One of the most effective ways that government can fight poverty is to help individuals and families prepare for and manage financial distress – when a job disappears, or wages are cut, or the bills pile up too high. And right now, with unemployment above 8%, and with many families struggling to make ends meet, we are a nation still in the throes of financial distress.
When people find themselves in financial distress, too often they don’t know where to turn. This can lead to desperate decisions – including borrowing through high-interest pay day loans or turning to bogus “debt settlement” shops – decisions that inevitably make a bad situation worse. It is estimated that the average American household is carrying about $16,000 in credit card debt, with many struggling to pay it down. While many of the people who turn to fringe financial products and services have credit cards, they do not have a bank account. According to recent data, there are 9 million American households that do not have a checking or savings account. The “unbanked” – are concentrated in cities. And so it is only natural that cities, like New York, are now taking a leading role in tackling this issue.
Traditionally, financial literacy services have been an ad-hoc mixture of classes and workshops run primarily by non-profit providers, and some government agencies and financial institutions, with no common standards, no measurable goals, and limited accountability for results. More importantly, the information is often general and not targeted to the specific (and often complex) financial challenges that individuals and families face. In New York City, we set out to change that in 2008 by creating Financial Empowerment Centers. We hired, trained, and certified a skilled staff to offer free, one-on-one financial counseling to clients. The professional counselors help clients to manage their money, reduce debt, plan their financial futures, improve their credit, and find affordable banking services.
Over the past four years, our professional counselors have conducted over 28,000 individual sessions, helping New Yorkers pay down over $7 million in debt – and increase their savings by over $900,000. We’ve also helped many clients recover from incidents of identity theft – and, perhaps most importantly, open mainstream bank or credit union accounts.
Our Financial Empowerment Centers are directly improving residents’ bottom lines. But there is also a multiplier effect that is making other government programs more successful. For instance, we’ve seen how we can achieve better and quicker results for participants in social service programs when financial counseling is inserted into the mix. And when we speak with staff at our workforce development programs, they say that financial counseling is helping to remove one of the most common barriers to job retention: running out of money for subway or bus fare. Integrating financial counseling into our service delivery helps citizens to better manage their budgets, reducing the likelihood they will miss work and lose earnings.
When we initially launched the Financial Empowerment Centers, we did so as a pilot project with private funding. But because the Centers have been so successful, the City now is publicly funding them. When I speak with mayors around the country, it’s clear we are all facing the same challenge: doing more with less to help low-income families get through these tough times – and put them on the path to financial stability and independence. The purpose of Financial Empowerment Centers is not to provide temporary relief, but lasting knowledge. Give a man a fish, the old adage goes, feed him for a day; teach a man to fish, feed him for a lifetime.
The Mayors Project at Bloomberg Philanthropies will make Financial Empowerment Centers its next investment. The Mayors Proiect spreads effective programs and strategies between cities and helps mayors work together in new ways around solutions. Other Mayors Project investments include Cities of Service, Innovation Delivery Teams and the Young Men’s Initiative.
Through a partnership with Living Cities, Bloomberg Philanthropies will invest $16.2 million over the next three years, through a competitive grant process, to launch Financial Empowerment Centers in five other cities. We expect these investments will yield the same great returns that they have in New York City, professionalizing the field of financial counseling and helping tens of thousands more people gain control of their financial futures. And if successful, the Financial Empowerment Centers in these five cities will make a powerful case for cities around the country – and the federal government itself – to begin taking up this important work.
Public-private partnerships have been critical to New York City’s ability to pioneer innovative new policies and programs. And just as we look to other cities to learn best practices, we hope that our experience in professional financial counseling and empowerment will show that - even in a time of tight budgets – giving people the tools they need to help themselves is not only a compassionate policy, it’s a smart investment in our future.