Jobs are not enough. LISC National: Financial Opportunity Centers (LISC Chicago: Centers for Working Families)

Transcription

1 Jobs are not enough * Resident input during Quality-of-Life Physical Planning sessions in Chicago, LISC National: Financial Opportunity Centers (LISC Chicago: Centers for Working Families) Financial Capability Ins/tute Webinar Series Product Distribu-on Integra-ng Social and Financial Services September 4, 2013

2 What is enough? Minimally, being able to cover BASIC monthly expenses Income from job Child support Check cashing fees INCOME Payday loan interest Expense exceeds Income Household scenario adapted from Aspen Institute report EXPENSE Workforce services alone - not enough to /p the scale Net income (NI) is nega/ve for 20% of all working FOC par/cipants Most workforce programs don t ask about expense

3 Consequences of not having enough (expenses exceed income) Unsustainable Situa/on: Which bills to pay each month? U/lity Shut- offs Evic/on / Foreclosure Borrowing every month Informal borrowing from friends / family Time associated with bill paying Bill- paying in person / cabs to pay bills Poor awendance at work Poor awendance at school / college Social / Emo/onal (Stress) Distracted at work Distracted at school /college Poor job retention? Poor school / college completion?

4 FOC Priority Balance Budget Tax credits Income from job Child support Household expenses Low- cost checking AlternaAve pay day loan Income Expense Income exceeds Expense Household scenario adapted from Aspen Institute report FOC Model: 3 Core Services Based on Annie E. Casey Founda-on s Center for Working Families model 1) Employment Services Employment counseling Job readiness / job placement Access to educa/on / training (College) 2) Income Support Services Food stamps (LINK card); ACA Housing and energy subsidies Earned Income Tax Credit (EITC) All 3 Core Services Delivered through one-on-one counseling Dedicated counselors for each service Each service affects the budget / bottom line 3) Financial Services Pull / review credit report Establish household budget & balance sheet Connect to mainstream financial products

5 How LISC supports the FOC network LISC supports sites in Chicago, 71 na/onwide Opera/ng grants Common data- tracking placorm Built on ETO sodware placorm; leverages Project Match tracking methodology Credit reports (TransUnion) Learning networks Access to financial products Training in coaching Training / assessment re: credit building Best prac/ces (extract / share / implement)

6 Basic FOC Client Flow Chart Orientation Adult Education Classes EveryDay Digital Training Appt. Financial Coach Appt: Career Coach Job Readiness Training Appt. Income Support Coach Appt. Job Developer Job Placement FOC Flow Chart Key = Employment Service = Financial Service = Income Support Service = Group Activity = Mandatory Next Step = Optional Next Step = What participant wants

7 How do you measure Linancial stability? LISC Key Indicators: Increase in Net Income Increase in Net Worth Increase in Credit Score Data Sources: Budget (baseline, subsequent) Balance Sheet (baseline, subsequent) Credit Report (baseline, subsequent) COMPOSITE financial indicators: Can show progress large and small Can mark milestones income > expense; credit score > 650 Can use 3rd party credit report data to track behavior over /me Puts single events in context (i.e., purchase home, open checking account)

8 CWF Financial Counseling Strategies From 2004 to 2007 Encourage people to draw down EITC / access free tax prep Fix errors on a credit report Pay off debt with lump sums nego/ate sewlements Debt consolida/on /debt management Emergency loan program (quick exit from this!) Saving, if par-cipant can cover household expenses Star/ng in 2008 Focus in on credit (thanks to CFSI) 46% of clients have no FICO credit score at program entry

9 Credit Reports & Credit Scores Only way to generate a score installment/revolving loans that report What does it mean to be unscored No Score - with no collec-ons (not borrowing; borrowing from lenders that don t report and paying back on /me) No Score - with pages of collec-ons (borrowing from lenders that don t report, and NOT paying back on /me) Many par/cipants had a credit score, but old debt aged off the report What does it mean for the financial counselor Paying back collec/ons with no score - s/ll no score Paying back collec/ons with low score - lowers score temporarily Saving has no direct impact on credit score More than half of participants are good money managers (Project Match Cluster Analysis, 2010)

10 Income from job Impact of Credit on Net Income Employers check credit when hiring financial resume Landlords check credit when ren/ng Cell phone, u/lity companies require deposits Car insurance premiums more Banks check credit to determine eligibility for checking / savings accounts Lenders look at credit and price accordingly Child support Check cashing fees INCOME Payday loan interest EXPENSE Being poor doesn t increase expense having low/no credit score does Woodstock Ins/tute 2010 Study Bridging the Gap

11 What does it COST to have bad credit? $10,000 auto loan, 5 year term Score * Interest Rate Monthly Payment Total Interest Paid Low % $ $7, Okay % $ $3, Excellent % $ $1, Potential Savings over 5 years = $6,288 Source: * Specific rates depend on the lender a credit union may give a beher rate to someone with a low score, but who has an account with them; a large bank probably wouldn t give someone a 5% interest rate unless they had a 680+

12 The Good News Elasticity in the Credit Score Algorithm Establishing good credit NOT difficult, very quick if no score Six months of on- /me loan payments yields 699 FICO score Five months of on- /me credit card payments yields 725 FICO score Amount of borrowing doesn t mawer To build credit Have to get a product (loan or credit card) that reports to the credit bureaus If product is a credit card, have to use it every month Have to pay on /me every month If product is a credit card, have to use no more than 30% of credit limit

13 You get what you measure n = 2730 n = 3643 n = 3670 n = 5130 Credit strategy now includes PRODUCTS Counseling alone Can t turn knowledge into prac/ce Limited access to products (more difficult since recession) Products alone Bank- On Campaigns: small % succeed (limited follow through) Banks make money on fees

14 First Product: LISC Twin Accounts Build credit Save $300 Earn $300 in match funds Open a secured credit card LISC Twin Accounts: Par/cipant Eligibility Requirements Receiving financial counseling Have Net Income of at least $25 per month (ability to pay) Have few, if any, ac/ve trade lines (products that build credit) LISC Twin Accounts: Product Descrip/on Par/cipant opens $300 credit builder loan at Jus/ne Petersen (from the CWF office) Jus/ne Peterson deposits loan proceeds into a locked savings account Par/cipant makes 12 monthly payments of $24.26 Jus/ne Petersen reports payments to the credit bureaus LISC matches each ON TIME loan payment; NO match if payment is late (or if loan is defaulted) At the end of the 12- month loan term Par/cipant has up to $600 ($300 savings + $300 match) + improved credit Jus/ne Petersen uses at least $300 in match (and/or savings) to open Banamex USA secured credit card Banamex USA allows par/cipant to con/nue building credit

15 LISC Twin Accounts as Enhanced IDA No difference in cost IDA : Savings deposits have no credit building effect Twin Accounts : Loan payments, if on /me, boost credit IDA: If successful, $600 in savings/match Twin Accounts: If successful, $600 in savings/match + improved credit IDA: If no awen/on to credit, asset purchase costs more (higher interest rate) Twin Accounts: If client has good credit, asset purchase will cost less

16 Product Trajectory / Partnerships 1) Chicago-based search for a financial partner with... Capacity Interest 2) First Partner: North Side Community Federal Credit Union LISC paid an administrative fee per account LISC produced customized monthly statements FOC participants had to go to NSCFCU to initiate product 2) Second Partner: Justine Petersen (St. Louis-Based CDFI) JP allows for remote product initiation (from the FOC) JP no longer charges administrative fee JP produces customized monthly statements JP facilitates opening of low-cost secured credit card JP training and testing FOC staff on credit building JP expanding to other markets JP willing to distribute product beyond LISC markets (MOA)

17 Lessons Learned: Understand / protect non-negotiable elements of the deal Watch for early implementation errors Accept responsibility for errors Work cooperatively and aggressively to correct errors Simplify systems/ procedures (lower cost) Be opportunistic (look for enhancements / improvements) Be fair (give existing partner chance to match terms of new potential partner) Track relevant data (product use and product outcomes)

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