Wednesday, August 29, 2018

Financial/health care collaborations: Good medicine

The link between financial health and physical health is well-established at this point, as this Florida Institute for Health Innovation blog post notes. At ACFCU we see it firsthand – many financial coaching clients “strongly agree” or “agree” in our intake survey that financial stress negatively affects their health. Now, we’re hoping to test that connection within the realm of health care itself.

It’s encouraging to see the financial health/physical health link not only being recognized but acted upon. Health care providers are finding innovative ways to connect vulnerable patient populations with financial programs or services that meet their needs. Howard Gleckman of the Urban Institute & Brookings Institution’s Tax Policy Center highlighted one example recently. He describes how two Boston-based pediatricians pulled off something near and dear to our hearts: they founded a program that helped low and moderate-income families get free tax preparation through VITA, with the free tax prep coming to them at the pediatrician’s office.

Dr. David Wood
As I’ve noted before, we greatly value our VITA partnership with Tusculum University. We see the potential for tying it in with individualized financial coaching to help families achieve greater financial health. And we’re hopeful a fledgling partnership with the Quillen College of Medicine’s Department of Pediatrics can become another impactful example of innovative work tying financial health and physical health.

Through Department Chairman Dr. David Wood’s vision and ACFCU Financial Coaching Specialist Adam Taylor’s leadership, we’re collaborating to effectively identify and serve families whose children are patients at the department’s clinic. We know reducing financial stress and increasing financial health can have a host of ancillary benefits and we look forward to seeing where this journey takes us.

ACFCU FInancial Coaching Specialist
Adam Taylor
The journey may yield additional innovation through leveraging VITA. Many families receive yearly financial windfalls but need guidance to reach a point at which they can use refunds to their full advantage. It may increase collaboration between ACFCU, a mission-driven Community Development Financial Institution, and the social service agencies with whom Quillen pediatrics is partnering. It may help families escape the crushing burden of predatory lending. It may produce valuable research.

Whatever the outcome, we know this: It takes a village. In our financially complex society, particularly given current levels of income inequality, we believe every village needs financial experts focused on helping the most vulnerable among us. If ACFCU can be a part of changing even one family’s financial trajectory through the Quillen partnership – and we know we can – we will find that cause for celebration.

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

Tuesday, August 21, 2018

Because we know the rainy days will come...


Imagine paying a nearly $400 loan payment knowing that interest and a “customary/fee” had eaten up $344 of the total. Imagine walking into several different businesses every two weeks, handing each a check for $400 and getting $340 in return. These examples are real. The people living through them are hard-working parents who want the best for their children.  

Predatory lending offers can be appealing. The process
is easy to begin and hard to end.
When thirst threatens to stop you in your tracks, it’s hard to resist a cup of cold water – even if it has shards of glass at the bottom. That analogy fits better than we wish it did here in Central Appalachia. Many families face financial challenges that threaten to stop them in their tracks. And seemingly on every corner, a friendly face offers a “cup of cold water” in the form of high-interest predatory loans (279.5 percent in the first case above).

You may think, “why would people subject themselves to this?” Sarah Halpern-Meekin and her co-authors have some answers in The Rainy Day Earned Income Tax Credit…” a paper published early this year.

Sometimes high-interest debt can be better than the
immediate alternative. Ultimately, it creates a vicious cycle.
Citing numerous studies, the authors show that many American families lack “financial slack” due to little or no savings and unstable income. When financial shocks occur – work hours get cut, a car breaks down, unexpected medical expenses hit – “families often rely on high-interest credit cards and other forms of debt,” the authors write. Often, the answer to “why” is to pay the rent, feed the kids or keep the car from getting repossessed.

That’s a stressful way to live. It seemingly puts the stability of a good car or home ownership out of reach. But it doesn’t happen so often in February, March or April, when tax refunds arrive. Many ACFCU coaching clients and people who use our VITA tax prep services tell us that’s when they do things like catch up on late rent and car payments, or pay off predatory loan balances. Some try to save, but as the study notes, those savings are “often spent down in the months following tax time,” so the cycle continues.

Halpern-Meekin and her co-authors evaluate a couple of pilot tax time savings programs before proposing a new option to the Earned Income Tax Credit. The “Rainy Day” proposal would defer 20 percent of a family’s EITC until six months after filing, and add a 50 percent savings match.

She didn't get to the mountain top without hard work.
Neither do our financial coaching clients.
Take a $4,000 EITC as an example. The taxpayer would get $3,200 in February or March, and $1,200 ($800 plus the match) six months later. Combined with financial coaching and availability of innovative products that CDFI credit unions can offer, that $1,200 could help a family avoid high-interest debt, begin saving and increase credit scores. If that mid-year boost helps the family avoid a predatory loan averaging $150 interest per month, the impact will be magnified.

Senators Cory Booker (D-NJ) and Jerry Moran (R-Kansas) offered a bipartisan version of the Rainy Day legislation in 2016 that included a pilot savings match program. Here in “flyover country,” we applaud any politician willing to propose innovative solutions to peoples’ everyday problems. We applaud the researchers who show those solutions’ importance and potential.   

We’ve found that helping families move the needle takes time, effort and expense on their part and ours. Missteps and setbacks are common. But we’ve seen real families use real chances to produce real change in their lives. Innovative programs like a Rainy Day EITC offer hope for even more positive change.

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

Tuesday, August 14, 2018

"Aspiring to Own" program could transform neighborhoods

John Birchette IV
John Birchette IV is standing in front of a boarded up house on Welbourne Street in the Johnson City, Tenn. neighborhood where he was raised, and he’s smiling. Despite the presence of other dilapidated homes in the once proud, neat-as-a-pin neighborhood that surrounded Johnson City’s African-American high school, Birchette is hopeful about the neighborhood’s future.

That’s because the area is one target for a grant-funded neighborhood revitalization program, “Aspire to Own,” that could create major positive change for families, for housing stock and for neighborhoods. Over the next several years, seeded by $1 million in “Capital Magnet Fund” grant funds from the CDFI Fund, Appalachian Community Federal Credit Union (ACFCU) hopes to lead a collaborative effort in low-income census tracts in Johnson City and other area communities.

Plans call for renovation of 103 homes. Total investment should exceed $10 million in neighborhoods where capital investment is often scarce.

The Johnson City Press has given the fledgling neighborhood
revitalization prominent news coverage.
This August 7 Johnson City Press article and this August 9 Press editorial provide some details. The insights of someone like Birchette – who returned to Johnson City five years ago after living in Atlanta for years – provide an important additional perspective. He’s running a family business that’s been around for several generations. He says friends ask him why he stays in Johnson City, a burg of not-quite 70,000 souls with a small minority population. He’s caring for his aging mom right now but not sure whether the place where he was born two years after Johnson City schools integrated in 1965 will hold him.

John Birchette IV, left, and Johnson City Assistant City
Manager Bob Wilson talk outside a dilapidated home
on Welbourne Street. The Aspire to Own program will
target homes like this one for renovation and sale to low-
and moderate-income families.
The slow, challenging effort of neighborhood revitalization could make a difference. Birchette also serves on the board of a 501c3 non-profit, Langston Education & Arts Development, that is spearheading efforts to maximize the impact of the old high school’s renovation. We thought we’d share his insights.

John Birchette: “I’m excited about the potential. I grew up here, this is where I rode my bike and my friends lived. It was community then. Now we’ve gone away from that and we see what’s happened to the neighborhood. I’m excited about things returning back to the way I remember.”

As a private sector guy, what do you think it’s going to take? ACFCU has a grant, but it’s not that easy.

JB: “Drumming up support in the community to where everybody wants to get involved. Johnson City is a town that was built around that. I mowed all the neighborhood yards – sometimes for free, because my grandmother said, ‘this person can’t afford it, you go mow that yard.’

“We need to get back to that, and when people see the area improve they’ll take pride in it and commit themselves.”

You’ve been a big part of the Langston project as well. Talk about this coinciding with that.

JB: “We’ve always said, if you look from (Interstate) 26, you see Langston. It’s an eyesore right now, but it’s a gateway into Johnson City. So if you improve the area, naturally everything around it will improve. And this is my home. I want it to improve. It’s a shame that, five-minute walk downtown to here, you have to see this. It shouldn’t be that way.”

Do you know families, young or not-so-young, that are renting and would probably want to buy in this neighborhood?

JB: “Absolutely. I’ve been back in the area a little over five years and there’s tons of people who, their goal is home ownership. I believe this project can really help some people who are deserving and who will make the payments and keep their houses up. They are working. They feel trapped in rental situations. There’s more people that would qualify and do it the right way than wouldn’t. I honestly believe that.”

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

Tuesday, August 7, 2018

Big tax refunds: An opportunity to leverage for the future


Imagine living on $11 an hour and raising two children. That’s less than $23,000 a year before taxes. Will you have two nickels to rub together most days, never mind enough cash to treat the kids to something nice now and then?

Now imagine that each February, you get about $7,500 direct deposited into your financial institution – or onto a pre-loaded card if you don’t have a credit union or bank account. What do you think you’ll do next?

Tusculum University and ACFCU partnered to provide free
tax return prep for 735 taxpayers through VITA in 2018.
Here in Central Appalachia, plenty of people don’t have to imagine that scenario. At Appalachian Community Federal Credit Union, we’ve seen firsthand plenty of families whose situations mirror the scenario above. Our partnership with Tusculum University has helped us serve hundreds of low and moderate-income taxpayers annually through the IRS-sponsored VITA (Volunteer Income Tax Assistance) tax prep program.

Many VITA clients get sizeable refunds bolstered by the Earned Income Tax Credit (EITC). When we ask how they’ll use their refunds, they often tell us they’ll catch up on delinquent car payments, fix a car or try to buy a new car. That vehicles are often part of the conversation is unsurprising considering that in Appalachia most people who work need cars.

That experience jibes with a 2008 study by Andrew Goodman-Bacon and Leslie McGranahan of the Federal Reserve Bank of Chicago (see it here). But their rosy assessment may miss some nuances we see working with low- and moderate-income families on an everyday basis.
 
Opportunities like ACFCU's First Time Borrower Program
can help people access affordable vehicle financing while
they work with financial coaches.
“Our primary finding is that recipient household spending in response to EITC payments is concentrated in vehicle purchases and transportation spending,” the pair wrote in their conclusion.

So far, so good. Then comes this sentence: “Given the crucial link between transportation and access to jobs, we believe this finding is consistent with the EITC’s goals.”

I can’t argue with that, but it leaves out one important point: Many families who qualify for EITC have poor credit scores and/or limited access to fair lending. When that transportation spending lines the pockets of predatory lenders, sometimes the long-term benefit for EITC recipients falls prey to unintended consequences – and quite frankly, to the financial system that has established itself so firmly in our society. It can even create a cycle in which, vehicle-wise, folks know the feeling of getting a car repo’d better than they do the feeling of paying off a car loan.

We encourage VITA clients to consider a financial assessment with us so they can find a way to leverage that kind of money for their long-term benefit. Why do we do that? Often, our large-refund taxpayers have poor credit scores. If they’re lucky, they might be able to finance a car with a high-interest subprime lender such as Santander and get a 25 percent rate. Or they might simply finance at a “buy-here, pay-here” lot and pay 35 percent or more.

Let me put it to you using some total interest paid and monthly payment numbers for an $8,000, 48-month car loan:
·       $311 a month, $6,964 interest paid (35 percent)
·       $265 a month, $4,732 interest paid (25 percent)
·       $202 a month, $1,739 interest paid (10 percent)

Mary Robinson, her husband and their two daughters
are about to move into their own home. The Robinsons'
car loan is at a great rate. Financial coaching was key.
If you bring home, say, $1,700 a month, think what a difference $100 of extra cash flow can make! We’ve found that clients who stick with coaching for the long-term raise their credit scores by an average of well over 150 points, which can often put them in line for those lower rates.

With good coaching, that cash flow gets put to good use in establishing savings, knocking down debt levels and keeping things moving in the right direction. We have clients who make less than $30,000 a year, yet through taking the right steps and accessing the right opportunities, they have 700-plus credit scores, affordable vehicle financing and even mortgages!

As I wrote in last week’s post on financial health vs. financial literacy, helping people move the needle positively is an intensive, long-term process. We believe the “tax refund windfall” offers an excellent opportunity for people to establish a baseline and begin that process. Until we learn otherwise, we’ll keep testing that belief.

(Jeff Keeling is vice president of communications and 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. A...