Family Finances

Fighting Income Inequality Is About More than Jobs

April 17, 2017  • Margaret Libby

Nonprofit Leaders in Financial Technology (nLIFT) is a group of organizations with a shared goal of increasing financial inclusion through technology-driven platforms. The organizations are working with the Institute’s FIELD and Financial Security Program to learn from and with each other, and to communicate the unique role that nonprofits can plan in developing financial technology that expands access to good financial products. Leaders of several nLIFT member organizations recently attended our Inequality and Opportunity Summit, and below share how their work is expanding opportunity and addressing inequality.

What aspects of inequality are you working on?

MyPath‘s vision is for every working low-income young person to have the chance to transform their first paychecks into opportunities to begin banking, saving, and building credit — resulting in financial and personal growth and cultivating a stronger, more sustainable economy for generations to come. Our work focuses on combining two key drivers of financial security and upward mobility — first jobs and financial tools — right when young people are just starting out. We transform these first income streams into opportunities to learn how to bank, save, and build credit, creating first-generation savers and credit-builders, poised to achieve economic mobility. To this end, MyPath designs effective models, shares what works, and advances policy. Outside researchers have demonstrated the effectiveness of MyPath Savings at driving financial capability outcomes for youth. We build the capacity of local partnerships to deliver our models and we target communities that have been historically cut off from economic opportunity and where inequality is deeply rooted. Ultimately, we are working to transform the country’s youth employment system into an asset-building platform.

Why are financial inclusion and access to financial services and information critical elements of opportunity?

Without access to tools that enable saving and borrowing, it is nearly impossible to leverage opportunity and achieve upward mobility. The economic activities that secure one’s finances and spark upward mobility — from purchasing a car to starting a microenterprise to completing college to buying a home — are done via borrowing or saving. Without access to safe affordable banking, saving, and credit-building tools, individuals and communities are effectively shut out of economic opportunity.

When young people have the right tools, they do amazing things for themselves, their families, and their communities.

What happens when people don’t have access to good financial services and information?

When people don’t have access to good financial services and information, they are unable to meet their life goals and their potential. As one of our young adults put it, accessing the tools and information that helped her establish credit, a $500 emergency fund, and financial confidence helped her get “a shot at life.” It gave her an entrance into new housing and employment opportunities, new ways of dealing with financial shocks, and a new sense of control over her life. People without such access pay more for transactional services, sometimes end up using predatory services, and often get caught in debt traps. They experience financial stress and they often live with a short-term time outlook, as their focus is getting through the month versus planning and envisioning their future. In short, they do not have a real shot at life.

What issues of financial access are you trying to solve through your organization’s work?

There are 20 million young Americans ages 16-24 in the workforce, yet no real system to ensure they are connected to safe financial services. Many low-income working youth, in particular those growing up in financial deserts, use high-cost check cashers, losing a portion of their hard-earned income and finding themselves on a dead-end financial path. MyPath’s work is at the intersection of youth employment and banking. We bring banking, saving, and credit-building opportunities into youth employment settings to “bake” these opportunities and tools directly into the employment experience. We leverage the teachable and reachable moment of a first paycheck to make first jobs not just about income, but about lasting upward mobility. Income alone isn’t enough to break out of poverty, so we are transforming youth employment systems into a platform for asset-building and upward mobility.

Naomi spent much of her childhood living in a van with her family. But at age 16, she took a powerful step forward.

There are major barriers to banking for low-income youth, so part of our work is about engaging young people themselves in advocacy to address those barriers. We train and support low-income youth who are first-generation savers and credit-builders to engage in consumer advocacy and youth financial inclusion efforts at the local, state and federal levels.

What makes you hopeful in your work?

We have seen the impact of combining the power of a job and good financial tools. When young people have the right tools, they do amazing things for themselves, their families, and their communities. Research tells us that when they continue saving, they will raise upwardly mobile children. It is this generative cycle our work helps to create that gives us hope.

The success stores of MyPath participants exemplify this hope. Take Naomi, who spent much of her childhood living in a van with her family. At age 16, Naomi took a powerful step: She enrolled in a municipal youth employment program. She got her first job, and her first savings and checking account, alongside support to set and meet a personal savings goal, through MyPath Savings. At age 18, she enrolled in an employment placement program for young adults and had the chance to build savings and credit through MyPath Credit. Naomi is now 21 years old with a steady job, a 700+ FICO score, and more than $1,000 in savings. Plus she has financial confidence and a sense of control over her finances, which many adults in this country don’t have. Her story of overcoming a potential life sentence of poverty and starting her 20s with financial security and confidence inspires us.

Margaret Libby is the founding executive director of MyPath.

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