Nonprofits Pool Data to Understand Short-Term Financial Stability
To better understand the nature of low- to moderate-income Americans’ financial lives and to inform policies that encourage their short-term financial stability, nonprofits are establishing new ways to pool their data.
The Consumer Insights Collaborative, convened by the Aspen Institute Financial Security Program (Aspen FSP), brings together nine nonprofits that collectively reach about 350,000 low- to moderate-income people per year with financial coaching and services that promote economic mobility. On Thursday, the group held an event to release their first report, Short-Term Financial Stability: A Foundation for Security and Well-Being.
The Collaborative seeks to harness nonprofits’ deep understandings of their clients’ financial lives to inform programmatic and policy solutions.
“There’s a lot ways that these groups have a 360 perspective on the dimensions and drivers of the financial lives of the people that come to them, that they serve” said Ida Rademacher, executive director of Aspen FSP. “The work they do together can help a broader set of organizations – public, private, independent – ask more specific questions, more on-point questions, formulate more kinds of hypotheses.”
The Importance of Short-Term Financial Stability
The nonprofits jointly decided to first delve into the issue of short-term financial stability because they felt they had unique knowledge of the topic that they expected could benefit a larger audience.
The data demonstrated the importance of short-term financial stability to achieving long-term goals like retirement savings and progress toward economic mobility. The report outlines drivers of short-term financial stability: routinely positive cash flow, liquid savings, access to high-quality credit, social capital and financial cushions.
The report acknowledges that most of the findings are “intuitive,” but Sheida Elmi, research manager at Aspen FSP, suggested that the importance of financial cushions to long-term financial security are underestimated. Savings can protect people from financial shocks like an unexpected medical bill, provide a foundation for long-term goals and even act as a “behavioral engine” driving people toward long-term financial security, she said.
Systemic forces, such as racially biased asset-building policies and restrictive bank account policies, impact the availability of such financial cushions. External supports can help, though. Elmi pointed to savings products and services and access to high-quality credit and cash infusions, which often come through nonprofits or assistance like the Earned Income Tax Credit (EITC) and the Supplemental Nutrition Assistance Program (SNAP).
But current safety net programs are not doing enough to encourage short-term financial stability, according to panelists from three nonprofits involved in the Collaborative.
“There are social safety nets that are just not relevant to the century we’re in. They’re relevant to the past century, and the demographics and things have shifted so much,” Sophie Sahaf, chief program officer at LIFT, said. She cited child care as an example, explaining how child care costs stand in the way of financial stability for many of the parents LIFT coaches.
“We really need to shift the way we think about families. We think about public benefits in a way that’s very top-down, and instead these are people to invest in that will have benefits for the whole economy,” Sahaf said. “There’s so much distrust right now in how we look at people that’s not merited by data or the facts. It’s just perceptions really. So how do we break through those so we shift how we think about people as really investment vehicles?”
David Henderson, chief data officer of the Family Independence Initiative, argued that the United States spends enough money to end poverty, but it’s not spending it in the right way. “There’s this myth that there are 50 million people stuck in poverty, but it’s actually been studied that above 75 percent of people in poverty get out in about three years, but half of those fall back within five years. It’s not that people are stuck in poverty but rather that they’re vacillating.” He pointed to a “benefits cliff” in which help is available to only the most financially unstable but drops off once their financial picture starts to improve.
Tim Lucas, director of research at EARN, described how EARN uses its data, paired with qualitative surveys, to test ways to encourage people to save. The Collaborative aims to do this on a broader scale, using the nonprofits’ data to understand and improve the financial lives of low- to moderate-income people.
“For us,” Lucas said, “it’s the ability to connect the voices of our members to the policymakers.”