How Financial Empowerment Can Save Cities Money: 'the Supervitamin Effect'

A comprehensive approach to financial counseling that originated in New York City is spreading across the country. It holds the promise of saving cities money over the long term.

As of 2011, nearly half of New York City's population was poor or near-poor, according to a report by Mayor Michael R. Bloomberg's office. This is particularly unsettling news coming as it does from the United States' most vibrant urban economy, and it highlights a nationwide problem: Millions of Americans are having a hard time getting a handle on their post-recession personal finances.

The troubling irony of a difficult economy is that while more people need help and more political pressure builds to address their needs, fewer resources are available. Yet scarcity often breeds innovation and encourages collaboration. An example of this is a new model of free financial counseling -- professional, one-on-one and delivered at scale -- which is being integrated into service-delivery streams in cities across the country.

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Financial counseling has traditionally been offered by an array of nonprofit organizations that provide much-needed services but generally lack the resources to provide a growing number of clients with what they need most: personalized and professional financial counseling. And even organizations able to offer such services rarely have mechanisms for ensuring delivery quality and consistency among counselors or for measuring and tracking program impact for clients.

Such was the case in New York City in 2006, when Mayor Bloomberg founded the Office of Financial Empowerment (OFE) in the city's Department of Consumer Affairs. A priority among OFE's many goals was to design a citywide program that would educate and empower low-income New Yorkers.

The Financial Empowerment Center program, first developed in New York City and launched as a privately funded pilot, provides free, professional financial counseling at centers across the city. The model, which is showing promise of saving the city money over the longer term and is now fully publicly funded, is being replicated in other cities through the collaboration of mayoral administrations, local community organizations and educational-institution partners.

What sets the program apart from financial-education nonprofits is its integration into existing municipal service-delivery streams. This pairing of financial counseling with other assistance programs helps clients achieve their goals more quickly and permanently, an impact called "the supervitamin effect." Whether the client's goal is to exit temporary housing, leave an abusive partner or achieve steady employment, financial stability is a critical factor.

Financial Empowerment Center counseling teaches clients the skills they need to achieve long-term financial stability, including how to establish a bank account that provides low- or no-fee services, design a personal budget and savings program, avoid predatory loans, shop for goods and services more carefully, and pay bills on time. In the longer term, these service integrations bring the added benefit of easing the strain on local governments: Clients whose financial situations have stabilized are less likely to need ongoing government services.

In response to interest from other mayors looking to incorporate these services into their cities, Bloomberg Philanthropies' Mayors Project provided funding to the Cities for Financial Empowerment (CFE) Fund to support the establishment of Financial Empowerment Centers in Denver, Lansing, Mich., Nashville, Philadelphia and San Antonio. Since the launch of the multi-city program in March, counselors have conducted 3,400 financial counseling sessions across the five cities, helping clients create budgets, establish safe and affordable bank accounts, and begin to address their debts. It is expected that more than 30,000 people will be reached over three years.

The demand for high-quality financial counseling is growing, and cities are increasingly turning to the financial-empowerment approach as a promising solution; 48 cities applied for the CFE Fund's first round of grants, and several are planning to establish centers with other resources. The CFE Fund is working with other cities and funders interested in the programming, as well as with state and federal policymakers interested in integrating the model into other public programs. Municipal financial empowerment is a new frontier both for financial education and efficiencies in public anti-poverty investments.

Jonathan Mintz is commissioner of the New York City Department of Consumer Affairs.