What It’s Worth: Building Bridges to Financial Health and Well-being

Written by Ellen Seidman

Although each author in this book states it somewhat differently, each points to the same conclusion: household financial health and well-being is the bridge to a better life, a better community, and a better economy. Our challenge is to make that idea intuitive to policymakers in all parts of society — education, health, housing, justice, the financial markets; to the financial services sector in all its manifestations; and to all those who work with and employ ordinary Americans, particularly those of modest means. For, as Federal Reserve Board Chair Janet Yellen reminds us in her foreword, a large share of Americans are extraordinarily financially vulnerable.

Why does household financial health and well-being matter? Most broadly, Jared Bernstein of the Center for Budget and Policy Priorities and former chief economist to Vice President Biden says in this volume, “there is a growing body of research that convincingly links various aspects of financial health to [economic] growth… [T]here are good reasons, backed by some empirical evidence, to believe that financially unhealthy families reduce economic growth… and vice versa.” Likewise, former Congressman Phil English and Jeremie Greer of CFED write that “we advocate for an America where financially stable and resilient households are a central building block to the economic vitality of our nation… [policies that promote] family economic stability also lend themselves to a more civil political dialog.” Coming at the issue through a health lens, Jason Purnell of Washington University in St. Louis concludes, “the inextricable, often stress-laden link between financial well-being and physical and mental health must become the centerpiece of public understanding and public policy. Both our economic health as a nation and the very lives of the American people depend on it.”

Experience at the ground level links financial health and well-being to success in multiple areas. Rita Landgraf, cabinet secretary of the Delaware Department of Health and Social Services, puts it this way: “financial well-being addresses many of the root causes of poor health, including creating a sense of control over one’s circumstances and future. Financial empowerment builds our economic security, improves our quality of life, promotes health and well-being and fosters self-sufficiency.” And Regina Stanback Stroud of Skyline College, a Bay Area community college, says “strategies to address financial well-being are not just a nice idea; they are an essential component of helping students reach their academic goals.” Reflecting on the criminal justice system, Vivian Nixon of College and Community Fellowship and Susan Sturm of Columbia Law School note that “about 60 percent of intakes into the state and federal prison systems report annual incomes under $12,000,” and that “financial well-being, or more important its absence, plays a role in this cycle of… interaction with the criminal justice system.”

From the municipal perspective, Louisville Mayor Greg Fischer says, “Our citizens’ financial health directly affects the city’s ability to reach its fundamental goals related to improving job readiness, education, and the stability of neighborhoods.” And Treasury Deputy Secretary Sarah Bloom Raskin completes the circle: “members of financially healthy families are better able to take advantage of educational opportunities, and completing an affordable and high-quality higher education program in turn advances the fundamentals of financial health.”

As described by Andrea Levere and Leigh Tivol of CFED, the road to this understanding has been long and winding. It all started with the work of Michael Sherraden, who sets out a future research agenda in this volume. In his seminal 1991 book Assets and the Poor, Sherraden established the proposition that when people have assets (wealth), they are more stable along many dimensions.1 Moreover, assets strengthen the producer (in contrast to the consumer) in all of us, including the poor. Sherraden’s work led to the creation of the asset-building field, which generated innovations such as Individual Development Accounts (IDAs), Baby Bonds, and most recently Children’s Savings Accounts (CSAs).

Even as the asset-building movement was building and innovating, financial services firms (spurred by the Community Reinvestment Act and actions of the federal government such as the creation of the interagency Financial Literacy and Education Commission) and their nonprofit partners were investing heavily in financial education or financial literacy. As Brandee McHale of Citi Foundation notes in her essay, the belief was that if people learned what they could and should do to manage their finances — mainly get a banking account and save before borrowing — they would do so. Unfortunately, as McHale, Levere and Tivol, and Michael Collins of the University of Wisconsin tell us, there is no good evidence that the strategy was effective in changing financial behavior.

In fact, studies late in the 1990s, along with the Federal Reserve’s triennial Survey of Consumer Finances and later the FDIC’s National Survey of Unbanked and Underbanked Households2 and the Center for Financial Services Innovation’s (CFSI) Underbanked Consumer Study3 showed that millions of American households remain outside the mainstream financial services system, and millions more who do have accounts at banks or credit unions meet their financial needs through other means. This led to a desire to better understand the context within which people make financial decisions and a focus on “financial capability,” the union of knowledge and opportunity to act. “Financial capability” brings together the lessons of behavioral economics about how people make decisions and the asset-building movement’s emphasis on having access to the right products and services at the time they are needed. Financial coaching, defined by Collins as “helping people to form goals, take actions and then follow through” to build financial capability and, ultimately, financial health and well-being, is an important part of this strategy.

But understanding and access has not proven to be the full answer. Jennifer Tescher and Rachel Schneider of CFSI note in their essay that often those who seem to have the tools to be financially capable are nevertheless financially insecure and stressed, with highly volatile income and expenses and “spikes and dips” that do not match up. And Ray Boshara of the Federal Reserve Bank of St. Louis shows just how much race, education, and one’s year of birth influence families’ financial outcomes. All three essays in the opening section take us beyond assets to the challenges of a family’s entire balance sheet (debt as well as assets) and the monthly and yearly variability in household cash flows.4

And so we take the next step, asking what are the outcomes we are looking for from asset-building, financial capability, and related work and how do we get them? During the past year, two similar framings of the desired outcomes have taken hold: financial health and financial well-being. In this book, as explained in the introduction, we use the terms interchangeably. According to CFSI, “financial health is achieved when an individual’s day-to-day financial system functions well and increases the likelihood of financial resilience and opportunity.”5 The Consumer Financial Protection Bureau (CFPB) defines financial well-being as “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life.”6 Both terms focus on long-term outcomes, and both recognize that financial health and well-being are not an end state but a continuing life journey, with a definition of success that is in part subjective and is broader than income, credit score, or net assets.

The Current State of Americans’ Financial Health

Simply put, the state of Americans’ financial health is not good. Individual factors such as education and training, experience, personality and age; social factors; the financial system and the economy; and just plain luck, are all at work. Poverty and inequality of both income and wealth are both cause and outcome of the lack of financial health, but they are neither its only cause nor its only consequence.

The Consumer Financial Health Study (CFHS) conducted by CFSI7 and described by Tescher and Schneider, finds that not only are 57 percent of Americans financially unhealthy, but “26 percent say their finances cause them significant stress, 43 percent struggle to keep up with bill payments and 36 percent are not confident they could come up with $2,000 in the next month if an emergency were to arise.” These situations cut across all income groups, but they are especially prevalent among blacks and Hispanics.

How did we get into this situation? Phil Longman’s essay describes the long trajectory of intergenerational decline of incomes and wealth in the United States:

Until the present era, despite vast disparities and inequalities across different racial, ethnic, and other demographic groups, most American families enjoyed a rising net worth, both within and across generations….This pattern has… disappeared, however. The precise tipping point came among people born in 1952. They would become perhaps the first generation in American history to have less real net worth on the threshold of retirement than people born ten years earlier had at the same age. From there, the real net worth of subsequent birth cohorts has generally been stagnant or has declined.

Longman and other authors, such as Martha Kanter of New York University and former undersecretary of education, point to stagnant wages that were well outrun by increases in the cost of health care and education, and accompanied by the demise of the traditional pension system and a decline in the return on contributions to the Social Security system. A changing culture of jobs — including more frequent job changes and the rise of the “gig economy” — have also reduced financial stability. Recent research from the Institute on Assets and Social Policy at Brandeis University also alerts us to the importance of job quality in financial health.8 And welfare reform, say Reggie Bicha and Keri Batchelder of the Colorado Department of Human Services, in many ways merely offered the welfare poor the opportunity to become the working poor, rather than being a road to prosperity through work.

Many of the essays focus attention on the role that race, gender and ethnicity play in financial health. These essays highlight both the fact that households of color and women-headed households have significantly lower incomes and wealth than white and male-headed households and the need to provide far better opportunities to improve the situation. For example, Boshara finds that although the wealth of all ethnic groups took a large hit in the Great Recession, whites and Asians have begun to recover, while blacks and Hispanics have not: their median net worth remains at 1989 levels and is about 90 percent lower than the median wealth of whites (although median incomes are only 40 percent lower).

Noting that the historical pathways to the middle class such as the GI Bill and federally insured homeownership were largely denied to African Americans, Dedrick Asante-Muhammad of the NAACP adds in his essay that the end of legally sanctioned segregation in the 1950s and 1960s was not accompanied by “the economic aid and investment necessary for African American communities to develop wealth.” As a result, although poverty among African Americans has declined from nearly 42 percent in 1966 to about 27 percent in 2012, for the past 40 years, African Americans have earned 60 percent of what white Americans earn.

José Quiñonez of Mission Asset Fund, which serves low-income Latino immigrants, says of his clients: “[a]s low-wage and hourly workers, they struggle to make ends meet. Most live day to day, without the benefit of savings, affordable credit, or other financial tools to manage unexpected expenses, much less a life crisis.” Eighteen percent of Latinos lack access to basic financial services, and more than one in four is “credit invisible.” Lisa Hasegawa and Jane Duong of the National Coalition for Asian Pacific American Community Development reminds us that the Asian American and Pacific Islander (AAPI) community is highly diverse, that poverty is growing faster in that community than in any other ethnic group, and that a high percentage of the population has difficulty paying bills or responding to financial emergencies — and they do not know where to turn for advice.

Elsie Meeks, one of the founders of Lakota Funds on the Pine Ridge Reservation, makes the point that efforts to increase employment in Indian Country have not been accompanied by strategies that build financial capability and a private-sector economy that keeps wealth on the reservation. That 86 percent of Native communities lack a single financial institution, and for 15 percent, the nearest ATM or bank is more than 100 miles away, exacerbates the situation. Heidi Hartmann of the Institute for Women’s Policy Research shows the extent to which women face financial challenges. She says that although women have made enormous progress in achieving economic equality, they still earn only 78 percent of what men earn annually and — more alarmingly — women’s median wealth is only 32 percent of men’s. Ted Beck of the National Endowment for Financial Education reminds us that the ability of even those most capable of successfully managing finances declines with age.

Several of the authors, most notably Angela Glover Blackwell of PolicyLink, former Congressman Rick Lazio, Michael Rubinger of LISC, Paul Weech of NeighborWorks America, Vivian Nixon and Susan Sturm, Asante-Muhammad, and Purnell, relate the current state of Americans’ financial health to neighborhood conditions. Purnell picks up on the concept known as “social determinants of health,” which emphasizes the importance of environment and neighborhood quality in physical health — connecting it also to financial health.

Glover Blackwell focuses her attention on discrimination and racial inequality. Building on her own story of growing up in a “completely integrated, entirely African American neighborhood in St. Louis” that was quickly challenged by disinvestment as it became a community of color, Glover Blackwell emphasizes the importance of financial health to “communities of opportunity” — “places that have the resources and amenities we all need to thrive.” Nixon and Sturm relate the exceptionally high rates of incarceration in some communities to the poverty and paucity of jobs and education in those places — a cycle that is repeated when prisoners are released back into those same neighborhoods without strategies to help them gain financial capability, education, and a job. This focus on the relationship between neighborhood, opportunity and physical, mental, and financial health also runs through much recent research, some of it cited in multiple essays.9

Finally, as many of the authors point out, it is impossible to separate the current state of financial health and well-being from the broader economy, including the devastating impact of the Great Recession, and the financial services system. Raj Date, of Fenway Summer and former deputy director of the CFPB, puts it most directly: “Unfortunately, for too many families, both before and during the financial crisis, consumer finance didn’t make life better. It actually made life worse.” By FDIC estimates, 9.6 million households, disproportionately black, Hispanic, younger and female, do not have bank accounts, and many more also use nonbank financial services. Cathie Mahon of the National Federation of Community Development Credit Unions points out that part of the reason for this may be that even those financial services providers — like community development credit unions — that focus their attention on lower-income and minority households, may be using strategies based on obsolete assumptions, such as the assumption of a steady job with a regular biweekly paycheck.

So, while individual factors are important, taken together our authors point to more systemic issues. As Purnell puts it:

In a nation in which nearly three-quarters of adults worry about money at least some of the time, where income and wealth inequality are at all-time highs, and where the rate of child poverty is among the highest in the developed world, it is fair to ask whether individual effort can be the total answer to what literally ails, and ultimately kills, Americans.

How We Can Make a Difference

At its broadest, this book argues that financially healthy Americans are critical to the nation’s economic and social well-being, and an essential element in reducing the country’s growing wealth inequality. As Tescher and Schneider point out, we do not yet have agreement on the metrics by which to measure financial health or well-being, but building a common understanding of our goal, from diverse perspectives and experiences, is an important first step.

Many of the essays move from diagnosis to descriptions of current practices that seem to be working to build financial capability and move people toward financial well-being (see, for example, the essays by Landgraf, Nixon and Sturm, Rubinger, Fischer, Quiñonez, Hasegawa and Duong, Barrera and Stroud). Others provide suggestions for future practice (see, for example, Collins, Mahon, Tescher and Schneider, Purnell, Date, Advani, Laura Choi and David Erickson, and McHale). Still others contain recommendations for policy changes. These range from the highly targeted (such as to revise federal tax policy with respect to the Mortgage Interest Deduction — see Lazio and Longman; universal CSAs — see Kanter, Friedman, English and Greer; and helping people make better higher education decisions — see Raskin, Stroud, and Kanter) to broad calls for a National Asset Development Policy (Asante-Muhammad), major changes in income support programs (Bicha and Batchelder, Hartmann), and far more investment in lower-income communities (Lazio, Nixon and Sturm, Glover Blackwell, Weech), and early childhood education (Purnell). The integration and collaboration themes of the first two books in this series — Investing in What Works for America’s Communities10 and What Counts: Harnessing Data for America’s Communities11 — resonate across all the essays. Choi and Erickson show how financial health and well-being can be the integrating force across disciplines.

Practice Recommendations

Practice recommendations focus on interactions with individuals and families, on governmental and institutional strategies, on financial services delivery and corporate practice in general, on community building, and on research. Among individuals and households, Quiñonez echoes several other essays in urging those working with lower-income, lower-wealth clients to move “away from a model that engages clients as if they are broken to one that recognizes and uplifts their strengths.” Mission Asset Fund’s Hierarchy of Financial Needs does this, using the Lending Circles platform to formalize the informal savings and credit systems already in the community, opening opportunities to build credit scores and enter the financial mainstream. Boshara, Odders-White and Kalish, and Friedman all point to the importance of starting early to teach children, both directly and through practice, the financial knowledge, skills, and intuition they need to be financially healthy adults.

Collins, McHale, Landgraf, and Rubinger all counsel continuing attention to financial coaching, and integrating coaching and financial empowerment strategies within other systems, such as the workplace (Regis Mulot of Staples), workforce development (Rubinger), postsecondary education (Stroud), prisoner reentry (Nixon and Sturm), welfare (Bicha and Batchelder), housing and community development (Weech) or indeed all programs that interact with this population, whether at the municipal (Fischer) or state (Landgraf) level. In particular, Stroud, Nixon and Sturm, Fischer, and Landgraf emphasize that without embedded strategies for building financially healthy individuals and families, other programs — in fields such as health, education, jobs, housing and helping prisoners successfully reenter society — are likely to fail, whether because they fall prey to the stress and lack of hope generated by financial insecurity or simply to the difficulty of managing life on a tight budget. And Elsie Meeks writes that individual wealth-building strategies, such as Individual Development Accounts, were important to helping business-oriented economic development take hold in Indian Country.

In addition to direct work with individuals, governments and institutions can make other changes in practice that can facilitate financial well-being. McHale urges philanthropists to work in partnership, keeping their eye on the ultimate goal: “empowering people to effectively manage their financial lives and to believe they can achieve their American Dream.” Bob Friedman, founder of CFED, ends the book with a plea for asset-builders to “link our skills and tools with others… integrating new people and institutions,” for people in those other fields to become asset-builders, and “to unleash and harness the voices of the low-income entrepreneurs, homeowners, college students of color, and others who know first-hand the transformative power of financial health and building assets.”

Treasury Deputy Secretary Raskin has helped lead the Treasury and other government agencies in providing tools to help prospective students make better choices in the higher education they pursue and in how they pay for it. Noting the complexity of student aid and tax credit programs, Kanter urges us to raise awareness about them, especially among low-income populations. Hasegawa and Duong call for improved data collection systems that will better reveal the significant diversity within the AAPI community. Lazio urges all portions of the housing and housing finance industry to do a better job at helping people make the critical decision whether to own or to rent, using technology well beyond today’s online calculators.

In financial services and corporate America more generally there is much to be done. Mahon makes clear that the first job of financial institutions working with lower-income and lower-wealth customers is to build trust. Then, echoing the findings of Tescher and Schneider, Mahon says financial institutions must better match the needs of those customers with flexible or customized underwriting and payment plans that take income volatility into account. Noting that the movement away from branches to online financial services takes away the face-to-face interactions low-income consumers have relied on, Quiñonez challenges the financial services industry to work with nonprofits to restore those critical social relationships. Hasegawa and Duong call on financial institutions to improve language access in bank branches, and to develop and implement lending circles and “other strategies that embrace the multigenerational nature of many AAPI households.”

Advani focuses on the opportunities of social entrepreneurs and other double bottom line companies, as well as on business coalitions. The shared value concept suggests businesses can “increase business value by identifying and addressing social problems that intersect with the business.” Advani notes that technology creates new opportunities to serve a far broader range consumers profitably, but to do so well, “the ethics and motivations of the management team and especially the founder/owner(s)… become increasingly important.” He calls for a business-led coalition to tackle financial insecurity in the U.S.

Barrera, Meeks, Hartmann, and Hasegawa and Duong stress that entrepreneurial business finance is a potentially important source of wealth in lower-income communities, but that it requires financing and support systems that are nurturing, flexible and quick. And, arguing that innovative financial products and services are critical to meeting the challenge of serving consumer financial needs well, Date urges financial services regulators to promote healthy innovation that can enhance consumer well-being by engaging with innovators, putting forth principles that enable innovation to develop under consumer-friendly guidance, and using exception policy to foster positive innovation.

Many of the essays also touch on the essential role of community building in financial health and well-being. Purnell urges those involved with health and with community development to develop far better communications strategies to convince policymakers of the links between community and health. Building on his community focus, Weech urges nonprofits working in the communities to adopt a social enterprise model to increase their sustainability and impact. Choi and Erickson point out that financial health and well-being is often at the root of myriad challenges facing communities and households, and thus can be the organizing principle that helps various sectors align their work. And Hasegawa and Duong provide a wealth of examples about how innovative community-based organizations are integral to building household financial security.

One of the exciting elements of the asset-building movement is that research has been embedded in it from the start. Michael Sherraden and Margaret Sherraden — the field’s premier researchers — urge their colleagues to continue this strategy, which directly links research to actionable changes in policy and practice. Researchers should take several important lessons from what has come before: assess impact in the field (not just in theory or the lab); collect and evaluate data that relate to actual financial results; and assess the impact of interventions on multiple dimensions of the well-being of individuals, families, and communities.

Policy Recommendations

Many of the essays call for specific policy changes, especially at the federal level, or broad redirection of federal policy to recognize that poverty is a barrier to success and to refocus both direct and tax expenditures on families and communities in need — especially communities of color. This includes making higher education affordable and attainable (Raskin, Kanter, Glover Blackwell, Stroud), reforming the criminal justice system (Nixon and Sturm, Glover Blackwell), and supporting the ability of workers to retain more of their productive capacity through redirection of trade, tax and antitrust policies (Longman). Hasegawa and Duong remind us that it is essential that Title VI of the Civil Rights Act — prohibiting discrimination on the basis of race, color or national origin in programs receiving federal assistance — be vigorously enforced.

Asante-Muhammad calls for a twenty-first century Freedom Budget, starting with a National Asset Development Policy and including an equity assessment of where federal investments are going; direct federal job creation, as suggested by Demos;12 and targeting asset development policies to those most in need, as suggested by CFED.13 Focusing on gender inequality, Hartmann says that “from a base of equal lifetime incomes, no discrimination against women, and equalized and fully compensated caregiving burdens, it should be easier to encourage women to build wealth in the same ways as men or to improve upon men’s record.”

Building on themes in What Works and What Counts, Glover Blackwell urges us to “implement policies that simultaneously empower the most vulnerable populations to become financially secure and transform struggling neighborhoods into communities of opportunity.” In somewhat different terms, Purnell comes to the same conclusion: we must embed social determinants of health into community and economic development.

Noting that “the correlation between education and upward economic mobility has never been higher,” Kanter calls for a unified and integrated life-cycle approach to funding higher education that includes CSAs, College Promise Programs (which reduce or eliminate the costs for the first few years of higher education), and performance-based funding of student aid. Versions of these programs are in existence. The next step should be to “create a model that communities, states, and the federal government could adopt fully or in part to build financial capability and to increase college access, enrollment, and graduation rates” and to engage in rigorous research about the programs’ practicality and effectiveness, especially for low-income and minority students.

Improving federal tax policy to better focus asset-building tax benefits on those who most need them is a theme in several essays. Levere and Tivol, Kanter, Friedman, and English and Greer call for massive expansion of tax-favored CSAs, building on the Campaign for Every Kid’s Future, announced at CGI America 2015, to open CSAs for 1.4 million children by 2020. At the other end of the age spectrum, English and Greer, Hartmann, Friedman and others call for both greater access to retirement savings accounts and more flexibility in their use — including support for entrepreneurship. The Treasury’s new myRA — whose use at Staples is discussed in Mulot’s essay — is a new and exciting option for accomplishing this.

Lazio, Asante-Muhammad, Glover Blackwell and Longman cite the need to reform housing-based tax benefits, especially the mortgage interest deduction, to provide far more of the benefit to those who need the assistance, including renters, and Lazio adds the concept of tax-advantaged housing savings accounts. More broadly with respect to housing policy, Glover Blackwell calls for strategies to make affordable owned and rented housing available to all, and English and Greer call for expansion of housing-oriented IDAs. Lazio recommends extending the time during which income limits would be effective for Low Income Housing Tax Credit projects, providing incentives for longer leases, establishing rent-to-own programs sponsored by the Federal Housing Administration and state Housing Finance Agencies, and creating incentives for insurers to provide affordable insurance to cover housing emergencies such as repairs or temporary loss of income.

Many of the essays emphasize the need to make changes to job, education and income support programs. Asante-Muhammad calls for a direct federal job creation program and Glover Blackwell and others call for a significant increase in the minimum wage. Noting that jobs with critically important benefits such as pensions, paid sick days and help with child care are held disproportionately by men, Hartmann calls for extension of federal and state laws to make these benefits more consistently available to women. Bicha and Batchelder provide an extensive roadmap for reform of income support programs, including eliminating asset limits at the federal level (a recommendation also made by English and Greer, Hartmann, and Quiñonez). Purnell and others urge far more investment in high-quality early childhood education and in education at all levels for the most vulnerable.

Conclusion

As with the earlier What Works and What Counts, creating this book has been a journey that started fairly simply — “let’s write a book about the importance of financial capability” — and has become far more complex as authors and editors brought the book to fruition, and as research in our own field evolved to include financial health and well-being. Where the journey, which is ongoing, stands is exemplified by the book’s cover: financial capability is an important strategy to reach household financial health and well-being, which is in turn a bridge to much more. Recognizing that the success of a myriad of the nation’s social programs and strategies in education, health, workforce development, community development, criminal justice reform, and elsewhere is dependent on financially healthy families, we need to embed effective financial capability strategies into all these systems. That means giving people the information, tools, and opportunity to make financial decisions in real time that are right for them in the short- and long-term. At the same time, we cannot let the financial services sector and other private market players off the hook; they have an obligation to rebuild trust and provide the products and services that facilitate financial health and well-being. Government, too, has a role, in making policy, including tax policy; in implementing programs; and in regulating. Above all else, this book shows that moving toward a more equal society and improving the overall economic health of this country depends on the state of financial health and well-being of every one of us.