have. Some are fortunate to have both, while others know that sometimes we have to work in unideal conditions to make ends meet. If you’re one of millions of Americans who has been able to find a full-time job, you know these realities all too well.
Today in America, there are more than six million of our neighbors who would like to find that full-time job, but thus far have been relegated to working part-time instead. Over the past decade, more and more Americans have found themselves in this predicament. One of the more difficult things that these Americans are finding is that they often remain in poverty, even as they work full-time.
In fact, the research tells us that the poverty rate for folks who work part-time while aspiring to work full-time is just about the same as the poverty rate for folks who have no job at all. Roughly 1-in-5, or 19% of part-time workers are living in poverty. The rate of poverty is the same for unemployment Americans. Meanwhile, less than 4% of full-time workers live in poverty.
Seeing that part-time workers are just as likely to be living in poverty as those who are unemployed, my colleagues and I at the Federal Reserve Bank of San Francisco set out to better understand this trend. We wanted to better understand what drives involuntary part-time employment and how it impacts people. Is it a temporary trend or here to stay? And how can more people who want to work full-time secure full-time jobs?
Through conversations with employers as well as the many non-profits and government agencies who serve these part-time workers, here’s what we learned:
1. Housing, transportation, and child care play critical roles in allowing workers to secure and retain employment.
Barriers to full-time employment lay not only in the availability of full-time jobs, but also in access to affordable housing nearby, transportation, and child care.
In Phoenix, Arizona, residents raised the issue of limited job availability in low-income neighborhoods and the lack of public transportation, which limits access to jobs in the broader region. Locals in the California counties of Ventura, Marin, and Napa, as well as in Honolulu, Hawaii, stated that the high cost of child care kept many potential workers out of the labor force because it’s more cost-effective to not work and take care of a child than to work part-time.
2. Rising business costs (e.g. employee benefits, health care, workers’ compensation insurance, and minimum wage hikes) and increasingly competitive markets are contributing to the increase in part-time jobs.
Economists now believe that the steady rate of involuntary part-time employment may have more to do with changes in the way workplaces operate, rather than solely the rise-and-fall of employment dynamics that tend to accompany recessions. As we spoke with employers throughout the western states, many shared they increasingly hired part-time in order to reduce overhead cost—wages (especially in light of minimum wage increases) and employee benefits, such as health care and workers’ compensation insurance. One participant from the public sector in Fresno, California, stated that her agency “chose to hire two part-time employees rather than one full-time employee because they could get a lot more hours of work for cheaper with two part-time employees due to much lower cost of benefits.”
Employers also shared the benefits of added flexibility in hiring part-time, since they can increase and decrease hours as the need for workers waxed and waned. According to a Community Development Financial Institution (CDFI) that offers technical assistance to small business owners in California’s Central Valley:
“Part time employees provide more flexibility to the employer—[they] can increase or decrease hours more easily, move schedules around more easily if someone is out sick or is a no show, or if business needs increase or decrease.”
Employers spoke about lean profit margins, global competition, the need to be efficient, uncertainties in their markets, and the automation of work necessitating fewer workers. One of the biggest industries in California’s Central Valley is agriculture, and some employers I spoke with there stated labor costs have increased significantly over the last several decades, driving employers to hire fewer workers and invest in more machines and technology.
3. Workers are concerned about exceeding income thresholds for social service benefits (the “cliff effect”) which may impact their employment choices.
People assume that a part-time job is better than no job at all. But for many, working part-time means receiving less public assistance dollars for critical safety net needs as workers might find themselves financially worse off. A member of the community in Jefferson County, Oregon, shared a similar concern:
“We frequently work with families who are grappling with the loss of benefits and the risk in taking a job that may be insecure, seasonal, or low-wage. There is little desire to risk [giving up] even limited public benefits for work that is only part-time or seasonal.”
4. Increasing household expenses are exacerbating financial challenges for low-income individuals, forcing many to take multiple part-time jobs or engage in the “shadow economy.”
Locals in all the areas we visited cited stagnant wages, limited opportunities for full-time work, and higher household costs as the forces driving many to take multiple part-time jobs or pursue cash-based or unlicensed businesses in the “shadow economy.”
In Hawaii, people we spoke with noted an increase in the number of residents engaging in bartering and unlicensed entrepreneurship. In the Central Valley, some immigrants feared deportation and therefore stayed within the cash economy, such as holding frequent garage sales and selling items at swap meets for income. Many regional discussions included the proliferation of part-time Uber/Lyft drivers and similar “gig economy” activities. To help address the high cost of living in Ventura County, workers are selling products on Etsy and eBay, participating in multi-level marketing, renting out rooms through Airbnb, and trying to monetize any other assets they have.
In discussing potential solutions to address underemployment, voices across the Western states unanimously agree there is no “silver-bullet” to solve the complex and interrelated nature of the underlying issues. Instead, we heard a call for holistic solutions that integrate across the identified challenges. Specifically, people we spoke with agreed that critical next steps must address the interrelated nature of housing, jobs, transportation, and child care, as well as and a need to examine public assistance programs to mitigate the potential impacts of the cliff effect.
5. Integrated solutions are needed to address the interrelated challenges of housing, jobs, transportation, and child care.
People we spoke with shared a desire to see approaches that integrate across land use planning, investment, and state and local policy to expand the availability of affordable housing near major job centers, transit, and child care. Such expansion can help connect low-income workers to regional employment and provide added stability. California’s Cap and Trade Program, for example, aims to reduce greenhouse gas emissions and has allocated funds for the State-wide development of affordable housing near transit, making it easier for low-income residents to live in opportunity-rich areas near public transportation.
On a smaller scale, in Fresno, California, the City Council adopted an ordinance to legalize the placement of “tiny homes” on residential lots in order to increase the supply of affordable units. Other cities and the State of California streamlined the process for homeowners to build and rent out accessory dwelling units or “granny units.” Programs to help families ensure housing stability, such as Keep Your Home California, were cited as important resources for helping people maintain job stability.
We also heard about the importance of family-friendly workplace policies to address child care expenses and challenges. Examples include consistent work shifts, on-site child care options, paid maternity and paternity leave, paid sick time to care for a sick child, and improved accommodations for lactating mothers.
Increased partnerships between employers and transit van-pool services may create solutions for employers and workers—and could even create business service opportunities for small businesses. In California, a van-pool program for farm workers—CalVans—is partially funded by State grants, while other van-pool programs are privately funded by employers, employees, or a combination of both.
6. Examining public assistance programs is needed to mitigate the potential cliff effect.
Since underemployed workers may be more likely to be reliant on public assistance, people we spoke with stressed the importance of examining public assistance programs to mitigate unintended consequences, such as disincentives to work. In many regions, locals suggested that income-qualifying programs should not be based on volatile incomes and should allow workers to continue to receive assistance until they are permanently employed full-time and have reached some level of financial security. This subject is particularly relevant in light of recent federal, state, and city minimum wage hikes that may impact households receiving public assistance.
Although many of the solutions that emerged from our conversations were focused on federal and state policies, one local opportunity is the development of cross-sector partnerships. Connecting across sectors that often work in silos—workforce development, affordable housing, transportation, education, child care, and health–leads to greater efficiencies and better outcomes for the people that need it most.
The rise of underemployment necessitates innovative solutions that both strengthen family financial stability in the near term and expand career pathways for the future. What innovative solutions are you seeing in your community?
With its stunning landscape and rich culture, Alaska is known as the “The Last Frontier.” But the real “frontier” begins outside populated areas like Anchorage, Fairbanks, and Juneau where decent, safe, and energy-efficient housing becomes scarce.
The challenges are significant. High transportation costs due to the vast distances between villages, lack of roads, harsh temperatures, and a shortage of remote construction workers all contribute to high construction costs. According to Alaska’s Department of Transportation, about 82 percent of Alaska’s communities are not connected by roads. And according to the Alaska Housing Finance Corporation’s statewide assessment, Alaska’s overcrowding rate is twice the national average, with the greatest severity in rural areas, and nearly 20,000 Alaska homes would receive a one-star energy rating, indicating a need for replacement or deep retrofit.
Another challenge is the old, poorly designed existing housing stock. These homes are expensive to heat and have poor ventilation, resulting in widespread mold and residents with respiratory illnesses. And many homes in Alaska’s rural areas are not designed for harsh winter weather.
To answer this call for housing, the Federal Reserve Bank of San Francisco partnered with other Alaska-focused agencies to convene a forum to assess rural Alaska’s existing housing stock and discuss current and prospective initiatives to build more housing. From this forum comes the Alaska Rural Homeownership Resource Guide that captures what we learned about both the challenges facing and the solutions that show promise for rural Alaska. The guide discusses the stark need for decent housing stock in rural Alaska against the backdrop of many challenges. It was presented at a recent affordable housing meeting as a living document due to the need for more suggestions on how we can improve housing stock in rural Alaska.
Assuming there will never be sufficient grant funding to meet the growing housing needs, efforts are underway to reduce housing construction costs and increase energy efficiency, while identifying ways lenders can make safe and sound mortgages on the properties. One example highlighted in the guide comes from the Cold Climate Housing Research Center (CCHRC) and its construction innovations that provide significant energy savings to homeowners. Learnings include shipping trusses in one piece to save building time, which is crucial in areas with very narrow construction seasons, and substituting metal studs for wooden studs to lower freight expenses without sacrificing durability.
Still, getting a mortgage in rural Alaska can be tough. Given the relatively small population in remote parts of Alaska, appraisers have difficulty finding comparable properties. A village’s cash and subsistence economies can also make it difficult to qualify borrowers. These economic realities have caused housing construction costs to exceed market values, making it difficult for lenders to make loans on the properties without any subsidies. Government direct and guaranteed lending products with low or no down payment requirements are available to mitigate risks to lenders and provide an alternative to borrowers.
Innovative building techniques and creative financing are part of the solution to increasing housing stock and closing the funding gap in rural Alaska. Housing practitioners in other rural parts of the country could take note of Alaska’s innovations and help make homeownership available in areas previously thought to be impractical.
We value bringing unlikely partners together to find creative solutions, which is why we’re excited to share a new partnership that explores the role of community development finance in improving the health of low-income nail salon workers. As a series of articles by the New York Times revealed, many nail salon workers face harsh working conditions that include long hours, below minimum wage pay, and severe health impacts resulting from prolonged exposure to toxic chemicals, which include cancer, miscarriages, lung diseases, and other ailments.
Here in California, Asian Health Services, a community health center in Oakland’s Chinatown, had seen these persistent health problems among Vietnamese manicurists over the past decade and formed the California Healthy Nail Salon Collaborative in 2005. One of the group’s efforts is the Healthy Nail Salon Program, which incentivizes nail salon owners to prioritize the health of their workers through both education and the implementation of safer products and practices. This recognition program, first established in San Francisco, has now been adopted by Alameda, Santa Clara and San Mateo Counties and the City of Santa Monica.
One of the most immediate ways to improve the health of nail salon workers is the use of mobile source reduction ventilation systems that improve air quality. As part of the program, participating local governments offer a limited number of rebates for salon owners to purchase these ventilation systems, but funds are often limited. The upfront costs of such ventilation systems are also a barrier to salon owners, many of which are immigrants who may have language barriers, limited credit history, and lack access to traditional small business financing.
As the SF Fed and Asian Health Services examined the issues, it became clear that community development financial institutions (CDFIs) could play an important role in expanding access to capital in order to improve the health of low-income salon workers. We reached out to Opportunity Fund and Working Solutions, two CDFIs with strong track records in providing microloans to low-income individuals, and explored opportunities for collaboration. As a result, the SF Fed, Asian Health Services, the California Healthy Nail Salon Collaborative, Opportunity Fund, Working Solutions, and the counties of San Mateo, Alameda, and San Francisco launched a pilot microloan program in November 2016 to provide the capital and resources needed for nail salons to become Healthy Nail Salons, with funding from an Environmental Protection Agency problem solving grant.
The team will develop and pilot a program that offers small business loans in the range of $2,600-$5,000 for up to 15 salons and that serves as a scalable model for expanding the Healthy Nail Salon movement—all while improving the health of nail salon workers, expanding access to credit, and strengthening small business sustainability.
While the topic of incarceration and reentry is most often focused on the individual who is serving time or being released, the impact of incarceration is not limited to the individual. Over half of the 2.3 million inmates in the United States are parents of children under age 18. For the one in 28 children in the United States with a parent behind bars, this incarcerated person is a mother or father.
Regardless of how we feel about incarceration as a method of punishment for crime, it is important to calculate the compound effect it has on future generations and the broader community. There are many neighborhoods where more money is spent incarcerating young people than on preschool, public education, and economic development to create jobs and opportunities. A spatial data visualization report written by Columbia University shows the concentration of criminal justice investment of a million dollars for single blocks in some U.S. cities.
The good news is every sector–public, private and philanthropic–can support the successful reintegration of formerly incarcerated persons. It goes beyond the critical investments and financial support of the programs and organizations working directly with this population.
On a personal level, anyone can challenge his or her own negative perception of someone with a criminal record and be reminded that many people deserve a second chance. In so doing, we as a society can prevent future generational losses represented as poverty, economic stagnation and social isolation and instead reap the positive dividends of economic mobility and cultural richness that define America.
What can we do?
Reentry Solutions: People, Programs and Policy will provide a forum to learn more about the work being done and what remains for effectively reintegrating men and women back into communities and families. In addition to the more traditional interventions such as housing, workforce development and health, attendees will learn about efforts to dampen the negative consequences on children, create resilient community conditions that support reentry, and, most importantly, be inspired by firsthand testimony of men and women who are working to break the generational curse of incarceration. Join us to be part of the solution!
“…Physical and economic health are inextricably linked. Prosperity is like a Jenga tower: Take one piece out and the whole thing can fall. And since well-being is the sum of a host of intertwined factors, finding a path to economic mobility and success means addressing them all.”
Since the publication of Investing in What Works for America’s Communities, where leaders serving low-income communities voiced a clear call to work across sectors, the SF Fed and the community development field as a whole have embraced this idea that addressing the intertwined challenges that contribute to poverty requires an equally comprehensive approach. John Williams, President of the Federal Reserve Bank of San Francisco, affirmed this idea by stating that economic mobility and well-being requires working together across multiple disciplines in his recent speech to community development practitioners and investors at the National Interagency Community Reinvestment Conference. Risa Lavizzo-Mourey, President of the Robert Wood Johnson Foundation, followed President Williams and told the audience that bankers are some of the most important health workers in the country. To address the disparities of health, where life expectancies can be as large as 25 years depending on where one lives, bankers can more intentionally invest in the social determinants of health through opportunities such as affordable housing closer to public transit, day-care centers, and access to fresh foods, to name just a few examples.
Rooted in this theme of bettering lives through improvements in all contributing factors, the Strong Prosperous and Resilient Communities Challenge (SPARCC) is a response to accelerate how cities can work together to tackle health, environmental, and racial disparities to improve economic opportunities for all people. With billions being invested annually by banks and other financial institutions in low-income communities through the Community Reinvestment Act (CRA), ensuring that these investments make differential impact is even more critical as income inequality grows. With the $90 million from SPARCC that will be available for the winning sites, the SF Fed, in partnership with Enterprise Community Partners, the Low Income Investment Fund, and the Natural Resources Defense Council, aspire to support new models of how cities and regions can work to understand the underlying causes of economic and racial disparities and empower people and leaders to invest in more effective ways.
With generous support from the Ford, Kresge, and Robert Wood Johnson Foundations, SPARCC will work with the ten invited regions—Atlanta, Chicago, Denver, the San Francisco Bay Area, Los Angeles, Memphis, New Orleans, Philadelphia, Pittsburgh, and Seattle/King County—through the end of the year to ultimately select six winning sites. SPARCC supports the Federal Reserve’s mission of strengthening the economy by ensuring that all communities can reach their economic potential.
July 2017 update: The U.S. Department of the Treasury has decided to phase out the myRA® retirement savings program and the program is no longer accepting new enrollments. However, existing accounts remain open and accessible at this time. Funds in myRA accounts remain in an investment issued by the U.S. Department of the Treasury. View the press release.
The millions of Americans without access to a retirement savings plan through work now have an easy way to start saving. The U.S. Department of the Treasury’s myRA (my Retirement Account) gives people a simple, safe, affordable path to retirement by breaking down common barriers to saving.
7 ways myRA benefits users
myRA is a Roth IRA which offers certain tax advantages1
It costs nothing to open an account, and there are no fees
Users contribute an amount of choice ($2, $20, $200 – whatever fits the budget!)1
Users can withdraw the money they put in without tax and penalty2
Once a myRA user has accumulated some savings, they can transfer or roll over their myRA to a private-sector Roth IRA – at any time – to continue the savings journey. Accounts can be funded directly from paychecks, checking or savings accounts, or federal tax refunds.
Visit the myRA website to learn more, including stories of how businesses are already sharing the program with employees. For service providers, businesses, and tax professionals that want to share this program with their networks, Treasury also offers toolkits to help spread the word.
What if saving could start with the first paycheck? Explore findings from the first quasi-experimental design study of a youth financial capability initiative seamlessly integrated into a youth workforce development program. The program, MyPath Savings, supports low-income working youth to bank, save, and build their financial confidence through a comprehensive model that includes financial education, goal-setting, and non-custodial accounts.
1. Annual and lifetime contribution limits and annual earned income limits apply, as do conditions for tax-free withdrawal of earnings. Limits may be adjusted annually for cost-of-living increases.
2. Withdraw interest earned without tax and penalty five years after your first contribution if you are over age 59 1/2 or meet certain other conditions, such as using the funds for the purchase of your first home. *Accounts earn interest at the same rate as investments in the Government Securities Fund, which earned 2.04 percent in 2015 and had an average annual return of 2.94 percent over the ten-year period ending December 2015.
Laura Choi Senior Research Associate, Community Development, Federal Reserve Bank of San Francisco
“At my school, they talk a lot about the future, but nobody ever talks about how we’re supposed to pay for it.” These insightful words came a local teen in San Francisco who recently participated in MyPath, a youth financial capability initiative aimed at low-income youth earning their first paychecks.
Financial capability experts have long discussed the importance of the “teachable moment,” and for this young person, along with the 20.3 million young people who worked this past summer, that moment came in the form of receiving a paycheck. For many lower-income youth, these first paychecks represent an important opportunity to get youth into the financial mainstream, avoid costly predatory financial services, and establish positive financial behaviors and attitudes. The SF Fed, in partnership with MyPath and Eastern Washington University, recently hosted a convening and released a working paper that presents the results of the first quasi-experimental design study of a youth financial capability initiative seamlessly integrated into a youth workforce development program.
MyPath Savings supports low-income working youth to bank, save, and build their financial confidence through a comprehensive model that includes financial education, goal-setting, and non-custodial accounts. MyPath provided technical assistance and training to prepare nonprofit youth employment programs to implement MyPath Savings, as well as to the financial institution partner, Self-Help Federal Credit Union, to ensure the accounts youth received were aligned with MyPath’s Youth Banking Standards.
The study included 375 low-income young people ages 16-21 years old participating in youth workforce and employment programs operated by ten nonprofits in partnership with San Francisco’s Department of Children, Youth and their Families. Participants were assigned to one of two treatment groups, or a comparison group, and received a range of interventions:
1 hour workshop on fringe financial products
1 hour in-person workshop
Supported enrollment into two accounts
Support setting a personal savings goal
Three online, interactive financial education modules
MyPath Plus Coaches:
1 hour in-person workshop
Supported enrollment into two accounts
Support setting a personal savings goal
Three online, interactive financial education modules
2 hours of Peer-led Group Coaching
Both Standard MyPath and MyPath Plus Coaches participants experienced increases in youth banking and saving outcomes and significantly improved confidence in their ability to carry out basic financial tasks compared to the comparison group, with no statistically significant differences between the two treatment groups in those areas. Both models prove equally effective in producing youth financial capability outcomes, including:
97 percent of youth participants enrolled into safe youth-friendly accounts.
100 percent set a personal savings goal, using a MyPath Savings contract.
96 percent met their savings goal.
Youth in treatment groups were three to five times more likely than those in the comparison group to have increased confidence to carry out basic financial behaviors, including saving, budgeting and smart spending.
Youth saved on average 34 percent of their income, for an average of $329 each, amounting to a total of $66,500 in savings across all participants.
Four Key Lessons:
Both models increase youth financial capability, including banking, saving, and money management outcomes. Adding peer led group coaching workshops boosts financial knowledge gains, and is best suited for longer programs or those with more capacity to provide additional financial capability programming.
Blending in-person and online education provides an effective mix of scalability and impact. Technology can help scale programs, while the in-person activities cement learning and action.
Young people bank and save when given the opportunity, but need youth friendly accounts in order to do so. The high take-up and account enrollment rates reflect the strength of using the MyPath Youth Banking Standards with partner financial institutions to reduce youth barriers and maximize enrollment.
Youth workforce staff and settings differ from classroom settings and require different curricula. MyPath Savings’ action-based curriculum is tailored for youth workforce and employment staff and settings: It is shorter and designed to give youth earning their first paychecks a positive experience banking and saving for the first time.
Kristin Siglin Vice President of Policy, Housing Partnership Network
Would housing policy in the United States benefit from a greater emphasis on institutions that combine deep social mission with strong business acumen? A recent Housing Partnership Network (HPN) paper explores the benefits of such an approach, drawing on lessons learned through the International Housing Partnership (IHP), a collaborative of more than 175 nonprofits from Australia, Canada, the U.K., and the U.S. that collectively operate one million affordable homes. Since the collaborative’s founding in 2003, IHP knowledge exchanges have refined our thinking about innovative models that have the potential to better leverage private sector resources to deliver affordable housing. In our paper, we investigate models of this kind in the U.S. and the U.K., and observe that the British and American affordable housing systems both rely on hybrid public-private, social enterprise–based partnerships that work well in both countries, but in different ways.
For instance, in the U.K. the relatively significant scale and capacity of nonprofit housing associations stems in large part from the Large Scale Voluntary Transfer policy, which over the past 30 years has transferred subsidized housing to new management entities enabled to access private capital in order to make needed repairs. British housing associations have been able to improve the national housing stock and serve more people due to these efficiencies of scale.
The U.S. system also includes elements of public-private partnership. The primary capital source for affordable housing development in the U.S. is the Low Income Housing Tax Credit (LIHTC), which raises private capital from investors who receive credits against their tax liability for project-based investments in affordable housing.
While both systems have served as key affordable housing tools in their respective countries for decades, the particularly innovative impact of Large Scale Voluntary Transfers on the U.K.’s affordable housing stock reveals opportunities for the U.S. to build on its system’s current successes to deliver affordable homes more efficiently. IHP discussions and investigations of both models in our paper suggest five key policy changes drawing on the example of the U.K.’s Large Scale Voluntary Transfers that could enhance the capacity of mission-oriented U.S. housing providers to further leveraging public-private partnerships to develop affordable homes:
Expand the Capital Magnet Fund. The Capital Magnet Fund competitively awards grants to nonprofit lenders and qualified nonprofit housing organizations, with a mandatory minimum 10:1 leverage ratio. The Fund has proven to be a uniquely effective tool for leveraging public funds to attract private investments for housing in low-income communities.
Prioritize preservation. As resources for affordable housing development shrink, it is critical to preserve the existing stock of safe, decent affordable housing and ensure that it is managed efficiently for the long term. It can be more cost-effective to rehabilitate aging U.S. Department of Housing and Urban Development (HUD) program-assisted properties under new nonprofit management.
Use a portfolio model for multifamily housing preservation. HPN recommends ashift toward portfolio finance for aging HUD-assisted and LIHTC properties. Policies should enable mission-oriented housing providers to acquire and preserve multiple affordable housing properties more cost-effectively by packaging several properties into one financial transaction.
Make housing a platform for improving communities and building assets for residents. High-performing housing nonprofits can also link affordable housing development to broader programs of community and individual improvement because of their scale. Social enterprises can advance opportunity for low-income people because they combine excellence in housing development with an extensive network of relationships with social service providers.Holistic community development is easier for organizations with resources and reach.
Improve access to affordable homeownership. Social enterprises also can efficiently deliver homeownership as well as rental housing. Proven approaches to affordable homeownership—including nonprofit acquisition and rehabilitation and rent-to-own programs—have been shown to be effective in both the U.S. and the U.K. and should be expanded.
Combining the nonprofit mission with private business discipline can generate more affordable housing and lead to more effective management of such properties for the long term. Innovations like these are particularly important now because three quarters of Americans who are income-eligible for housing assistance currently do not receive it, often because there are not enough stable, affordable, and livable units available to meet the housing needs of low-income Americans. The success of the U.K.’s Large Scale Voluntary Transfers reveals that more effectively leveraging private funds to develop, preserve, and operate affordable homes can help to speed up the process and increase and improve the stock available to those who need it. Through our work in the International Housing Partnership, we will continue to identify and highlight similar models that have proven effective in improving and expanding the stock of affordable homes in their countries of origin and could hold promise for future stable housing in neighborhoods around the world.
Kristin Siglin is Vice President of Policy at the Housing Partnership Network, a business collaborative of the nation’s leading housing and community development nonprofits and a top-rated community development financial institution (CDFI).
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