Policy & Practice April 2015

HOUSEHOLD INCOME AND EXPENSES ARE OFTEN ERRATIC AND INCONSISTENT

SOCIAL SERVICE AGENCIES HAVE A ROLE TO PLAY These economic trends create significant financial challenges for households outside of the core issue that social service agencies address. For example, research by the Urban Institute found that individuals enter the Temporary Assistance for Needy Families (TANF) program with four or five financial challenges in addition to being unemployed. Addressing financial challenges is a “win-win” situation for social service agencies, clients, These numerous financial challenges can have an impact on the success of the social service programs’ efforts to help individuals reach an economic mile- stone. For instance, while workforce programs connect them to employment opportunities, without addressing outside financial challenges such as a lack of savings, individuals may struggle to retain their work during a financial emergency, such as a costly car repair or a sudden loss in child care. Financial capability is “the capa- bility, based on knowledge, skills and access, to manage financial resources effectively,” according to the President’s Advisory Council on Financial Capability. Services include helping clients understand how to establish and build credit, how to budget, or how to decrease debt. These services are combined with support in employers, and the economy as a whole.

accessing safe and affordable financial products that allow individuals to save and build credit. The habit of savings, sticking to a budget, and managing debt, combined with the right tools, can help households stabilize for years after services are provided. Social service agencies have the infrastructure and scale to deliver financial capability services to some of the nation’s most vulnerable citizens, not only improving the long-term financial stability of their clients but also boosting overall outcomes for the agency. Integration capitalizes on times when people are already interacting with a social service organization and poised to achieve a financial milestone. In this way, clients believe that the information is relevant and they are able to put what they’ve learned into action immediately. Human service programs with clear programmatic goals—such as getting people housing and employment—can reach those goals faster and more sustainably by integrating financial capability services. One example of the impact of inte- grating financial capability services can be found in the Office of Financial Empowerment (OFE) in New York City, which was launched in 2006 in an effort to help low- and moderate-income households build assets and make the most of their financial resources. OFE partners with various local organiza- tions to provide financial empowerment services. A 2014 OFE evaluation found that clients at one partner organiza- tion who received financial counseling, which included reviewing credit reports, establishing budgets, opening checking or savings accounts, along with employment services, had higher job placement rates compared to clients

CFED’s 2015 Assets & Opportunity Scorecard found one-quarter of jobs are in low-wage occupations. Many low- and moderate-income households experience significant fluctuations in income from month to month in both amount and timing as they seek addi- tional opportunities to stitch a livable income together. In-depth qualitative research by the Center for Financial Services Innovation has found these inconsistencies are because of multiple jobs, seasonal work, or jobs that provide irregular income. Multiple jobs involve different pay schedules and pay rates that require sophisti- cated budgeting in order to pay bills on time and save for the future. Income fluctuations create problems even for households whose finances are adequate on average over the course of the year. Income for millions of families is low and necessities such as housing, food, utilities, daycare, and transporta- tion often take up entire paychecks, making saving for the future or an emergency nearly impossible. Research from It’s Not Like I’m Poor found that housing takes up 25 percent of a household’s budget and transpor- tation takes up 14 percent. Unexpected financial emergencies, such as an emergency room visit or car repair, don’t often match up with infusions of cash, such as yearly tax benefits. If the savings are not there at the time of high and unexpected expenses, families will inevitably take on more debt, decreasing long-term financial freedom and security. These economic trends affect the financial well-being of all Americans.

See Financial Capability on page 33

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April 2015   Policy&Practice