Cities Find Creative Ways to Make People More Money-Savvy

By Andrew Keatts

When Tameika Isaac Devine was elected to the city council in Columbia, South Carolina, the city already had a long history of programs designed to help residents’ afford homeownership through subsidized, low-interest loans.

When the market crashed, and residents began facing foreclosure and bankruptcy, it wasn’t just the city’s history of subsidizing homeownership that critics called into question.

The more Devine talked to her constituents, the more she knew the city had skipped some steps as it steered residents towards home ownership.

“We pushed it so much,” Devine said. “People … weren’t ready and went into it for independence, because that’s how we build wealth in this country, but they didn’t have other pieces of the puzzle. So we started looking at what else we could do to address those other pieces.”

Columbia has now joined dozens of other cities across the country that are taking a more active role in figuring out ways to promote and support the financial stability of their residents.

It’s a different approach from traditional economic development efforts, which have focused on ways to subsidize and support businesses in hopes that they would eventually generate more jobs for residents and more tax receipts for cities.

Now, some cities are supplementing that approach with one that’s intended to help residents more directly.

Cities are offering financial literacy workshops, building relationships between residents and banks, subsidizing low-income residents’ savings accounts, and squeezing payday lenders through zoning changes. Essentially, cities are deciding they need to do something more than just provide a business-friendly climate.

In a report urging more cities to get involved in the financial lives of their low-income residents, the National League of Cities, a D.C. association representing municipal governments, argued that cities have no choice but to intervene where state and federal governments won’t.

Nearly half of employers don’t offer health insurance, the NLC report said, and more than half of employees don’t have retirement accounts either. More than 40 percent of all households have virtually no savings. More than a quarter of residents don’t have a solid relationship with a bank.

Sixty-five percent of the 118 cities the NLC surveyed said have some form of a “financial inclusion” program in place.

“Yet, while this group of local innovators is forging a path, the nationwide adoption of these ideas cannot happen without the engagement of many more cities,” reads an NLC report outlining first steps cities can take.

Often, that begins with education and awareness. That’s what happened in Nashville.

The city partnered with the local United Way, and together they won a three-year, $16.2 million grant from Bloomberg Philanthropies to build city-staffed centers for one-on-one financial counseling for local residents. In 2013, Denver, Philadelphia, San Antonio and Lansing, Mich. won the same grant.

Erik Cole, a former Nashville city councilman and now director of the city’s Office of Economic Opportunity and Empowerment, said the most appealing element of “Financial Empowerment Center” model was relationship building. Workers continually interact with the same clients.

“That, over time, drives real outcomes,” Cole said. “It was appealing, and it worked.”

The Nashville program has assisted 3,000 residents with 8,700 separate counseling sessions, reducing debt among program participants by $1.5 million and increased their savings by $400,000, Cole said.

Nashville just elected a new mayor, and the initial grant from Bloomberg has now expired. But the program is expected to continue moving forward. It has half of its needed funding for the next year, and Cole is talking to banks and local nonprofits in hopes of securing the other half. He says he’s confident they’ll raise the money.

“Under a new mayor, the work expanded rather than contracted,” Cole said, referring to newly elected Mayor Megan Barry. He’s now been put in charge of not just the Financial Empowerment Centers, but also workforce development, affordable housing, and potentially youth employment programs.

“The capacity is there now,” he said.

In Columbia, S.C., the city has launched a program known as “Individual Development Accounts.” Under the program, available to low-income residents, the city offers a three-to-one match for individuals who create bank accounts .

Columbia just finished a year-long pilot of “Bank On,” a program that targets residents who have never had a relationship with a bank, or did so only to see it end badly. Residents go through a financial education process with the city or a partner agency and connect with banks to establish checking and savings accounts.

“We’re jumping on the bandwagon, because it’s been so successful in other cities,” said Devine, the Columbia councilwoman.

She said the city’s efforts haven’t hit much opposition, even though one might assume critics would complain about the city government becoming involved in personal finances.

“You have naysayers, but it’s people who don’t understand the gravity of the problem,” she said.

Columbia learned about “Bank On” from Savannah, Georgia’s successful program. But the whole trend started with San Francisco, which launched its program in 2006. In its first six years, it helped open more than 70,000 bank accounts for residents.

Bank On Central Texas, serving the greater Austin area, has opened more than 6,000 accounts and is estimated to have saved residents $2.4 million in fees that would have otherwise been paid to payday lending and check cashing facilities. Nearly 70 cities have adopted Bank On programs, according to NLC, including Houston, Boston, Los Angeles, and others.

That’s not the only way cities are combatting payday lenders. The NLC even encourages cities to use its land-use authority to actively discourage the businesses.

Dallas, for instance, is using zoning tools to discourage the shops from opening. It prevents payday lenders from opening within certain distances of homes and freeways; prevents two payday lenders from opening near each other; allows payday lenders only in freestanding buildings as opposed to strips centers; and requires special permits for their operation.

The programs aren’t without precedent. Indeed, one of the most critical role of cities is in supporting their most financially vulnerable residents though housing assistance and jobs training programs.

But the next generation of programs – early-stage financial education – are intended to augment those efforts.

Devine said Columbia is now applying for an NLC grant that would allow it to deploy software that tracks how these types of programs support each other. It could also potentially help the city understand how individual residents move up the financial ladder with each program.

“We want to understand how these programs are connected,” she said. “We want one umbrella of financial inclusion.”