Low-Income Americans Use Financial Products to Make Ends Meet

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11:05 AM EDT May 24th, 2011

Today, the Financial Access Initiative (FAI) at New York University’s Wagner Graduate School of Public Service announced the launch of an important new study to better understand the financial lives of low-income Americans.

FAI, in partnership with Bankable Frontier Associates and The Center for Financial Services Innovation, will track families in four geographic regions in the U.S. over 16 months and collect highly detailed data on household financial activity. The study promises a timely and independent look at how low-income Americans are managing their financial lives. The $3 million project is supported by a grant from the Citi Foundation and the Ford Foundation.

The Financial Diaries methodology, which will be used to conduct this research, has been successfully applied in Bangladesh, India and South Africa. The results are detailed in the groundbreaking book Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton University Press, 2009), which has been instrumental in broadening conceptions of global poverty. The book reveals that poor households lead surprisingly active and sophisticated financial lives, driven by the need to cope with irregular and unpredictable incomes but few reliable tools to absorb economic shocks.

“Improving access to reliable, flexible financial products and services is an important step to help poor and low-income households better manage their economic lives,” says Jonathan Morduch, managing director of the Financial Access Initiative. “The Financial Diaries research has proven to be an effective means of gathering important information to inform the design of these kinds of financial tools.”

“The findings in Portfolios of the Poor provided an eye-opening look at the financial lives of the poor in other countries, and we’re excited to use this lens in the U.S. context,” says Brandee McHale, Chief Operating Officer at the Citi Foundation. “This research can fill an important gap in the current data on how low-income families in our own backyards are making ends meet and help reduce the barriers to financial well-being that these families currently face.”

In the U.S., the Federal Deposit Insurance Company (FDIC) found that some 17 million adults live in households without any bank accounts. Another 43 million have accounts but are “underbanked,” relying on non-bank services such as pay-day lenders and pawn shops. Yet, there is little concrete data about the needs, preferences and use of financial services by low-income families.

“Remarkably, more than 30 million low-income families across the U.S. lack access to traditional banking and financial systems,” says Frank DeGiovanni, director of financial assets at the Ford Foundation. “This landmark study will help us to better understand their financial lives, greatly improving the ability the financial industry of nonprofits, and policymakers to meet their needs and increase the quality, affordability, and accessibility of financial services.”

To conduct this groundbreaking research, the U.S. Financial Diaries team will spend one-and-a-half years with 300 families, distributed across 4 research sites—in the South, the Northeast, the Midwest and the West. Researchers will meet with families every two weeks to collect highly detailed data on household cash flows.

This methodology of regularly observing household finances over long periods of time allows researchers to identify often-overlooked strategies of financial management, such as the use of informal borrowing and lending with neighbors and family members. The study is designed to capture spending and savings habits that often remain hidden in large surveys. The findings will be published in a series of reports beginning in mid-2012.

About the Financial Access Initiative (FAI)

FAI is an NYU-based research center committed to expanding financial inclusion by providing rigorous research that helps financial sectors better meet the needs of the poor. Our goal is for our research to translate into on-the-ground impact in the form of better policies and improved financial products tailored to the needs of poor households. FAI is housed at NYU’s Robert F. Wagner Graduate School of Public Service and led by managing director Jonathan Morduch. For more information please visit www.financialaccess.org.

About Bankable Frontier Associates (BFA)

BFA is a niche consulting firm based in Boston, focused on a specific purpose – supporting our clients in their efforts to expand financial services to the poor. Our approach is to facilitate strategic thinking about emerging markets and products. We are committed to working in partnership with cutting edge development organizations which include policymakers, regulatory agencies, private foundations, banks and other providers of innovative financial services. For more information, please visit www.bankablefrontier.com.

About The Center for Financial Services Innovation (CFSI)

The Center for Financial Services Innovation is the nation’s leading authority on financial services for underbanked consumers. Since 2004, its programs have focused on informing, connecting, and investing – gathering enhanced intelligence, brokering and supporting productive industry relationships, and fostering best-in-class products and strategies. CFSI works with leaders and innovators in the business, government and nonprofit sectors to transform the financial services landscape. For more on CFSI, go to www.cfsinnovation.com.

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