United Way Financial Stability Partnership

Transcription

1 United Way Financial Stability Partnership what matters.

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3 Financial Stability: A New National Initiative for United Way The United Way movement seeks to identify and address root causes as an effective means of tackling issues and transforming communities. Today, community issues stemming from personal, economic and environmental factors are growing increasingly complex and more difficult. More and more, hard working individuals and families are unable to get ahead financially. Over 12 percent of the U.S. population has an income below the federal poverty level, in spite of the fact that many are employed, some with two or three jobs. Wages have not kept pace with the rising cost of housing, healthcare, and education in many areas, and skill levels have not stayed in alignment with changing industry needs. Consequently, many hardworking families have been left walking a financial tightrope. Credit card debt in America has tripled, from $238 Billion in 1989 to $692 Billion in 2001, with one out of three households having to use credit cards to cover basic living expenses including rent, mortgage payments, groceries, utilities, and insurance. Generation Xers, our youth and young adults, are projected to be the first generation in American history to fare worse economically than their parents.

4 United Way s Role: Financial Stability Partnership United Way of America believes that to positively impact the most lives, we must act collectively to change the economic and social conditions that most adversely affect people. We do this by identifying and working on the most compelling issues facing our communities. United Way is expanding the work it does to impact communities through a third national initiative focused on realistic solutions that increase financial stability and long-term economic independence for individuals and families. Working through local United Ways, individuals and families get the needed tools to gain and benefit from savings and assets, such as homeownership, continued education, access to quality child care, small business development, and retirement planning. Case In Point: United Way of Rhode Island United Way of Rhode Island (UWRI) led a community transformation using Making It Work (MIW), a UWRI-managed initiative based on Needs for the Nineties research led by Ira Magaziner of SJS, Inc., and supported by United Way staff and volunteers. The findings from that study found that people wanted jobs, not social services. The initiative s goal is to prepare and place hard-to-employ people in jobs and to keep them employed, and to create new ways to deliver human services and employment training. To do this, United Way convenes leaders nationally and internationally from key sectors, including: business, labor, government, academia, other nonprofits and faith-based communities to advance strategies aimed at increasing the financial stability of working individuals and families. These collaborative resources and efforts are supported by United Ways own expertise in resource development, research, thought leadership, marketing and communications, outcomes measurement, learning, and innovation. Since the launch of the initiative, MIW has assisted over 1,500 Rhode Islanders in making the transition to more financially stable employment scottrobinsonphoto.com

5 Who Benefits From the Work? Low to moderate income workers by helping them develop and implement strategies that: n Increase Income n Build Savings n Gain and Sustain Assets Employers by creating a stronger, more crisis-resistant workforce Communities by increasing home and business ownership, and the financial stability of its residents Case in Point: United Way of Cameron County Five years ago, Brownsville, Texas had the highest poverty rate in the nation. In response, United Way worked with 1,000 Brownsville families to apply for the Earned Income Tax Credit, resulting in an additional one million dollars in income for that community. Building on the success of their EITC effort, United Way of Cameron County recently received an Assets for Independence Grant to launch an Individual Development Account program that will help 100 families purchase homes over the next five years.

6 Steps in the Financial Stability Framework EITC Credit Repair/Debt Reduction step 1 Increase Income step 2 Build Savings Workforce Development Accessing Public & Employer Benefits Savings Campaigns Spl Refu Increased Financial Litera Access and Use of Mainstream Finan The illustration above shows United Way s stepped approach to help individuals and families move from instability to financial stability. Those steps include increasing income, building savings, and gaining and sustaining assets. Gaining financial assets help families meet their basic needs, such as food, shelter and utilities, but more importantly, assets provide stability, which allows families to plan for the future, including: homeownership, higher education for themselves and their children, a comfortable retirement, the ability to acquire needed credit through mainstream sources, and the ability to manage emergencies before they spiral into a crisis. Beyond these economic realities, research indicates that gaining assets leads to a sense of independence which has many positive social and psychological effects, including a positive effect on school retention and teen pregnancy rates, and decreased rates of depression, alcoholism and domestic violence.

7 it nds IDAs step 3 Gain and SUSTAIN Assets Asset Protection RESULTS: Home Ownership Senior and Retirement Planning Personal Savings Account Small Business Development Crisis Management Quality Childcare Reliable Transportation Continued Education cy/education cial Products and Services STEP ONE INCREASE INCOME The first step in the financial stability continuum offers tools and strategies that help individuals and families increase their income by fully accessing available public and employer benefits, reducing debt and increasing credit ratings, claiming Earned Income Tax Credits, learning to budget, and seeking workforce development opportunities to enhance job skills. STEP TWO BUILD SAVINGS Low to moderate income families struggle to build and increase their personal savings, often because immediate needs take priority over longer-term financial goals. Yet, savings give individuals the flexibility to make financial decisions that benefit themselves and their families and are critical to helping families manage crises. STEP THREE GAIN AND SUSTAIN ASSETS Before the 1990s, few believed that acquiring financial assets retirement accounts, homes, post-secondary education, or life insurance could help families move out of poverty; however, research conducted over the past decade demonstrates that assets increase household stability, decrease economic strain, and decrease the likelihood of poverty transmittal from one generation to the next.

8 Investing in Proven Strategies That Work Among the targeted strategies highlighted in the framework, two are needed to support individuals and families at each step along the financial stability continuum: ongoing financial education and access to mainstream financial products and services. Financial Education Financial education provides individuals and families with practical money-management skills that help them use their income wisely, manage their debt, increase their access to needed resources, and help to create positive relationships with financial institutions. Access to and Use of Mainstream Financial Products and Services Basic financial products, such as a checking or savings account, are an important component of helping families to become financially stable. Research shows that lower income families with access to basic banking products are more likely to have other assets, and avoid using other more costly services, such as refund anticipation loans, check cashing services, and payday loans that often charge high fees and interest rates. United Ways are active in helping individuals and families access the mainstream financial community. One vehicle has been through free tax preparation sites where lower income families are introduced to mainstream financial institutions that often have representatives on-site to assist individuals in opening low- or no-cost accounts. Through 2-1-1, United Ways national resource referral initiative also provides callers with connections to needed services. Investing in Strategies that Work A study by the Brookings Institution reported that in New York City, EITC returns for the 2001 tax year raised incomes by $4 million per square mile. Recognizing the EITC s potential economic impact on families and communities, United Ways and partner organizations nationwide have collaborated to initiate outreach campaigns to ensure that families are receiving the full amount of the tax credit. In 2007, United Way of America partnered with Bank of America to expand EITC Outreach in 30 markets across the country. The expansion will build the capacity of EITC coalitions supported by local United Ways in those designated markets across the nation. Step One Strategies to Increase Income The Earned Income Tax Credit (EITC) The EITC is the largest and most effective federal aid program for low to moderate income workers. Enacted by Congress in 1975, and significantly expanded in the 1980s and 1990s, the EITC was created to reduce the tax burden on lower income workers, supplement their wages, and encourage greater participation in the workforce. For many eligible families, the EITC can increase their family s annual income by as much as 10 to 15 percent. Each year, the EITC raises the incomes of almost five million people above the poverty line, half of whom are children. Recognizing the EITC s potential economic benefit to communities, organizations nationwide have formed collaboratives to educate families about the availability and benefits of the EITC and provide support services, such as free or low-cost tax preparation to facilitate receipt of the credit. United Ways have been a key leader in this movement, helping thousands of families claim about $7.4 Billion in EITC refunds across the more than communities where they are involved. According to data from the IRS, 301 EITC Outreach Coalitions currently exist, of which United Way is listed as a partner in 202 or 67% of all outreach coalitions across the country; no other national partner compares to that level of involvement.

9 Workforce Development and Training Financial stability depends on a stable job with sufficient income to support one s family. Workforce development and training programs and opportunities allow individuals to compete in today s job market by providing them with the necessary skills and access to obtain or maintain a job, and/or advance at work. By facilitating workplace advancement, workforce development provides opportunities for increased education and access to employer benefits, enabling individuals and families to become more financially stable and focus on longer-term goals such as building savings and assets. Over fifty local United Ways are engaged in workforce development programs and opportunities in their communities, including: job readiness and soft skills training; remedial and continued education; specific job-related skills training; and services that support individuals obtain and maintain employment, such as transportation and childcare. Credit Repair and Debt Reduction While credit repair and debt reduction strategies are often referenced in relation to financial education, these by themselves are powerful strategies that can dramatically impact household income, and therefore, financial stability. A credit score is the single number used by credit-card companies, auto- and mortgage-lenders, landlords, and increasingly by employers, to assess one s worthiness for credit, a loan, an apartment, or a job. For example, someone with a high credit score might pay 5.9% interest for a 30-year fixed rate mortgage, while someone with a lower score might pay as much as 10.5%. On a $200,000 loan, that s a difference of almost $231,556 in interest payments over the life of the loan. Rising levels of debt are also negatively impacting households across the country. The average family with a credit card carries $9,300 in debt, leaving them vulnerable to serious financial difficulties in the event of an unexpected illness or costly repair. Reducing household debt levels reduces monthly interest payments and allows families to access affordable credit for needed expenditures or the purchase of major assets. Accessing Public and Employer Benefits Millions of eligible Americans are not utilizing public and employer-provided benefits including Food Stamps, health insurance, and retirement savings plans many of which can significantly increase their household income and improve their overall health and well-being. There are multiple factors that prevent individuals from utilizing available public and employer-provided benefits, including the lack of knowledge about the eligibility requirements, long and cumbersome application processes, and fear of non-acceptance. To address these barriers, nonprofit service providers, including local United Ways, are increasingly exploring the use of software- or web-based applications called benefits calculators that help individuals determine eligibility and apply for public and employerbased benefits, including Food Stamps, Medicaid, Social Security, and retirement savings plans. Recently United Way of America and a taskforce of local United Ways partnered with IBM Global Business Services, a leading public sector innovator, to conduct an in-depth analysis of available benefits calculators that could enhance and support United Way s financial stability work. That work will result in a recommended benefits calculator for the network in 2007 based on field requirements.

10 Step Two Strategies to Build Savings Savings Products Banking products provide families with an entry point to the financial mainstream, including the opportunity to save, access affordable credit, and purchase assets. While many lower income families are savers, without a savings vehicle families are less likely to achieve financial stability. Studies show that families without transaction accounts are less likely to have savings or to own a home or vehicle. Savings Campaigns In a growing number of cities, coalitions of nonprofit, business, and government organizations including United Ways have organized campaigns to encourage citizens to save and build wealth. These local campaigns are part of a national social marketing effort, America Saves, which offers information and encouragement, as well as tools and resources, to help non-savers become savers. The campaign has engaged more than 50 communities, 1000 organizations, and 40,000 individual savers, each of whom must develop a specific savings goal and a plan for attaining that goal. Split Refunds Beginning in 2007, tax filers will be able to deposit their tax refund into as many as three accounts including checking, savings, and retirement accounts representing an innovation in tax procedure that can help individuals and families make more targeted use of their refunds. Step Three Strategies to Gain and Attain Assets Individual Savings Accounts (IDAs) IDAs are matched savings accounts designed to help low- to moderate-income families accumulate savings for long-term assets such as a house, post-secondary education, automobile or a small business. The match incentive is similar to an employer match for 401(k) or other retirement savings plans and is provided by a variety of government and social sector sources. More than 500 IDA programs have been launched across the country, allowing over 15,000 people to save and build assets. More than fifty local United Ways are actively engaged in IDA programs in their communities, often providing financial support and oversight to a collaborative of community-based organizations that administer the accounts. Asset Protection Asset protection is a set of tools and strategies to help sustain assets in the event of an emergency like a change in employment status, short term disability or illness, or an unexpected life event. Tools and strategies around asset protection include savings accounts, auto, renters and homeowners insurance, health insurance, disability insurance and public benefits. United Ways are integrating asset protection into financial education strategies in order to provide lasting solutions that enable individuals and families to be crisis-resistant and financially independent. To find out how you can become one of our partners, fsp@uwa.unitedway.org

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