Savings

Washington Post Series Features Real-life Scott's Tots

December 21, 2011
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Two businessmen walk into an auditorium full of fifth grade students and announce to the children, most from poor families, that they will all have their college educations paid for. For fans of The Office, this scene might conjurer up memories of Scott's Tots, the group of Scranton, PA students sponsored by Dunder Mifflin's regional manager Michael Scott.

Postal Banking to the Rescue of the US Postal Service

December 22, 2011
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Like millions of others this holiday season, perhaps you’ve already made the trip to your local, friendly Post Office. While you were there, did you hear how the US Postal Service is in financial trouble? Was there talk among your neighbors in line about closing the local branch or losing Saturday deliveries?

The USPS financial problems are not a surprise. Reforms enacted in 2006 required the USPS to save up to 75 years health and retirement benefits—unlike every other Federal agency. Without these provisions, it’s like the USPS would be in the black and not the red. That’s not to say there isn’t room for improvement or modernization. But there is another way to remake the USPS that wouldn’t depend on shutting down offices or laying off mail carriers—low-cost banking.

Currently, there are millions of lower-income Americans who don’t own a bank account where they can save or conduct basic financial transactions. They fend for themselves in the high-cost and poor-quality alternative financial sector of payday lenders and check cashers. Recognizing the nefarious practices of this fringe sector was one of the factors which led to the creation of the Consumer Financial Protection Bureau. Once that agency gets up and running, they have a mandate to shut down abusive practices that have flourished without proper oversight. But even if the CFPB succeeds, we may still be left with scores of families who find it difficult to access a simple savings or transaction account. This isn’t a market segment the banks have been dying to serve.

Not only do unbanked families have to spend more of their limited resources managing their money but they don’t have a place to store and build up their savings. In fact, the small saver has largely been abandon in recent years. Traditionally, the US Savings Bond program was designed to serve the needs of the small saver, but that program has been refocused on larger and more institutional savers. Most banks have actually quick selling these as well, directing interested parties to the Treasury website.

The Postal Service could step into the breach.

Assets and the Poor 20 Years Later

December 22, 2011

Bob Friedman has a really nice post up over at CFED's in-house blog, The Inclusive Economy. In it he commemorates the 20th anniversary of the publication of Michael Sherraden's seminal work, "Assets and the Poor," the book that essentially launched the asset building field and details his introduction to the book.

Banking On Bikes

December 19, 2011
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Thanks to a new partnership between Capital Bikeshare, Bank on DC, United Bank, and the District Government Employees Federal Credit Union (DGEFCU), previously unbanked Washington, D.C. residents now have the opportunity to kill two birds with one stone: sign up for a debit or credit card and access a growing regional network of shareable bikes. An announcement from DDOT reads, “The partnership was conceived to promote a healthy and environmentally-friendly form of transit, along with the benefits of financial stability and security.”  In exchange for opening an account with the participating institutions, Bank On DC account holders get a $25 discount off an annual membership for Capital Bikeshare (bringing the cost to $50). While it will be interesting to see if this reduced rate is affordable for the target population, the initiative is an exciting example of creative thinking and cross-sector collaboration.

Why Financial Literacy Isn't Enough, and What to do About it?

December 19, 2011

Originally posted on www.youthsave.org

A new blog post, “Why Financial Literacy Fails (and What to Do About It)” takes a strong jab at the efficacy of financial literacy interventions saying “Time and again, [its] efforts have failed. They don’t make any noticeable difference in the way we spend and save.” While mixed results from studies measuring the impacts of financial education indicate that the jury is still out on its effects on individuals’ financial behaviors, the author goes on to make a valid point with which I whole-heartedly agree: “financial literacy isn’t enough.” That is, financial success is not necessarily determined by how well individuals can calculate interest rates, but how well they are able to delay gratification for immediate consumption, control their emotions, and overcome other psychological barriers that prevent most human beings from making rational choices, such as saving. 

Default Stickiness, Low-Income Employees, & Considerations for Designing AutoSave

December 16, 2011
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The George Washington University School of Business and the Federal Reserve Board host a Financial Literacy Seminar Series  which bring together academics, policy makers, practitioners, and other experts interested in research on financial education and capability building.  Tuesday’s session featured Brigitte Madrian from the Harvard Kennedy School whose research is a cornerstone for our understanding of household saving and investment behavior,

Less Money, More Impact

December 15, 2011
http://www.flickr.com/photos/katkamin/6462625847/

This week, renowned blogger Matthew Yglesias argued that moving away from a physical currency would make the US economy recession proof. He points out that a time-tested approach to ending recessions is cutting interest rates, since "when rates fall, business investment, homebuilding, and durable goods purchases all rise and next thing you know everybody’s back to work." The problem is that currently the US has interest rates are already near one percent, and any drop below zero would lead "people [to] just withdraw money and store it in shoeboxes." That is, unless taking cash out of the bank was not an option. In this case, argues Yglesias, a negative interest rate would incentivize those with money in the bank to invest, make purchases and spend the country out of recession as they have in times past.

Follow-Up: Beyond Our Means

December 14, 2011
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On December 13, 2011 the Asset Building Program hosted Professor Sheldon Garon, author of Beyond Our Means: Why America Spends While the World Saves. While economists often claim people save according to universally rational calculations — saving the most in their middle years as they plan for retirement and saving the least in welfare states — there are substantial differences in savings rates across high income countries. For example, Europeans save at relatively high rates despite generous welfare programs, while Americans save little, despite weaker social safety nets. The assumption that generous social benefits will provide a disincentive to save doesn’t hold up.

A Supervitamin for Public Programs

December 13, 2011
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New York City (the Mayor’s office, that is, with whom we have partnered in the past) just released a report about some of the financial empowerment work—including savings, banking and financial counseling initiatives—that it has been pushing into its core social service programs. The report, Municipal Financial Empowerment: A Supervitamin for Public Programs, focuses on professional, one-on-one financial counseling.

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