Prioritizing Financial Health of Residents for an Inclusive Recovery
Dear friends and colleagues,
This month marks an unsettling anniversary: we’ve now spent an entire year coping with the effects of the COVID-19 pandemic. Amid the pervasive and complex challenges of the past year, a few bright spots have become more visible, illuminating new and transformative possibilities for propelling inclusive economic recovery.
These bright spots come from the tremendous policy experimentation that has sprouted in the past year around ways to support families, laid-off workers, small business owners, and renters and homeowners during a crisis. Even just a few years ago, some of the most effective supports we’ve seen might have been considered radical, or even politically naive. But each policy underscores why inclusive economic recovery in cities won’t be possible without prioritizing city residents’ financial health.
To get some perspective, I talked with Signe-Mary McKernan, Urban Institute vice president for labor, human services, and population, and Sarah Willis Ertur, JPMorgan Chase & Co. director of financial health. Both have spent their careers advancing efforts to support individual financial health and linking that work to inclusive growth and recovery.
The impact of government emergency relief efforts
Early this month, the Urban Institute released a surprising analysis of credit bureau data showing that Americans’ credit health improved throughout the pandemic. You may have the same reaction I did: “Wait, what? We’re in the middle of a pandemic with economic headwinds pushing against us. Why would credit scores improve?”
McKernan, who led this research with Urban colleague Caleb Quakenbush, says these data suggest relief supports at the federal, state, and local levels have made a big difference. “We’re still seeing large disparities, especially across Black, Native American, and Latinx communities, but the findings suggest that credit health has improved as a result of effective policy.”
Such policies included new forbearance and credit reporting provisions, eviction bans in 44 states, the federal government’s movement to essentially triple unemployment benefits, and Congress’s three rounds of direct cash payments to families in the form of stimulus checks totaling $850 billion. Without those provisions and payments, credit scores likely would have decreased, and millions of people would have lost their homes and gone hungry over the past year.
It’s important to remember that while the new Urban analysis is encouraging, credit score data represent just one dimension of families’ economic well-being. We have plenty of reason to believe many are still struggling. In fact, McKernan urged us to consider these indicators as evidence of the “calm before the storm,” meaning that looming utility bills, student loans, and mortgages will soon come due for millions of families, potentially devastating any progress we’ve made.
“Government interventions have been a stabilizing force for households,” Willis Ertur agreed. “And I think that means we’re really onto something here. But at the same time, it makes you wonder why American households were on such precarious footing to begin with.” Willis Ertur said she saw this time as an opportunity, “a national moment to redo, to do it better, and to rethink who was left out of the economic recovery after 2008.”
Insights for local leaders on a way forward
So, how can city leaders harness the current momentum to advance an inclusive recovery?
McKernan and Willis Ertur suggested a number of interventions local leaders can build on:
- elevating employer-sponsored alternatives to predatory financial services, a move that could make a huge difference to employees lacking access to affordable credit
- applying evidence-based individual savings approaches to existing essential programs and platforms (e.g., housing, workforce services, tax preparation, and public utilities) to help more people manage debt and daily finances, build credit scores, and save
- building on the positive effects of cash transfer programs on financially unstable families and the long-term sustainability of such efforts
- designing and tailoring financial technology products to the community being served (e.g., through adding languages such as Spanish)
- expanding the earned income tax credit and other supports for working families, as well as extending the credit to childless adults
To illustrate the possibilities, they pointed to a savings program that built upon prepandemic success to meet this moment: SaverLife. The nonprofit partners with employers and financial institutions to incentivize saving through prizes, rewards, gameplay, and financial coaching resources. But as the pandemic began eating away at participants’ hard-won progress, the organization pivoted to delivering small cash grants to households and taking a hands-off approach to how families used those infusions.
“What they did was take their model and flip it,” says Willis Ertur. “They knew how to help low-income households save. When COVID hit, instead of collecting payments to save, they decided to become a distribution channel.” Surprisingly, they found that most families just needed a slight boost. “Even a cash infusion of $400 was a lifeline,” says Willis Ertur. “People were saving at higher rates than ever before because of the uncertainty, but it had an overall wellness effect (for example, food security and housing stability) on households.”
She warns, though, the model points to the need for sustained support, not just one-off relief. “[The positive impact] was temporary. And now those households have depleted savings, and upwards of 90 percent have lost income.”
McKernan adds, beyond evaluating and scaling programs like SaverLife, we need to double down on systemic changes that ensure all families are financially secure. These could include designing more constructive repayment options for city debts, waiving credit checks in municipal hiring, facilitating access to safe and affordable accounts, and working to expand health insurance coverage.
Inclusive economic recovery depends upon residents’ financial health
As I reflect on the critical role of financial stability in inclusive economic recovery, Willis Ertur’s question of why so many families were on precarious footing to begin with has stuck with me.
She is right. There is an opportunity to do better going forward. By learning from—and building upon—the important policy and investment innovations that have kept people afloat this year, we can ensure more Americans are on stable footing to contribute to and benefit from economic recovery and growth. And we can do it in a way that leaves no Americans behind.
As always, I welcome your thoughts and reflections. Feel free to email at firstname.lastname@example.org anytime.