People in the field of social work are crucial to broadening how to think about the poor and their financial decision making, Camille Busette, PhD, said in the keynote speech at the 2015 Convening on Financial Capability & Asset Building: Advancing Education, Research, and Practice in Social Work.
Busette, the lead financial sector specialist at the Consultative Group to Assist the Poor, highlighted the special role educators, practitioners and researchers in social work and related disciplines can play in improving the economic lives of poor families.
She pointed out that 44 percent of American households do not have three months’ worth of savings in case of an emergency, according to the Corporation for Enterprise Development. The number increases to 61 percent for households of color, she said. In addition, 56 percent of Americans have subprime credit scores.
“What do these statistics mean?” asked Busette, who formerly served as the head of the Office of Financial Education at the Consumer Financial Protection Bureau. “They mean that over 100 million Americans are not in a position to build assets. For a country as wealthy as this one, that is a sobering and, frankly, appalling fact.”
Internationally, she added, the World Bank roughly estimates that 2 billion people are excluded from financial activities that could contribute to their upward mobility.
“This is where we come in,” she said. “Those who work in disciplines such as social work that draw upon multiple academic domains and upon on-the-ground experience are critical to broadening how we think about poor people and their financial decision making.”
Busette addressed about 60 participants at the April 15-17 convening at the Chase Park Plaza in St. Louis. The gathering of researchers, academics, educators and scholars was hosted by the Center for Social Development (CSD) at Washington University in St. Louis’ Brown School of Social Work and the Financial Social Work Initiative at the University of Maryland School of Social Work. Wells Fargo Advisors and The Arthur Vining Davis Foundations provided funding for the meeting and together with The Woodside Foundation supported the development of research manuscripts presented.
In Busette’s view, some specific endeavors could “act as accelerants” for financial inclusion and capability efforts. One of the concerns within the financial inclusion/financial empowerment world, she said, is that billions of people function outside of the formal financial system. The notion behind that concern is that only when poor households participate in the formal financial system will they have opportunities to build wealth, she said.
“Our implicit standard here is a set of products and services that addresses consumers’ financial needs and does so in a safe, regulated, well-informed environment,” she said. But “where that chain of reasoning gets interesting,” she said, “is when the standard is broadened to articulate normative behaviors and attitudes to financial activities.”
For example, she said, informal arrangements for managing money are common in immigrant communities. Greater consumer protections and greater opportunities to earn interest occur with a formal savings account but probably not with, for example, an informal lending circle. (A lending circle is a small group of people who chip in every month to lend money to one another at no interest.)
“So shouldn’t those of us working in financial inclusion and financial capability be trying to get households to substitute the savings account for the lending circle?” she asked.
“It is precisely at this question that I think we have tremendous research, practical and policy opportunities,” Busette said.
“When we think households should substitute the savings account for the lending circle, we are introducing, however implicitly, a discussion of behavioral norms,” she said.
The assumption goes that if people knew savings accounts were safer and more lucrative than lending circles, they would make the decision to move their money to savings accounts, she said. “So, in that view, we have defined rational financial behavior to mean that someone should value safety of funds and the potential for interest payments over whatever the attributes of the lending circle are and should, therefore, act accordingly.”
Busette said that when we think about how poor people could improve their financial lot, often we rely on impressions of deficits relative to a norm: Poor people may not be acting on economic facts, or they may be doing so they do not know enough to make the right decisions. “When we operate from this framework, we invalidate the tremendous work that it takes for low-income people to make financial decisions,” Busette said.
A critical opportunity exists for the financial capability field, she said. For example, we might consider some families’ preference for using a lending circle as an entry point for understanding what poor people value and how and why they make the decisions they make, she said.
“Taking their aspirations, needs and operating practices as a valid starting point of departure makes us ask, ‘How do we design products, services and approaches so that poor families are properly served?’”
People who participate in lending circles, for instance, also use them to tend to their social network, Busette said.
“An approach that acknowledges that some poor households find tremendous social benefits in lending circles and that participating in a lending circle is a valid way of managing one’s money might allow us to approach financial services and products that help build wealth differently and more successfully,” she said.
One could think about lending circles as part of a portfolio approach to managing household finances, Busette said. Maybe they are for birthday parties and weddings, she said, while savings accounts can be for cash-flow management or longer-term goals such as retirement savings.
“There is an opportunity to take a fresh look at how poor people manage their money and to understand that poor people are trying to optimize across a range of priorities.”
Refreshing our ideas about the norms for financial behaviors is where research, education and practice are intertwined, Busette said.
“We have the on-the-ground experience that can model how one starts from a place that resonates with poor households and builds trust and strategies from there,” she said.
To see CSD’s photo album of the 2015 FCAB Curriculum Workshop & Training and of the FCAB Convening, please click here.