Strengthening Financial Health in Times of Crisis

Prior to the pandemic, the U.S. was in the midst of a sustained economic expansion marked by historically low unemployment. At the same time, large scale trends like increased volatility in household income and wages that have not kept up with the rapidly rising cost of necessities such as housing and healthcare have made it difficult for many working families to build savings. Against this backdrop of widespread household financial instability, the recent economic shutdown thrust many low-income families into immediate financial crisis. How did you respond in the early days of the crisis?

We’re a savings organization, but COVID-19 put us in a phase where people’s income dropped significantly. We knew their ability to save would be impacted. Our client population is mostly low-income women of color with average annual incomes of $25,000. A sudden loss of income would likely mean the sudden loss of their ability to cover basic expenses. Many people lack that financial cushion. In a recent poll of our members, 83% of respondents said they had been furloughed or had hours reduced. As people were losing jobs and hours at work, it was clear our clients needed money right away for basic necessities like feeding their families.

SaverLife already gives cash incentives to people to encourage saving. When a funder asked, “What can we do that’s innovative to help right now?” my answer was, “We can get cash to people quickly.” It sounds strange, but it’s surprisingly difficult to give cash away.

It does seem counterintuitive, but you’re raising an important point that’s true across the community development field. Even if significant funds are available from the private or public sector, it’s often a challenge to disburse them efficiently at the organizational level, and even more difficult at the individual level. And to clarify, we’re talking about cash equivalent funds like a deposit into a bank account, not specifically cash in terms of paper currency. What are the key challenges to providing immediate financial relief to individuals?

This is a complex issue, but there are three things that stand out for me: infrastructure, trust, and determining who gets funds.

• Infrastructure—it’s hard to move money efficiently to a lot of people, and particularly for people who may be underbanked. We’re serving a lot of people who need funds urgently, not months from now. We integrated a new software called HyperWallet that allows us to offer multiple payment methods in a secure way. The funds go directly to people’s accounts via ACH or can be claimed by PayPal or Venmo. For those who lack an account, we can also offer a prepaid card option. By leveraging our technology infrastructure and integrating new tools, our team was able to get funds out to people rapidly. Our first payments went out less than three weeks after the shelter-in-place orders took effect.
• Many people don’t trust that free money is legitimate. Imagine getting an email that says, “We’ve got $1,000 free to give to you! Just give us your bank account information!” If you look at the evolution of savings programs, from individual development accounts to prize linked savings, giving away money is nothing new. But there’s always been an element of distrust and the fear of being scammed. When you layer on the digital component related to fintech, you can see why many people are skeptical and won’t sign up to receive funds.
• Lastly, when the funding is limited, how do you select people? Who gets the money, and why? That’s the big question we’re wrestling with. We believe that over 80% of our members have likely suffered a financial disruption. But we only have funding for a fraction of this number. For us, the most expedient solution was to randomly select people from our membership to receive funds. We’re looking at a very uneven recovery from this economic crisis, and people will have very different financial needs. We’re going to need to rely on strong data to understand who is suffering, who is coping, and who is recovering.

I’d like to discuss this issue of people’s different financial needs and how it can inform our efforts to build an inclusive financial system. How are you meeting the financial needs of people who may or may not be part of the existing financial system?

We’re observing on our cash distribution platform that 60% of participants are doing ACH by either directly connecting their online bank accounts or providing a routing number to get funds. The next largest share of people receive funds through PayPal, which does not require a bank account. Even if people don’t have a primary checking account, they often have a PayPal account and then transfer the balance to a prepaid card. There’s a lot of this type of weaving together of different alternatives using tech.

We’re also working with partner organizations whose clients may not have accounts. So, for some clients, our partners are enrolling people in accounts, setting up online banking, and connecting them with financial coaching so they’re equipped to navigate the financial system. Even for people who are banked, there are still digital barriers when it comes to fintech. Do people feel comfortable using online banking and digital platforms? Do you have digital access through broadband and appropriate devices? When we think about the future and how quickly things are changing in the financial system, the issue of financial inclusion must go beyond whether or not someone has a bank account. Do people have the tools they need to be in control of their financial futures?

COVID-19 is creating some of the most significant economic challenges since the Great Depression, and no single entity can solve these issues alone. How are you partnering with other organizations, and how are these coordinated strategies expanding your impact?

First, we partnered with Neighborhood Trust to leverage their financial coaching platform which is designed to support low-income workers. The cash relief is coupled with access to financial coaching so people can make a plan and get information on issues like negotiating credit terms. We’re also setting aside funding to match savings for individuals as the economy starts to rebuild. We need people to get through the crisis, but we also want to help people get to a place of financial stability in the future.

Next, we’re working with a variety of groups to help get the money out. For example, Accion Opportunity Fund and the United Way of Greater Newark are connecting us with small business owners and employees in sectors that we know have been hard hit by COVID. We’re giving $500 emergency cash to the small business owner and also asking them to sign up their employees to receive cash relief. Neighborhood Trust works with restaurant workers, so we’re able to disburse cash to these workers through that relationship.

The third way we’re partnering is with groups that have money, but don’t have a way to distribute it. We worked with Andrew Yang’s group, Humanity Forward, which gave 1,000 people $1,000 in the Bronx. Other funders or nonprofits have come to us as well, saying they have funding but no way to disburse it at the individual level. So, we’ve been offering that service to other groups as well.

Let’s dig into the issue of data. Can you share about your data infrastructure and what you’re tracking over time?

When people sign up for the SaverLife platform, our software gives us a read-only view into transactional data, and everything is de-identified to protect user privacy. We have about 360,000 members in SaverLife, and our goal is to get to one million members by 2021, so it’s a lot of data.

We use Plaid, which allows SaverLife members to securely link a bank account, PayPal account or other savings vehicle to the SaverLife platform. We’re a savings organization, so our primary measure has been net gains in savings, but we’re tracking data on spending, income, savings, and debt during this time. Even before COVID-19, we had already built an income volatility tracker that would predict whether you were likely to have an increase or decrease in income in the next month.

We can see data on six months of prior account activity, so we have a pretty good sense of what a person’s average spending and saving patterns were before the coronavirus crisis.

When we see a sudden decrease in income, we can use that to prioritize who receives cash. We’re seeing stimulus payments come in, and we’re trying to understand who is getting stimulus money, how rapidly is it being spent down, and on what. We know that 50% of our members who received stimulus payments spent the money on necessities like rent and groceries within two weeks.

We should also be able to see these data for unemployment benefits. We’re hoping the data allow us to see who is struggling, recovering, or coping. And savings may not be off the table for some people. We’re expecting to see an increase in savings among some clients as we have during prior economic downturns. Over 100,000 people joined SaverLife since the pandemic began, our strongest quarterly growth by far. I think this indicates that the need for trusted information and resources is at an all-time high, as well as signifies a strong interest in financial stability.

What about data disaggregation? How do you get below the surface of the aggregate data to understand impacts, and how do you leverage and activate this data?

We disaggregate the data by different characteristics such as race, gender, household composition, age, educational attainment, and geography.

About 80% of our members are women, and most of them are parents. Many are Supplemental Nutrition Assistance Program (SNAP) recipients. We’re seeing a lot more differentiation in food related expenditures across gender and household composition, showing that women and households with children are having to spend more on food. Even among SNAP recipients, when we compare expenditures now versus the same time last year, there’s a 30% increase in the number of people spending more than $250 of own their income on food, showing some of the gaps in benefits.

Transactional data can tell us what people are doing, but it can’t tell us why. I’m a big believer in qualitative research. That’s where you get insights into what’s driving the decisions people are making. Tragically, we’re hearing a lot of fear. People cannot feed their families and it’s very frightening. We’re also seeing on our community platform that there is a lot of misinformation and misunderstanding about what’s available in terms of benefits. Almost all of our members should be eligible for stimulus payments based on their income, but when we polled them, almost 30% said they didn’t think they were eligible. Many also responded that they weren’t sure how the funds would be delivered.

It’s worrisome to me that there’s such a lack of clarity around these critical supports right now. Our tech platform allows us to poll members and get thousands of responses overnight so we’re asking questions that help inform solutions that work for our members. We’ve done work with policy groups like the Financial Justice Project, Closing the Women’s Wealth Gap, and Liberation in a Generation to bring insight on issues like municipal fines and fees and the racial wealth gap and the impact these issues have on our members. Not just the prevalence of these issues but learning what people who are impacted by these issues would want to do about it. That combination of data and direct connection to understand how it’s impacting people is so important for informing our work and the policy work of our partners.

COVID-19 has revealed at scale the multiple, interconnected barriers that have made it difficult for low-income people and people of color to fully participate in the financial system and broader economy. What are the big changes and bold moves that we as a society need to take to create a more inclusive economy, where no one is left behind?

When you look at the Federal Reserve statistic that says almost 40% of Americans wouldn’t be able to come up with $400 in cash to cover an emergency expense, the question to ask is “Why?”

I run a direct service organization that works with people to save and change individual habits and we see firsthand that the big issues are systemic, not behavioral. That statistic is not because people spend money on the wrong things. We know they don’t do that, and we have the data to prove it. The big issue that’s emerged from our data is inconsistent work schedules. I think that’s going to be a very big deal during this recovery. If you’re only looking at annual household income or hourly wages, you’re not seeing the real picture of huge fluctuations in monthly income.

Our SaverLife families have up to $1,200 or more variation in monthly income, which makes it extremely difficult to save money, stay out of debt, and stay on track for long term goals like saving for education or homeownership. Our California members told us inconsistent work schedules and income volatility were their top financial concerns. We can help people save so they have a cushion when income is low, but the bigger case to make is that people need more reliability in their work schedules and income. We need to get companies on board and make policy changes that allow for more predictable schedules. I’m very interested in seeing what emerges through the recovery from a workers’ rights perspective.

COVID-19 has revealed just how deep financial insecurity is. People lose their income and they can’t feed their family that week. It’s an immediate crisis. We need to start reverse-engineering the world we want. Imagine the scenario where we could say we were hit by a pandemic, but the vast majority of Americans had savings set aside in the bank and were able to use that money to get by until stimulus arrived.

What a different scenario we’d be in if people had the financial security to get through three months and bridge those gaps where the safety net is too slow or inadequate. And on this latter point, there is so much room for innovation and improvement to the safety net itself. We need bolder action to ensure people have critical supports like paid leave, health insurance, and living wages. We also need to innovate in how we can efficiently get cash relief to people at scale. If we could start envisioning the world from that perspective and what we want to see, we’ll be in a much better place.

That’s a good note to end on, thank you Leigh.