Tuesday, October 23, 2018

Making more of a good thing?

ACFCU hopes a fun savings incentive can
lead to deeper conversations with low and
moderate income taxpayers about financial goals.
“Because it’s received at one time I worry that we’re creating a system where we essentially make people non-poor in the spring and then we drop them right back into poverty for the rest of the year.” – Elaine Maag, Urban-Brookings Tax Policy Center, on the Earned Income Tax Credit

Across the income spectrum, holiday spending time is here. Halloween costumes, home d├ęcor, and Christmas presents are seen as absolute musts – even for folks long past the months when large tax refunds had left them relatively flush.

People will spend an average of more than $86 on Halloween this year. When your checking account is often down to $8, never mind $80, before the next payday comes, 86 bucks is a lot to shell out. But shell out we often do, even if it means borrowing from predatory lenders or maxing out the credit card.

At Appalachian Community Federal Credit Union, we believe it doesn’t have to be that way. We’re hopeful that with financial coaching, some fun incentives and plenty of innovation, we can help some folks move the needle on the income volatility that large refunds and relatively low earned incomes tend to create.

The boon of an $8,549 tax refund for a two-parent family of five with a $28,000 adjusted gross income can’t be overstated. Neither can $9,066 for a two-parent family of four with AGI of under $21,000, or $6,955 for a single mom of two with AGI just below $28,500, or $9,983 for another single mom of two with AGI of less than $18,000.

Elaine Maag of the Urban Institute
ACFCU and Tusculum University served the families above earlier this year through their Volunteer Income Tax Assistance (VITA) partnership. Dozens of those low and moderate-income families received refunds exceeding $4,000 and the EITC played a big part. But what happens to that one-time money, and is there room for greater impact?

“When Pew Research did some analysis on income volatility, they asked people questions about whether you’d rather have more income or a steady income,” the Urban Institute’s Elaine Maag told me in a recent wide-ranging interview. “People said they would like steady incomes even more than knowing their total income in a year would be more.”

Maag’s work focuses on income support programs for low-income families and children – the EITC being one of the biggest and longest-running. A big proponent of the EITC and its expansion, she’s aware of the “fiscal cliff” folks often fall off later in the year. March through June are good months. Families catch up on late bills, pay ahead sometimes, stock up on staples, have a little fun and get needed big-ticket items or repairs. Then the lump sum dwindles and regular monthly take-home pay isn’t enough.

“We live monthly lives,” Maag said. “Our rent or mortgage payments our due monthly, we eat food not just in April, we eat it throughout the year. Our needs are not annual needs in a lot of cases.”

Commonwealth's Mariele McGlazer
That’s one reason why this coming tax season our VITA taxpayers can participate in SaveYourRefund. Anyone who puts at least 50 bucks of their refund into a second savings account is put into a drawing, and 10 $100 prizes are distributed each week of tax season. Mariele McGlazer of Commonwealth, which partners with the folks at America Saves to promote the program, says it’s a nice carrot and an opening to discuss bigger things.

“There can be a real reluctance or hesitation around using that moment as a time to talk about people’s financial goals and what they might be able to do with that refund to leverage it to their advantage,” McGlazer told me in an interview. “It’s an easy way into that conversation and an easy way to start talking about saving at tax time.”

We hope to engage people in those conversations and offer taxpayers financial coaching and other paths to meeting their long-term goals. America Saves’ motto says it all: Start Small. Think Big.
(Jeff Keeling is vice president of communications and community relations for AppalachianCommunity Federal Credit Union.)

Tuesday, October 9, 2018

Good minds thinking alike to tackle a nationwide problem

Low credit scores equal high costs for
debt -- a bad combination for anyone
but especially hard for low-income workers.
“How familiar” I thought last week as I read this post by the Urban Institute’s Emily Peiffer. Americans don’t understand credit very well, and low- and moderate-income people are more likely to suffer negatively from the impacts of having low credit scores. They’re also more likely to have low credit scores, or no score at all.

As we’ve seen at Appalachian Community Federal Credit Union and as Peiffer points out, “credit, preferably prime credit, is critical for families who need to smooth expenses until the next paycheck or pay for an emergency.” And as the institute’s Margery Austin Turner adds, safely building credit can mean everything in terms of people’s “ability to move themselves ahead financially and potentially out of poverty and into financial security.”

Urban Institute did some great work with this recently-released video that combines humor and fact to show how common myths about credit are in the U.S. What’s not humorous is the financial toll having subprime credit or no credit at all takes on low and moderate-income working families. By extension – and I’m so glad to see this addressed in Peiffer’s post – employers suffer.

Think about it: You’re living paycheck to paycheck and the car breaks down, or your kid gets sick and can’t go to daycare so you miss a few days of work. You have poor credit. The accompanying graphic shows the cost for your $550 car repair if you have to take out a payday loan to get the work done and pay it back over three months – nearly $400 in interest. With prime credit and enough capacity to put the bill on your card, it would cost you just $15 in interest to pay it back over three months.

Jennifer Black, right, went from being a self-described financial mess
to a homeowner thanks to coaching from Candy Craig, left.
Time and again with coaching clients we see these types of situations, often after things have snowballed out of control. Too often, people in these situations have quit or lost jobs as a result. That’s one reason ACFCU has an innovative partnership with Senture LLC and Kentucky Highlands Investment Corp. that offers a 7 percent, payroll-deducted hardship loan program for employees who qualify. (See page three of KHIC’S 2018 newsletter for a story on the program.) Most have subprime credit in the 500s, yet the default rate is minuscule and the program is helping Senture retain workers.

ACFCU offers one-on-one financial coaching to help the borrowers begin the journey toward financial health, better credit scores and the knowledge to remain on the right path. The credit union hopes to convince other employers of the value such a program can generate.

That jibes with comments in Peiffer’s post from Brenda Palms-Barber of North Lawndale Employment Network and Ricki Granetz Lowitz of Chicago-based Working Credit. Palms-Barber says employers need to be approached “in a language that speaks to (them),” adding that credit-building services can help reduce the cost of turnover. Lowitz notes that such programs help employers built a more financially resilient team.

Thankfully, we’re also beginning to see time and again the positive results when working families do take advantage of one-on-one financial coaching. Those results help both the families and their employers. It’s good to see we’re not alone in recognizing the importance of these kinds of efforts and innovating to try and make good things happen.

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

Wednesday, October 3, 2018

This atlas doesn't make us shrug

Kingsport, Tennessee's census tract 47163040200, outlined
in black, has income, incarceration and other statistics that
contrast starkly with neighboring tract
 47163041500 (dark blue).
Welcome to census tract 47163040200, Kingsport, Tennessee. People in their mid-30s who grew up here have an average household income of $29,000. In April 2010, the incarceration rate for 30-something males who had been born in this census tract was 9.4 percent (1 percent margin of error). For black males – the tract was 31 percent non-white in 2010 – that rate was 15 percent, with a 4 percent margin of error. Most importantly, for purposes of the Census Bureau’s recently released “Opportunity Atlas,” and as it relates to Appalachian Community Federal Credit Union’s mission, 64 percent of the tract’s natives now in their mid-30s still live in Kingsport – and their average household income was $24,000 in 2015.

The numbers are starkly different for those who grew up just to the west in tract 47163041500. Average household income for them was $62,000 in 2015. Male incarceration rate for those folks in 2010 was 1 percent. Of the 41 percent who stayed in Kingsport, 2015 household income averaged $41,000. The neighborhood’s 2006-2010 poverty rate was 1.4 percent and it was 5.2 percent non-white in 2010.

30-somethings from tract  47163041500 have above-average incomes,
miniscule incarceration rates and high employment levels.
The Census Bureau released the atlas Oct. 1. The missions of ACFCU and other Community Development Financial Institutions – to serve and empower economically distressed communities – couldn’t be more relevant in light of this interesting new release.

As National Public Radio reported the same day, the atlas, a robust online data tool, “finds a strong correlation between where people are raised and their chances of achieving the American dream.” The data, crunched, analyzed and packaged with the help of Harvard’s Raj Chetty and Nathan Hendren as well as Brown University’s John Friedman (Chetty and partners blog about their research methods and findings on this census bureau blog site), comes from more than 20 million Americans who are in their mid-30s today. Stripped of personal information, it uses census bureau and IRS data to estimate average earnings, incarceration rates and many other outcomes. The data are linked to the tracts the subjects were children in, even if they don’t live in them now.

Natives of the "tract across the tracks" 47163040200, has average
 incomes less than half those of their childhood near-neighbors.
According to NPR’s piece, “Chetty found that if a person moves out of a neighborhood with worse prospects into a neighborhood with better outlooks, that move increases lifetime earnings for low-income children by an average $200,000.” As the NPR piece notes, though, “moving a lot of people is impractical, so researchers are instead trying to help low-performing areas improve.”

We see some stark contrasts in our Tri-Cities, Tennessee service area, as the introduction to this post reveals. ACFCU and its partners strive to provide opportunity within neighborhoods, not just shrug and think, “if people have enough desire, they’ll move to somewhere with better opportunities.”

Another good piece from the census bureau on the atlas’s findings suggests the takeaway shouldn’t be that moving is the best way to increase upward mobility. Anyway, that’s not always an option. Instead, the lesson should be “that the low rates of upward mobility in some areas can be changed.”

While policymakers consider the implications of this data and local and state governments mount their own efforts to address these types of findings, ACFCU will provide financial coaching and fair lending products to help people whom other institutions often overlook. It will continue pursuing innovative new, partnership-dependent affordable homeownership opportunities so more families can achieve the American dream of homeownership. It will continue partnering with Tusculum University and others to maximize opportunity so underserved people can access free VITA tax preparation, and will encourage them to leverage their refunds to get out of debt, build savings and work toward increasing their credit scores. And we hope someday, thanks to everyone working together, staying home in census tract 47163040200 won’t equal a ticket to lower opportunity.

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

Tech bringing financial opportunity to hills and hollers

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