|By J.B. Wogan, Governing|
Two years ago, the nonprofit Cities for
The initiative also made local government responsible for tracking and reporting outcomes. The financial literacy field used to emphasize group education and measured impact by participation indicators, such as workshop attendance. In fact, a decade ago, measuring the effectiveness of financial counseling at all was unusual, according to
By comparison, cities partnering with the
Two years after the centers launched in
The results suggest progress, but also underscore the challenges that low-income households face in trying to get out of debt. "These things take time. We're working with a very poor population," said
The centers' clients have trouble saving and paying down debt in part because they don't make much money to begin with. But many are also shut out of banks, forcing them to use payday lenders, pawnshops and check cashers, which charge higher fees than traditional banks and credit unions.
Nationally, 7.7 percent of Americans do not have a bank account and another 20 percent have bank accounts but also use alternative financial services outside the banking system, according to a 2013 survey by the
Some of the onus is on banks, which usually require a minimum balance to keep an account, charge overdraft fees and refuse to open accounts for people with a history of missed payments at other banks. In
Many clients aren't eager to work with the banks either. Morgan said clients who immigrated from another country often perceive banks to be corrupt institutions that will illegally skim from their savings. In 2013, roughly a third of unbanked households in
[click_to_tweet]Financial counseling centers in several cities have helped low-income people increase their savings by
"We originally thought that the financial empowerment centers might be efficient ways to connect people to the banking system," Mintz said. Instead, clients come into the centers focused on improving their financial situation and "they don't want to feel like they're being sold something."
The centers focus on how people can save money without needing a bank account.
Warbington gave the example of an elderly immigrant couple that paid a monthly
The staff at the
The initiative remains small in scale, but the results so far have been promising enough that the
One of the reasons cities are eager to have their own financial empowerment centers is the long-term potential of reducing government spending on safety net programs as people exit poverty. But Mintz is careful not to oversell the promise of financial counseling, especially as a standalone solution. "I don't consider a financial empowerment center to be the ultimate answer for poverty," he said.
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