Tech bringing financial opportunity to hills and hollers

Anthony Price had a problem. Like a number of Owsley County, Kentucky residents, Price travels for work. “Unless you work for the school system or the state, there’s not a lot of options,” Price says of economic opportunity in what the U.S. Census Bureau’s 2016 American Community Survey found was the third-poorest county in the United States. Owsley County’s July 2018 unemployment rate of 8.0 percent was nearly double the state’s rate.

The Census Bureau's Opportunity Atlas paints a challenging portrait
of Owsley County, Kentucky.

Traveling for Norfolk Southern on a large production railroad tie gang is good for Price’s finances. It hasn’t made accessing financial services in his hometown of Booneville that easy, though. This isn’t surprising given the lack of opportunity that has long plagued remote Appalachian areas – a fact summed up in this snapshot by the Census Bureau’s “Opportunity Atlas” (also shown at right).

“The banks want you to come in physically and sign papers and wait a week or two for a loan application,” Price says.

That route is tough on people who earn their living away. Last year, Price used an online credit provider for a vehicle loan. He did it despite having good credit and despite the 23 percent interest rate. 

Then Price learned about Appalachian Community Federal Credit Union (ACFCU). The mission-driven CDFI credit union placed a “virtual teller machine” in Booneville in 2017 specifically to help address its vastly underserved population by using financial technology.

Lisa Botner is a Booneville native who is working to
help develop her home county.

Price, who was needing a new work vehicle, messaged former classmate and ACFCU specialist Lisa Botner on Facebook – virtual step one.

ACFCU’s Owsley County model helps the credit union reach underserved communities where brick-and-mortar locations might not be justifiable. It frees up resources so people like Lisa can partner with non-profits, provide financial coaching and help spur community and economic development.

“One phone call got the process started, and she had all the paperwork ready for me when I came home,” Price says. Price also refinanced the high-interest online loan and is saving hundreds in interest.

Price says he didn’t know about ACFCU’s mission until Botner filled him in. He’s certainly spreading the word about this new option for Owsley Countians.

Unemployment remains stubbornly high in Owsley County.

“I’ve told everybody,” he says. “It’s a good thing, especially for the people over there when there’s limited options.”

ACFCU’s commitment extends to financial coaching, combined with fair lending products, designed to help members stair step their way to greater financial health and stability, regardless of income.

“It’s been hard getting through to people that there’s something different,” Botner says. “At first people were confusing us with a payday lender. Getting people to understand we don’t just hand out money and charge you horribly high interest rates has been a challenge.”

Botner says she anticipated those challenges. “But word’s getting out, people are figuring out what we’re really about and we’re actually starting to earn people’s trust.”

(Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.)

Agape as a motivator for financial health

Grandparents co-sign for grandchildren’s student loans. A single mom working overtime takes in a nephew she barely knows, and the expenses and time that come with that. A working couple makes sure their kids have braces on their teeth and travel basketball opportunities while foregoing many comforts of their own. And ultimately in these cases, debt mounts, credit scores suffer and predatory lenders gain the most through all these altruistic efforts.

This year, my work with Appalachian Community Federal Credit Union (ACFCU) has brought me the privilege and challenge of providing financial coaching to more than two dozen individuals and couples. As relationships have taken root and people have shared personal details, one common thread that often has emerged is a tendency to spend on others. That’s not terribly surprising. Research bears out a psychological reason for people’s desire to help others.

This ho ho horrible option (279.5 percent interest) can appeal to
borrowers' longing to give to others.

If “prosocial spending” produces more happiness than spending money on oneself, how should a financial coach address overspending’s cumulative effects on a client’s life? This question seems particularly relevant during the Christmas season, when it is easy to spend more than we plan to or should spend.

Recognizing a client’s desire to sacrifice for others and track record of doing so is a good start. Most clients have made some regrettable decisions, and those decisions haven’t been made solely for altruistic reasons. High-interest lenders may exploit the consequences of those decisions, but they don’t force people into situations in which they have become the only option for credit. Yet with many clients, there are strong undercurrents of sacrifice for family, extended family or friends, including working overtime, taking second jobs and doing without.     

Repeatedly recognizing and affirming that sacrificial approach can build trust and appreciation on a personal level. It can also make clients more receptive to the cold facts. Here’s an example based on the need/desire to help a loved one with $1,000 each year:

If you use a “flex loan” line of credit at 279.5 percent interest to access that $1,000 and pay it back over eight months, you’ll pay $286 per month and you will pay the lender $1,290 in interest.

If you use an unsecured personal loan from a high-interest lender at, say, 36 percent, and pay it back over 12 months, you’ll pay $100.46 per month and pay the lender $205 in interest.

If you put $100 per month into a separate account for 12 months, you’ll have $1,000 to give your loved one – just not right now – and you’ll have a $200 nest egg. You won’t have helped make a lender even wealthier. The next time, you can give your loved one even more help, or you can attack other high-interest debt, freeing up ever more cash flow for saving and investing in others.

This example is simplistic. The principle it contains applies not just to helping others but to helping ourselves. As coaches, operating within our mission-driven credit union’s overall approach, we constantly search for keys to motivate clients, because you’d better believe those who benefit from people’s financial vulnerabilities are expert motivators and manipulators.

The sacrifices many coaching clients make for others are humbling and moving. The stress and lost opportunity they experience from financial ill health are grievous. The agape love that represents this season’s ultimate truth is contained within these clients’ desires to bless others. There is a strong root there – one that won’t have an axe laid to it, but rather one that bears good fruit and can bear it even more abundantly. I hope that somehow in 2019, that root can be nurtured and those with whom we work can find greater joy as they become more financially healthy and their ability to bless others is multiplied.    

 (Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.

Smoothing income and saving starfish

This predatory lender charges 279.5 percent interest for the
"flex loan" product that's advertised here.

“Income volatility, which drives financial instability, is threatening the social mobility and independence of working families, and neglecting this issue will only lead these families further into debt.”

Restructuring the EITC: A Credit for the Modern Worker

Dylan Bellisle and David Marzahl, Center for Economic Progress

Could tax refund-based “income smoothing” help prevent the stories I’m about to convey?

Don and Danielle (not their real names) have already taken out an advance on their 2018 tax refund. As so many low and moderate-income families who receive large refunds do, they’d come to the end of the calendar year in desperate need of funds. The multi-billion-dollar tax company that provided the advance based on their pay stubs (with a 4.5 percent fee and at 36 percent interest) was only too happy to oblige.

Janelle (also not her real name) is working on a monthly budget right now. She has three kids and brings home about $1,800 a month, but she gets a tax refund of around $7,000. Janelle has faced the same cycle – get a big refund, get caught up on delinquent debt, buy some essentials, live a little less hand to mouth for a few months, then start the slow descent into not making ends meet.

A graphic from the Center for Economic Progress shows the outsized
role debt plays for low-income taxpayers at refund time.

Very often, the families in these situations – families that Appalachian Community Federal Credit Union (ACFCU) provides financial coaching and free tax preparation for – turn to high-interest predatory lenders to get by until the next tax refund. Rent-to-own shops, “buy-here-pay-here” vehicle lots, payday lenders, “flex loan” lenders charging 279.5 percent interest – even Fortune500 companies that are seeing their bread and butter business eaten away by theInternet as great equalizer get in on the act, as Don and Danielle can attest.

The stories above are true. I know because I am coaching both these families. They are working families with children. They don’t make much money, but they earn what they make. As I pointed out last week, the large refunds they receive are in part thanks to one of the most popular bipartisan programs in the country, the Earned Income Tax Credit.

How do we put a dent in this trend of three or four good months followed by eight or nine lean ones that has created such a booming industry? The high-interest options so many people turn to are legal. Whether that should change or not, it’s the current reality.

At ACFCU, a mission-driven financial institution using financial coaching to help people decrease their financial stress and meet financial goals, we’re continuing to strive for an answer. One key is income smoothing. As the Center for Economic Progress’s Dylan Bellisle and David Marzahl pointed out in this paper: “Many working families are filling the gap between their monthly income and expenses by going without necessities, using high interest credit and predatory short term loans, and borrowing from family and friends.”

Another graphic from the Center for Economic Progress reveals that many
Americans in the bottom 40 percent of income spend more than the earn.

I’ve spoken with these coaching clients about escrowing large parts of their refunds and paying themselves monthly to smooth income. That doesn’t work without the willingness to form a realistic budget and follow it, so coaching is key as well. But it does offer a path forward until things change. We’re fortunate to have a great Volunteer Income Tax Assistance (VITA) partnership with Tusculum University.

Until things change, we’ll take the approach of the proverbial kid who walked along the seashore at low tide throwing starfish back into the water so they wouldn’t be burned up in the sun. When informed that with thousands of those starfish along the beach, he wouldn’t be able to make much different, the boy said, “It made a difference to that one!”

 (Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.

EITC and tax refunds as life changers -- credit where it's due

The Tax Policy Center's new database is a great tool.

In an informative post on the Tax Policy Center’s TaxVox blog, Richard C. Auxier touts the benefits of the Earned Income Tax Credit. Auxier praises the EITC while introducing the TPC’s new database “that makes it easy to access information about the EITC and to tailor that data for specific geographic and political communities.

It’s great to see facts and data being compiled about programs like the EITC. Also encouraging is thisarticle from The Economist highlighting the EITC’s bipartisan appeal and its cost effectiveness to taxpayers. Studies such as thisone from economist Jacob Bastian, on which The Economist based its article, lay the EITC’s effectiveness out in black and white.

"Both and" -- Financial Coach Adam Taylor, left, helped Leslie Brady
strategically utilize her Earned Income Tax Credit.

At Appalachian Community Federal Credit Union (ACFCU) and its Volunteer Income Tax Assistance (VITA) partner Tusculum University, we see those good effects firsthand. This is particularly true in the lives of people who have combined our tax prep with financial coaching – people like Leslie Brady, whose story is below.

Another important ACFCU partner, Family Promise of Greater Johnson City (FPJC), introduced us to Leslie in late October 2017. Leslie was late on her rent. ACFCU had established an innovative secured loan program with FPJC, and Leslie got a low-rate personal loan secured by FPJC. The loan was contingent on Leslie working with our financial coaching department to help insure a sustainable path forward, and she began meeting with Financial Coaching Specialist Adam Taylor.

VITA volunteers from Tusculum University help a client in 2018.

Leslie got current with her rent, but an array of additional financial hurdles remained. She had a $9,000 balance with a predatory “buy here pay here” car lot on a car worth less than $5,000, and two predatory loans with a total balance above $900. Those three loans together were costing her $492 a month. Leslie also had a bit of old debt. Enter VITA and the EITC.

Adam directed Leslie to ACFCU’s VITA program, which completed 736 returns last year. The year before, Leslie had paid $300 for tax prep in 2017. This time she saved that money, and an EITC of nearly $3,500 contributed to a refund of nearly $7,000.

Leslie let the buy here pay here car go and took Uber to work and back during a two-month car buying process. She got a secured ACFCU VISA credit card to help her build her credit score. She paid off old debt, put some money in a sinking fund, and held the rest for a vehicle down payment.

Leslie consulted Adam heavily during the car-buying process. He built a spreadsheet with a dozen prospective purchases. James Reeves, a mechanic with whom ACFCU has a relationship, vetted those prospects. Leslie found a good vehicle for her with a $181 monthly payment.

Leslie hasn’t been late on any debts in 2018 and her credit score has increased from 561 to 631. She got a raise at work and is working an extra job through the holidays with her eyes on the American Dream. She’ll use VITA for taxes again in February 2019 and at that point she’ll have begun the journey toward homeownership in earnest. She’ll be able to pay off her FPJC loan and a personal loan at a separate credit union, as well as a short-term ACFCU “quick cash” loan that the credit union offers as an alternative to short-term predatory loans.

Leslie plans to use that extra cash flow (more than $300 a month) to prepare for homeownership. By Christmas 2019, the ACFCU team is hopeful that Leslie and her kids will be living in their own home. Leslie’s financial goals have changed from being reactive (avoid homelessness) to being proactive through her relationship with ACFCU. The Earned Income Tax Credit has played a key role in this progress.

(Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.

Boon or boondoggle? Jury out on Opportunity Zones

Dark blue census tracts in Johnson City, Tennessee represent areas
of economic distress that aren't Opportunity Zones. That doesn't lessen
the need of residents there, nor ACFCU and partners' commitment.

“Boondocks and boondoggles,” indeed. This article in the latest issue of The Economist takes a closer look at “Opportunity Zones.” Created through the 2017 Tax Cuts and Jobs Act, Opportunity Zones (OZ) offer favorable tax status on unrealized capital gains if those gains are invested in OZ-designated census tracts.

Like “Enterprise Zones” and other well-meaning concepts that preceded them, OZs purportedly are designed to draw investment capital into economically struggling areas. That’s one reason Appalachian Community Federal Credit Union (ACFCU) helped drive the effort to establish OZs in appropriate census tracts within Northeast Tennessee’s eight counties.

As a mission-driven financial institution, ACFCU sees firsthand the overwhelming need for action and not just words when it comes to alleviating poor economic conditions in overlooked, underserved areas. “Opportunity” aptly describes an actual concrete thing that is sorely needed in many neighborhoods and census tracts in Northeast Tennessee and ACFCU’s other service areas of Southwest Virginia and Southeast Kentucky.

ACFCU provides opportunity here in rural Kentucky, where Opportunity
 Zones are in light blue and regentrification is just a really long word.

Yet as we have seen this fledgling concept evolve toward reality, some of us at ACFCU have developed the same concerns expressed in the Economist article. Plenty of OZ census tracts are experiencing pockets of regentrification. If capital linked to this program primarily flows into those areas, that concern will prove to have been justified as, per the Economist, “investors will pocket tax rewards for investments that they would have made anyway.”

As ACFCU’s Regional Community Development Coordinator, Adam Dickson, aptly noted, “the more I get into understanding OZs, the more concerned I am that the initial intent of the program is profit with limited regard to the interests of low-income communities.” Dickson also insightfully points out that, “OZs provide a prime opportunity to promote social enterprise, cooperatives, etc.”

Time will tell whether the areas most in need of opportunity benefit. The Economist noted that “place-based policies” are theoretically attractive, because many poorer parts of America find it increasingly difficult to catch up with wealthier ones. “In theory, geographically targeted tax cuts or subsidies could encourage new clusters of economic activity to form, thereby lifting depressed places,” the article states.

Will capital flow to Opportunity Zones like this tract in Kingsport,
where regentrification isn't likely in the cards? The need is obvious.

The Tax Policy Center’s Brett Theodos, Steven Rosenthal and Brady Meixell expressed similar concerns in a blog post published Oct. 23 after the feds released their first set of proposed OZ regulations.

ACFCU and its many partners will continue bringing opportunity to economically challenged areas that need it most and are unlikely to attract investment. Some of those areas are in Opportunity Zones, and ACFCU continues to lead efforts to bring OZ-eligible capital to such neighborhoods.

But we won’t wait to see how the new program turns out. We’ll try to steer a potentially impactful program in the right direction in our communities, including at an upcoming ACFCU-sponsored Opportunity Zone symposium, but we won’t pin our hopes on something that could, indeed, turn out to be a boondoggle. So I’ll take a slightly different tack than the Economist, which writes that when it comes to OZs, “for the moment, scepticism is in order.” Here in the mountains of Central Appalachia, where declines in coal and manufacturing make economic opportunity as badly needed as it’s been in a long time, I share my colleague Adam Dickson’s concern. But like Adam, I’ll choose “guarded optimism” over skepticism. After all, as folks like to say around here, “you can catch more flies with honey than you can with vinegar.”

 (Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.)

The good, the not so good, and the place for financial coaching

ACFCU works with many people who spend a high percentage
of income on necessities as our membership is primarily in Tennessee.

Low unemployment rates and rising wage levels across America sound great, and thank goodness for them. Other data out there, though, make clear the importance of financial coaching and other tools that can help families use their income more strategically. That importance is magnified in Tennessee and Kentucky, both of which are among the 13 states where renters spend more than 50 percent of their income on necessities.

Take this piece by GOBankingRates’ Cameron Huddleston. The Life and Money columnist reports on GOBankingRates’ study of the Consumer Price Index and of housing cost data. Rents are up 7.6 percent in three years, and other necessities have risen by 14 percent.

GOBankingRates surveyed 5,000 renters about monthly expenses, defining necessities as rent, groceries, transportation, utilities and health care. After figuring how much of median household income those expenses accounted for in each state, they used the “50-30-20” budgeting rule to determine what percentage of folks in each state can’t afford the cost of living. That budgeting rule figures 50 percent of income for necessities, 30 for nonessential costs and 20 percent toward saving.

Tennesseans’ average monthly cost for necessities totals 60 percent of median income – third highest behind Delaware and New Mexico. And with Northeast Tennessee median incomes lower than the state average, the folks Appalachian Community Federal CreditUnion (ACFCU) and its partners serve fight even more of an uphill battle to balance their budgets.

Financial coaching has helped Kayla Cabe improve
her financial health tremendously.

That’s why at ACFCU we continue to feel very fortunate to work with people like Kayla Cabe, an aspiring nurse who wants to carve out a good life for her sons Adarius, 8, and Kamari, 1. Cabe learned about ACFCU’s financial coaching resources during an ACFCU workshop at Adarius’s after-school program.

In less than a year working with Financial Coaching Specialist Adam Taylor, Cabe’s credit score has increased by more than 100 points. She’s paid off predatory debt and delinquent school debt and is poised to start LPN school next year. “I want to eventually have my bachelor’s in nursing but I’m taking it step by step because I have two kids,” Cabe said.

Through the process, Cabe’s income hasn’t fluctuated much – she’s learned to make the most of it. She’s gained financial knowledge and “learned to wait on things.”

So long as the cost of living remains problematic for many Americans, there can’t be enough partners out there working together to help families use the resources they have more knowledgeably and strategically. And as Cabe said, many don’t realize they can benefit.

“I think people think they know, and that ‘there’s nothing they can tell me that I don’t know.’ I kind of felt that way at first.”

Now Cabe is saving $100 a month in a sinking fund and another $80 a month for school fees “and a house eventually.” She’s bucking the trend GoBankingRates found in their study. Despite a modest income, the fact Cabe has any savings puts her ahead of a third of Americans.

“I think you guys really want to help people be successful,” Cabe said of ACFCU. She’s right.

 (Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.)

Home is where the difference is

Carla Strickland and her daughter Caira, 5 -- at home.

“I came back home from Georgia and had (daughter Caira), my dogs, a pocketbook and a diaper bag and started over. If you had told me I would be where I am now with her 5 and a half years old I wouldn't have believed it.”  Carla Strickland

One could tell right away that Caira Strickland felt secure on a pretty fall night in the Northeast Tennessee mountain town of Erwin. The kindergartener sat at her kitchen table with mom Carla’s full attention as she ran the “drive-through” on a tabletop toy. Later she’d help Carla feed their chickens, then mom and daughter would lay and read before Caira got tucked into her own bed, in her own room, in her mom’s own home. “She’s a mama’s girl for sure,” Carla said.

Caira will grow up in her own home largely because of Carla Strickland’s hard work and determination. Without Appalachian Community Federal Credit Union’s involvement in the “Project Reinvest” down payment assistance program, though, Carla would probably still be trying to save for her own place.

Caira holds "Bo" on the Stricklands' front porch.

“I feel like this assistance really allowed me to make the numbers work,” Carla said. Those numbers working mean the world to Carla, who grew up mostly in rented housing and wanted something different not just for herself, but for Caira. Carla slept on her dad’s couch so she could afford to save money and pay Caira’s daycare.

The National Association of Realtors compiled information from numerous studies about homeownership’s benefits in this 2016 study. Those benefits accrue to people like Carla, Caira and the 199 other families ACFCU helped through Project Reinvest and the $10,500 in down payment assistance it offered each participant.

Determination keys the turnaround

Carla Strickland did most of the work herself. ACFCU, Neighborworks America and other Project Reinvest partners just offered a hand up. After Caira was born, Carla declared bankruptcy and moved back home.

“I’m sitting there with a newborn kid thinking, ‘what am I going to do?’” Carla said. What she did was put her dental hygienist credentials to work and research how to rebuild her credit. Carla established a savings account and opened a secured credit card. “It was a super low limit, $500. It just went from there. I made sure everything was paid on time, kept my usage below 30 percent and just kept doing that. My score started going up fairly quickly.”

Carla has seven different accounts to escrow money for everything from her house payment to Christmas. “That way there’s no dumb decisions being made,” she said.

Carla admitted it isn’t always easy. It took a lifestyle change when it came to her spending and budgeting habits, and even now, she said, “every once in awhile I splurge and buy a $25 mascara.”

Lying with Caira as read together at night, and knowing the discipline she must maintain to keep her life on best trajectory for her and her daughter keeps Carla focused. In turn, life-changing stories like Carla’s keep ACFCU and its partners focused. It’s a huge part of what puts the “Community” in Appalachian Community Federal Credit Union. We hope to be part of many more such experiences in the months and years to come.

(Jeff Keeling is vice president of communications and community relations for AppalachianCommunity Federal Credit Union.)