Financial Empowerment - Improving financial outcomes for low-income households
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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
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
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 Empowerment3. 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 | 63. 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 EmpowermentREFERENCES
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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