This year, the Aspen Institute’s Financial Security Program (FSP), in partnership with the Center for Urban Innovation, held a series of public and private conversations on household financial security in the Washington, D.C. metro area, where the Aspen Institute has its headquarters. While FSP’s portfolio largely revolves around financial security at the national level, this series allowed for a deep dive into understanding and engaging with our immediate community. The dialogues focused on both the barriers local households face in securing financial stability and the diverse actors working to help these households reach greater security.
Cash-Strapped Citizens of a Rich City
The 2010 Census revealed that six of the top ten highest earning counties in the US lie in the DC metro area. This wealth often conceals an unfortunate reality – the region suffers from pervasive economic inequality. In focusing on financial insecurity close to home, we faced ugly truths about the day-to-day financial lives of our neighbors. According to a Data Snapshot from the Capital Area Asset Builders, CFED, United Way of the National Capital Region, and Citi, 41% of DC households are liquid asset poor, meaning they don’t have enough savings to live above the poverty line for three months if they were to lose their job or face some other income disruption. This financial insecurity is not limited to low-income households. Two out of five households earning between $50,000 and $75,000 annually – solidly middle class – are liquid asset poor. Additionally, 12% of DC households are unbanked (twice the national rate), and 25% have a bank account but still rely heavily on check-cashing and payday loans to make ends meet.
The statistics are even direr when one accounts for racial differences. According to the Urban Institute report “The Color of Wealth in the Nation’s Capital,” white households in the DC metro area have a net worth 81 times greater than black households ($284,000 vs. $3,500), largely a result of policy decisions that blocked black families’ ability to build wealth – eminent domain laws and mortgage discrimination to name a few. And unfortunately, education alone will not close this gap. Black household heads with a graduate degree reported a median net worth ($130,000) less than that of white household heads with a HS diploma or less ($265,000).
The Need for Innovation
The problems described above are complex and difficult to solve. Luckily, many organizations – from nonprofits to for-profits to governments – have decided to take the challenge head on. In January, we engaged four innovators in a public conversation to learn more about the products and programs they have developed to help individuals and households manage their finances. We later brought them back together in a smaller private group discussion with other local stakeholders for continued discussion on the challenges organizations face in implementing solutions, how to breakdown silos and create opportunities for collaboration, and best practices for measuring impact and success.
The Challenges: Implementation, Scale, Compliance & Regulation
In the District alone, there are hundreds of nonprofits, government officials, regulators, advocacy organizations, startups, and researchers working towards of the goal of helping individuals and households reach a baseline level of financial stability. While their theories of change and program models may differ, our conversation revealed that the challenges they face are quite similar.
- Scale – What are the best practices for scaling solutions? The group discussed this at length and determined that one underutilized method is building programs that can be easily replicated by other organizations. Many organizations, especially in the nonprofit space, do not have the resources (staff, funds, etc.) to drastically increase their client base. Therefore, developing solutions that enable other organizations to take on similar work can be an effective and efficient way to scale. For example, DC-based nonprofit LEDC uses Mission Asset Fund’s Lending Circles program to help their clients build credit. Click here to learn more about this program.
- Compliance & Regulation – How can financial innovation flourish in such a highly-regulated field? The fintech industry is relatively new, and the government has been slow to provide clear direction around acceptable practices and standards. Some fintech entrepreneurs purposefully set up shop in the area to be closer to the decision and policymakers shaping regulation. However, the rules can still be difficult to navigate for the uninitiated, and this lack of transparency can be a huge barrier to the successful development of a product.
- Measuring Impact – What does success look like? Is success scaling your product or program? Do you measure success by the financial health and stability of your customer or client base? These are some of the questions that the group wrestled with in their closed-door meeting. A number of social entrepreneurs shared their frustration at being unable to track long-term impact. For example, nonprofits that help people build credit often don’t know what happens to their clients after they “graduate” with improved credit? How do you know if the improved credit has helped them in a meaningful way? Similar to the difficulties with scaling, nonprofits and startups struggle measuring impact because they lack the resources to track and analyze this kind of data.
Opportunities for Collaboration
A key goal of our discussion was to build relationships between like-minded groups that don’t otherwise talk to each other. Collaboration comes in many forms, one of which is as simple as having an open conversation with organizations that differ from your own. Our hope was that the cross-sector connections established at both events would lead to programmatic partnerships that advance financial security in DC. The Aspen Institute has lots of experience creating silo-busting, cross-sector dialogues, so bringing that skill to bear here made perfect sense.
The private group discussion on financial insecurity in DC may have started as one about challenges, but naturally evolved into a conversation around opportunities to share findings, research, and solutions. Fintech startups have a lot to learn from regulators and vice versa. Traditional financial institutions like banks can partner with nonprofits focused on financial inclusion. Investors and philanthropic funders are interested in finding the next big idea in social enterprise. State and local policymakers should engage with employers to better understand the needs of their workforce.
Potential collaborations like these are all around us and could catalyze a profound shift in the financial security of households across the city. Through continued cross-sector collaboration, actors working to curb financial insecurity in the Washington DC metro area may be able to both increase the effectiveness of their work and develop unique, solution-based partnerships.