Financial Empowerment Initiative of the City of San José: Integrating Strategies that Build Financial Security into City Programs and Community

Transcription

1 Financial Empowerment Initiative of the City of San José: Integrating Strategies that Build Financial Security into City Programs and Community Partnerships June 2016

2 Acknowledgements The Financial Empowerment Initiative of the City of San José is a collaborative project developed in consultation with the community, topic experts, local stakeholders and leaders in the field. Support for this work is gratefully acknowledged. Citi Community Development provided seed funding that facilitated convening and a vision for collective action. Through its Innovations Fund and Cities for Citizenship program, Citi Community Development is the Initiative s major supporter, and includes direct funding for the financial literacy strategies of the Office of Immigrant Affairs and Citizenship Corners at SJ Public Library branches, as well as for the SJ Works youth employment program implemented by work2future Foundation and the Department of Parks, Recreation and Neighborhood Services. Additional planning and technical assistance support was provided by Cities for Financial Empowerment Fund and the Consumer Financial Protection Bureau. Initial convening of an Asset Building Working Group for Silicon Valley was made possible through United Way Silicon Valley; now United Way of the Bay Area. United Way provided the first round of support for the financial literacy component of the SJ Works youth employment program when it launched in the summer of Enormous appreciation goes to Alliance Credit Union for providing youth appropriate bank accounts to SJ Works youth, and to MyPath, for access to their new release of the MyPath Money, a youth-appropriate online and mobile money management program. With leadership and support from the City of San José s Offices of Mayor Sam Liccardo, the City Manager, and Economic Development, the Financial Empowerment Initiative is coordinated by a committed team at work2future Foundation and expert consulting from Lighthouse Philanthropy Advisors. 2

3 Contents Executive Summary... 4 Financial Insecurity in San José... 5 Financial Empowerment: An Antidote to Financial Insecurity... 6 San José s Financial Empowerment Initiative... 8 Call to Action... 9 How to Get Involved Who to Contact Appendix A - National Bank On Standards Appendix B - Center for Financial Empowerment Youth Account Priorities Appendix C - Stakeholder and Advisory Group Rosters Appendix D Financial Empowerment Initiative Survey Results

4 Executive Summary Financial empowerment is about increasing economic opportunity and strengthening the financial security of individuals and households. The aim of the Financial Empowerment Initiative is to help at-risk and low-income youth and other economically vulnerable populations make informed financial decisions that improve their financial stability and that of their families and households. The Initiative has adopted the Household Financial Security Framework 1 to inform its work. The Framework identifies the five factors that drive household financial stability and form the basis for financial empowerment strategies: learning, earning, saving, protecting, and investing. Financial empowerment strategies can include services such as financial education and coaching, access to safe and affordable savings and money management products and services such as direct deposit and automatic savings, non-predatory check cashing and loan products, and free tax preparation services that ensure the maximum refund. The impact potential on household financial security can be maximized and delivery costs minimized when services are integrated with programs that increase income such as youth and adult employment, small business and workforce development and citizenship services and access to public subsidies for food or housing. Strategies may also be very effective when integrated into programs that assist families in avoiding financial chaos events such as eviction, foreclosures and debt crises including bankruptcy. In 2013, with support from Citi Community Development, United Way of Silicon Valley (UWSV) convened a variety of agencies and non-profit organizations in San José that provide a range of financial empowerment services. The goal was to explore the question of whether collective impact could be amplified through collaboration among these agencies and with local government. Acting on their findings, UWSV proposed a collaborative project with the City of San José that would have two outcomes: first, to develop a financial empowerment strategy in collaboration with local stakeholders that would integrate financial empowerment strategies into existing city services that reach vulnerable populations, and second to leverage the services already being provided by these agencies in targeted low-income communities through strategic partnerships with City programs. As the then-newly elected Mayor Liccardo took office in January of 2015, two opportunities emerged that created the foundation for developing the Financial Empowerment Initiative (FEI) for the City of San José: the launch of the Office of Immigrant Affairs in the spring of 2015 and the SJ Works summer youth employment program in the summer of With grant funding from Citi Community Development and UWSV; and funding and technical assistance from Cities for Financial Empowerment Fund and the Consumer Financial Protection Bureau, the vision for an FEI became reality. It was launched with a short-term goal of piloting new, integrated financial empowerment strategies within the City and a vision to expand integrated services into San José s community-based programs. 1 CFED Household Framework Copyright CFED,

5 Financial Insecurity in San José San José has a large and diverse population that surpassed the 1 million mark in With over 300,000 households, San José is the tenth largest city in the country and the third largest in California behind Los Angeles and San Diego. As the Capital of Silicon Valley, San José is a mecca for highly-educated and highly-paid entrepreneurs and tech workers. It is also home to many who are struggling to make ends meet. Largely due to the high cost of living, approximately 40% of San José households do not generate the income necessary to meet basic needs. 2 Low or insufficient income to meet basic needs is only one measure of financial vulnerability or instability. Families having sufficient savings to weather the loss of income or an unexpected financial burden is another. In San José, almost 30% of households do not have sufficient savings or assets that could be easily converted to cash to cover three months of basic Financial Insecurity among San José Households: household expenses in the case of a sudden job loss, medical emergency or other crisis. Perhaps more concerning is that about 1 in 5 San José households has insufficient total net worth (the sum of all household assets minus all debt) to subsist at the federal poverty level for three months in the absence of income. 3 40% do not generate sufficient income to meet basic needs Two additional factors can affect household financial security: access to safe and affordable financial services and products and income volatility. In San José, nearly 25% of households are either unbanked or under-banked placing them at risk for predatory and high cost financial practices such as non-bank money orders to pay bills; check cashing services, pay-day loans, non-bank remittances, rent-to-own services, pawn shops, and refund anticipation loans. Income volatility refers to the stability and predictability of household income over time. 4 Many of San Jose s neighborhoods are in financial distress. Indicators that point to community distress are high concentrations of low-income households and residents that are English-language learners with low levels of formal education. Concern about future employment opportunities, especially for those with lower educational attainment levels adds to household distress. Silicon Valley s capacity for technological innovation bring with it a byproduct of obsolescence both in products and types of employment. Today, 37 percent of the region's current occupations are considered vulnerable to technological obsolescence. 5 1 in 5 has insufficient net worth to subsist for 3 months at the federal poverty level 25% are either unbanked or under-banked 2 Insight, Center for Community Economic Development Self-Sufficiency Standard for California and US Census, 2014 American Community Survey. 3 CFED 2015 Assets and Opportunity Score Card 4 CFED 2015 Assets and Opportunity Score Card 5 BW Research, Financial Distress in San José. This work is in progress and was commissioned by the City of San José; publication of the full report is expected in the summer of

6 Financial Empowerment: An Antidote to Financial Insecurity The strategies to be developed and implemented as part of the Financial Empowerment Initiative are informed by the Household Financial Security Framework. 6 Shown in Figure 1 below, the Framework was developed by the Corporation for Enterprise Development (CFED), a leading policy and advocacy organization focused on enhancing economic opportunity through increased financial security. Definitions: Figure 1 LEARN - Connect clients to financial education, counseling or coaching on a range of topics, such as debt reduction, managing credit scores, budgeting and choosing financial products. EARN - Facilitate access to public benefits offered by federal, state and local governments through integration of benefit screening tools Connect low-income workers to free tax preparation assistance and access to the Earned Income Tax Credit. SAVE - Link clients to mainstream financial products such as basic savings or transactional accounts through partnerships with banks or credit unions. Accelerate savings by connecting clients to matched savings programs such as individual development and children s savings accounts. INVEST - Connect clients to reputable credit counseling agencies to improve credit-worthiness for home or business loans and to remove potential barriers to employment. Link clients to first-time homebuyer programs for counseling and 6 CFED Household Financial Security Framework 6

7 down payment assistance. Provide access to small business development training and capital. PROTECT - Inform clients about hazards of high-cost financial products such as predatory loans, high interest-rate credit cards, prepaid cards with high fees and overdraft fees on bank accounts. Connect clients to foreclosure counseling and mitigation services to help at-risk homeowners. 7 Among researchers and practitioners who study and implement poverty-alleviation strategies, the question of how households manage their income and assets has gained importance over the past decades. In addition to household financial management ability providing services to help individuals increase earned income and access income support is also effective. Household financial management like that of a business consists of both: income and expenses (similar to a business profit and loss statement) and assets and debt (similar to the business balance sheet). Programs and services that seek to enhance the income capacity and reduce the expenses for residents are critical in moving toward financial security; but alone are insufficient. Managing the household s balance sheet savings, debt and even credit score is vital to building long-term financial stability, and lies at the root of financial empowerment. Financial empowerment strategies can include services such as financial education and coaching, access to safe and affordable savings and money management products and services such as direct deposit and automatic savings, non-predatory check cashing and loan products, and free tax preparation services that ensure the maximum refund. The impact potential on household financial security can be maximized and delivery costs minimized when services are integrated with programs that increase income such as youth and adult employment, small business and workforce development, and citizenship services and access to public subsidies for food or housing. Strategies may also be very effective when integrated into programs that assist families in avoiding financial chaos events such as eviction, foreclosures and debt crises including bankruptcy. Local Financial Empowerment Ecosystem: Non-profits, Financial Institutions and Cities Non-profit community-based organizations including non-bank financial institutions, mainstream banks and more recently, cities and other municipal agencies, have taken on the challenge of providing financial empowerment services and products. In San José, Opportunity Fund, a Community Development Financial Institution provides matched savings programs, financial education and small business loans. Kiva Microfunds, a San José non-profit, is launching Kiva.zip as an online service that facilitates 0% loans to entrepreneurs via mobile payments and PayPal. CommUniverCity provides financial education classes and Catholic Charities offers free taxpreparation services. work2future Foundation operates two job centers in San José and has provided basic financial literacy courses to its clientele for the past ten years. The Spark Point Centers of the United Way of the Bay Area (UWBA) and the Financial Opportunity Center at Sacred Heart Community Services offer one-stop access to a full range of financial empowerment and workforce development services. At the centers, clients work one-on-one with a coach who supports them in identifying their goals, developing a step-by-step action plan and staying on track for success. 7 CFED Household Financial Security Framework 7

8 Banks and credit unions play a key role in these efforts, partnering with service providers through funding, volunteer teachers for financial education and in the development of safe and accessible financial products. Most recently, Citi, Chase and Bank of America signed on to the Bank On National Account Standards 8 that provide a benchmark for the definition of safe and accessible savings account products (i.e. low-cost, low-fee, no-overdraft). In order to better serve the needs of youth, additional work has been done to develop the Youth Account Priorities. 9 These are noncustodial bank accounts for under 18-year-old youth that can be opened without a Social Security Card or state-issued identification, and with low (or no) minimum balance requirements. In San José, two credit unions: Alliance and Santa Clara County Federal Credit Unions now offer youthfriendly checking and savings accounts that align with the National Youth Account Priorities. Following on the success of New York City s Office of Financial Empowerment (OFE), it has become increasingly common for cities and other municipal entities to play a leadership role in ensuring the financial security of their residents. Whether set up as a dedicated OFE or integrated into the work of multiple city departments or programs, city financial empowerment efforts generally mirror the vision of New York City s Office of Financial Empowerment to: educate, empower and protect low-income residents, enabling them to build assets and make the most of their financial resources. 10 The National League of Cities identifies over 75 cities that are addressing these issues and of these, twenty five that have robust programs in place designed to enhance the financial well-being of their residents. 11 San José s Financial Empowerment Initiative With support from Citi Community Development, in 2013 UWSV convened community-based, non-profit and municipal agencies in San José that provide a variety of financial empowerment services. The objective was to explore the question of whether collective impact could be amplified through collaboration among these agencies and local government. Acting on their findings, UWSV proposed a collaborative project with the City of San José that would have two outcomes: first, to develop a financial empowerment strategy in collaboration with local stakeholders to integrate financial empowerment strategies into City services that reach vulnerable populations and second, to leverage the services already being provided by these agencies in targeted low-income communities through strategic partnerships with City Programs. As the then-newly elected Mayor Liccardo took office in January of 2015, two opportunities emerged that would create the foundation for developing the City of San José s Financial Empowerment Initiative: the launch of the Office of Immigrant Affairs (OIA) in the spring of 2015 and of the SJ Works summer youth employment program in the summer of With grant funding from Citi Community Development and UWSV; and funding and technical assistance from the Cities for Financial Empowerment Fund and technical assistance from the Consumer Financial Protection Bureau, the Financial Empowerment Initiative was created. The newly formed OIA, in partnership with Citi Community Development and UWSV, began an effort to minimize barriers for immigrant populations by working with local nonprofit organizations 8 CFE National Bank On Standards, October 2015, See Appendix A 9 CFE Youth Account Priorities, Youth Employment Success (YES) Program 10 New York Office of Financial Empowerment, 11 National League of Cities, City Financial Inclusion Efforts: A National Overview, MetLife Foundation. 8

9 to promote citizenship, encourage financial literacy and connect residents with financial institutions to help with establishing credit, opening bank accounts and learning about other mainstream financial services. The Cities for Citizenship (C4C) Initiative, sponsored by Citi, focused on hosting citizenship workshops, creating citizenship corners at San José libraries, creating a citizenship awareness campaign, hosting financial education workshops, and special naturalization events. OIA is working with the Center for Employment Training (CET) to design a model for more effective incorporation of financial literacy and empowerment in next year s citizenship activities and seeks to maximize face-time with people interested in naturalizing and to determine the best way to capture related metrics. In the summer of 2015, the SJ Works summer youth employment program was launched in partnership with the County of Santa Clara. Nearly 90% of the participants indicated that the program provided them with their first job. Based on the success of the 2015 program, the 2016 plan is to serve 1,000 youth and young adults. In its first year, financial literacy was integrated into SJ Works employment readiness workshops, with an introduction to money management and banking basics. Additionally, and in partnership with Community Financial Resources, a pilot program was launched that gave youth a direct deposit option for their wages, rather than receiving a paper check. While the pilot encountered challenges, it was a considerable success in that 25% of participating youth took advantage of the direct deposit offering. The experience laid the groundwork for further research into more viable banking options for youth to facilitate direct deposit checking accounts, encourage savings and eliminate typical check-cashing fees. In order to further inform the initiative, an FEI Advisory Group was convened, and information was gathered from the community through meetings, a resident survey and focus groups. The Advisory Group is comprised of local financial empowerment experts, practitioners and funders and provides oversight and guidance through periodic meetings and consultations. Additional input was provided by a broader set of local stakeholders that included representatives from San José community-based and non-profit organizations and Santa Clara County agencies that serve low-tomoderate income populations. (See Appendix C for the list of participants.) Survey and focus group research was conducted with approximately 100 work2future Foundation clients. Findings indicated a strong interest in financial education and coaching, banking access and learning about savings. Respondents also indicated a willingness to access information and services at community centers, libraries and online. (See Appendix D for Survey results.) Looking forward, the San José Financial Empowerment Initiative is set to roll-out, in a series of three phases: Spring - Summer 2016: Public launch of FEI at the SJ Works 2016 launch event including distribution of this, San José Financial Empowerment Initiative white paper. Finalize FEI strategic plan to guide City staff in implementation. Implement second year of SJ Works and OIA Cities for Citizenship programs. Fall 2016 Summer 2017: Expand integration of financial empowerment strategies within City departments and programs, in community-based organizations and an exploration of sustainable strategies to expand program services Winter 2018: Evaluation and recommendations for scaled-up financial empowerment services and delivery models Call to Action 9

10 The vision for the Financial Empowerment Initiative is a San José where all residents feel more confident about their financial futures and have greater financial knowledge, tools and opportunities for themselves and their children. San José intends to follow the lead of successful programs across the country to integrate services wherever possible and deepen public and private partnerships. The strategies and Initiative components as well as the timeline described above are attainable and the elements for success have been created. It will be the work of the Initiative to continue to build on the following five success strategies: Leadership from the offices of the Mayor and the City Manager; Ongoing communication with the community, stakeholders, City leadership, funders and policy-makers; Application of best practice, vetted curriculum and technology; Data-driven strategies and continuous learning; and Leveraging resources, infrastructure and partnerships. How to Get Involved Be an advocate for the initiative and help the FEI connect with funders. Advocate for policy changes and improvements that support financial empowerment. Employ a youth in one of our summer or year round programs. Provide financial support for program implementation and operation. Sponsor a neighborhood FEI coaching center at libraries and community centers. Who to Contact To learn more about this initiative and find how you can contribute visit: 10

11 Appendices Appendix A - National Bank On Standards BANK ON NATIONAL ACCOUNT STANDARDS ( ) Core Features Transaction Account at Banking Institution Point of Sale (POS) Capability Minimum Opening Deposit Monthly Maintenance Fee Overdraft-Non-Sufficient Funds (NSF) Fees Dormancy or Inactivity Fees Customer Service Branch Access Telephone Banking Use of In-Network ATM Use of Out-of-Network ATM Functionality Deposit Capability Electronic Bill Pay Check Cashing for Checks Issued by that Bank Online and Mobile Banking Banking Alerts Monthly Statements Insured Deposits Strongly Recommended Features New Account Screening (e.g. ChexSystems, Early Warning Services) Alternative IDs (Municipal, Consular, etc.) Remote Account Opening Linked Savings Accounts Recommended Features Mobile Deposits Funds Availability Money Orders Remittances (International Wire) Credit-Building Product Offerings Checking account (including checkless checking); bank- or credit union-offered prepaid Debit card/prepaid card $25 or less If not waivable: $5 or less. If waivable: $10 or less; offer at least two options to waive fee with a single transaction (e.g. direct deposit with no minimum deposit, online bill pay or debit card purchase) None, structurally not possible (e.g. via checkless checking) None Free and unrestricted Free and unrestricted (including live customer support) Free and unrestricted $2.50 or less (not including local ATM fee) Free branch, ATM, cash, and direct deposits Free Free Free Free Free (paper or electronic with consumer consent) Insured by FDIC or NCUSIF Only deny new customers for past incidences of actual fraud Accept alternative IDs Accounts can be opened remotely Free savings accounts and account transfers Available, free Immediate availability for known customers cashing government, payroll, or same-bank checks $1.65 or less Competitively priced ($5.00 $20.00, depending upon country) Secured credit card or secured personal loan 11

12 Appendix B - Center for Financial Empowerment Youth Account Priorities Account Terms Non-custodial account/product for those under 18 Flexible usage of account screening consumer reporting agency reports, including Chex Systems Capability to maintain free account Low (or no) monthly and minimum balance fees No overdraft capability Free online/mobile banking and bill pay Issued by mainstream financial institution (e.g. bank or credit union) Ability to issue ATM card and pay card to those without a Social Security number Ability to add cash or other direct deposit sources to the account/card without fee Multiple free methods to access funds, which should include in-network ATMs and cash back with purchase Cards only (recommended if account is not available) Savings bucket option If payroll card, ensure a minimum of two free withdrawals each pay period Account Opening Remote account opening through online opening, or deputizing staff at a partner organization to open the account Flexibility to allow for alternative ID verification for example, municipal partner or community based organization verifies ID or accepts school-issued ID Account numbers are assigned instantly upon opening to facilitate direct deposit enrollment Ability for consumer to delay funding initial balance until first payroll, which may be a few weeks after account opening 12

13 Appendix C - Advisory Group and Stakeholder Group Rosters ADVISORY MEMBER ORGANIZATION TITLE Blanca R. Gomez Wells Fargo Bank VP Community Development Manager David Mirrione work2future Foundation Executive Director Eric McDonnell United Way of the Bay Area Chief Operating Officer Ingrid Holguin City of San José - Mayor's Office Policy Advisor for Strategic Partnerships Jeff Ruster Jessica Weare Josh Russell City of San José City Manager s Office Office of Economic Development Microsoft Corporation Bank of America Director of Strategic Partnerships Assistant Director Philanthropy & Civic Engagement Manager Vice President, Silicon Valley Market Manager Kyra Kazantzis Law Foundation of Silicon Valley Directing Attorney Leena Randhawa Vicki Joseph Citibank (Formerly) Citi Community Development (Formerly) Vice President, Community Development Officer SVP, Northern California Regional Manager Pat Krackov Lighthouse Philanthropy Advisors Principal Patrick Soricone United Way Silicon Valley (Formerly) Rafael Morales Silicon Valley Community Foundation (Formerly) Vice President Community Building & Impact Economic Security Program Officer Tyler Spalding PayPal Lead Manager, Social Innovation 13

14 STAKEHOLDER MEMBER ORGANIZATION TITLE Camille Fontanilla Somos Mayfair Executive Director Chris Funk East Side Union High School District Superintendent Denise Boland County of Santa Clara Director of Employment and Benefit Services, Department of Social Services Dr. Byron Breland San José City College President Gwendy Brown Donaker Opportunity Fund Vice President, Research & Policy Poncho Guevara Sacred Heart Community Services Executive Director Ray Bramson City of San José Homelessness Response Manager Steve Hicken Catholic Charities Santa Clara County CEO Zulma Maciel City of San José Strategic Partnerships & Office of Immigrant Affairs 14

15 Appendix D Financial Empowerment Initiative Survey Results Financial Empowerment Survey Approximately 100 Approximately 50 SM= Survey Monkey MS = Manual Survey (Paper) FG = Focus Group Survey Questions SM/MS FG Income from LMI Household 89.6% 72.6% Willing to attend a financial education class 60.0% 90.9% Willing to meet with a financial coach 42.2% 72.7% Willing to meet with a financial advisor 52.3% 81.8% Willing to attend classes at libraries 34.5% 63.6% Do not have savings accounts 75.0% 75.0% Have some type of credit 60.0% 100.0% All Surveyed Access to internet & computer 69.5% Prefer to learn about services through internet 60.0% 69.5% Have a bank account 56.4% Have a credit union account 22.3% Have both a bank and credit union account 10.6% Financial Institution Both 12% 60.0% Credit union account 25% [CATEG ORY NAME] [PERCE NTAGE] Access to Internet & computer Prefer to learn about services through internet San José Financial Empowerment Initative LMI Residents Survey Findings SM & MS FG 89.6% 72.6% 60.0% 90.9% 42.2% 72.7% 52.3% 81.8% 35.4% 63.6% 75.0% 75.0% 60.0% 100.0% Income from LMI Household Willing to attend a financial education class Willing to meet with a financial coach Willing to meet with a financial advisor Willing to attend classes at libraries Do not have savings accounts Have some type of credit 15