Cities and Private Finance Must Partner to Fight Poverty and Improve Financial Health
This is part 1 in a 3-part series on financial health, and how local governments and financial organizations must work together for broader impact. Part 1 lays out the current roles government and finance play in tackling financial stress and poverty. Part 2 details the operational and cultural challenges they face in working more closely together. Part 3 discusses strategies to improve.
By Paul Hoffman, Senior Engagement Manager
Kai Rysdall, business journalist and host of Marketplace on NPR, recently opened a conference of bankers, financial technology startups, and academics by sharing that he never thought he wanted to work in “business.” He went on to discuss the need for socially responsible companies, and the challenges facing an economy that focuses too much on shareholder value, while ignoring the broader good and especially the financial health of most Americans. Like Rysdall, I never thought I’d be at the Center for Financial Services Innovation (CFSI) Emerge conference.
Rysdall and I both started our careers in the military (he was a Navy pilot and I was a Marine Corps armor officer). Many veterans share a sense of mission and dedication to service. I also wasn’t sure I wanted to work in “business.” But my role at CityBase has landed me at an interesting intersection between private sector finance and public service. Rysdall’s talk highlighted exactly why it was so important for govtech companies like mine and cities to be a part of this “business” conversation on financial health.
Financial Stress and Poverty: New Tactics in a Long-Fought Battle
According to CFSI, 57% of American adults struggle financially. This means they lack a day-to-day financial system that functions well enough that they can build resilience when faced with an inevitable financial shock. The financially stressed are not necessarily low income and often do not qualify for public assistance, but they are still vulnerable. Forty percent of Americans can’t cover a $400 unexpected expense without borrowing or selling something. This is significant to any financial services company. According to Rysdall and CFSI, it should be significant to every company as a matter of profitability and our country’s financial resilience.
At the Emerge conference, big financial institutions like MasterCard, Varo, and Fiserv, discussed the urgent move away from overdraft fees. Fintech companies like LendUp and Dave.com discussed new innovative approaches to addressing the needs of low-income customers. And nonprofits like Earn shared data-enabled best practices for reaching and improving outcomes for their clients.
Since its founding in 2004, CFSI has trumpeted the significance of this discussion and is a testament to the real progress being made in the financial services industry and beyond.
American cities have been discussing this topic of financial stress and organizing service to low-income residents for a long time. The first Department of Public Welfare was established in Kansas City in 1910. Today, in my hometown of Chicago, 18% of Cook County residents receive SNAP benefits. The Chicago Housing Authority provides public assistance housing to 50,000 families and individuals. Chicago Public Schools provide free lunch to every single student through the Federal Community Eligibility Provision, since 84% of Chicago students already qualified.
Today, cities across the country constantly confront issues around poverty, equity, and revenue. Seemingly straightforward actions like creating a sales tax are often complex. Many cities use a variety of these taxes to influence behaviors like soda consumption or the use of plastic bags, while also raising needed revenue. But, sales tax is commonly seen as regressive and overly burdensome for those from low-income households. Cities have recently moved toward filling budget holes with fines and fees. In some cities the consequences of this shift and its unequal implementation have sparked a national discussion around policing, city revenue, and poverty.
Cities tackle these intractable problems every day, and must often make difficult decisions on impossible tradeoffs. They face exacting scrutiny on budget choices, and recurring questions about the best way to provide assistance to the poor.
Bridging the Gap: Private-Sector Innovations, Public-Sector Expertise
Many cities’ answers to questions about poverty are low-tech and focused on basic needs. Public-sector supports are difficult for constituents to find, and they include confusing (often paper-based) applications and eligibility requirements. They address things like housing, food, and education, and they often seem unable to meet the broad demand. In contrast, the CFSI network is full of high-tech organizations discussing the broad set of financial health outcomes after basic needs are met.
City governments have much to gain, and even more to offer, by joining the growing “business” conversation around financial health. Cities will gain more tools in their policy and technology toolbox to extend their impact beyond their constituents’ basic needs. What they offer to banks and businesses looking to address financial health is hard-won expertise in social services, a position of trust among their constituents, and, in the right cases, the will and authority to make bold change beyond what the private sector can accomplish. Cities can’t do it without better technology, and no organization looking to improve financial health can ignore our country’s primary social infrastructure: local government.
The Path Toward Financial Justice
While the private sector is catching up to many of the financial equity and inclusivity problems that cities have always faced, cities are seizing the opportunity to innovate in the public sector. For example, San Francisco, Philadelphia, Denver, and New York City have all established local financial justice or empowerment offices to tackle many of the issues highlighted by CFSI. It is an exciting time to bring cities and socially conscious businesses together for better outcomes on financial stress and poverty. CityBase is proud to be among the organizations leading the charge.
Also published on Medium.