Financial Empowerment

Financial Empowerment is a new approach to poverty reduction that focuses on improving the financial security of low-income people. ... Consequently, underlying financial problems often prevent clients from successfully achieving their program goals.

1. WHAT IS FINANCIAL EMPOWERMENT?

Financial Empowerment is a new approach to poverty reduction that focuses on improving the financial security of low-income people. It is an evidence-driven set of interventions that have proven successful at both eliminating systemic barriers to the full financial inclusion of low-income people and providing enabling supports that help them to acquire and practice the financial skills and behaviors that tangibly improve their financial outcomes and build their financial security.

The Financial Empowerment approach focuses on community-level strategies that encompass five main types of interventions that have been identified as both necessary for low-income households to improve their financial outcomes, and effective at helping them to do so. These are set out in figure 1 below.

Financial Empowerment strategies are not designed to replace other important poverty reduction interventions, but to be a complementary set of interventions that, in many cases, can be built into other existing programs to improve their outcomes (e.g. social assistance, employment, housing, settlement…). This has become known as the ‘super vitamin’ effect – boosting program outcomes by addressing underlying financial issues that many programs currently ignore or are not equipped to address.

To illustrate, few frontline communities or government personnel serving low-income clients are currently trained or supported to address key underlying causes of financial vulnerability. In many cases, however, these problems are a root cause or a significant aggravating factor in relation to the issues that programs aim to address. Consequently, underlying financial problems often prevent clients from successfully achieving their program goals. These problems include:

• Low financial literacy

• Poor access to neutral and relevant financial information

• Inability to afford neutral and relevant financial counseling and advice

• Individual and systemic barriers to accessing mainstream financial services

• Reliance on costly fringe financial services

• Low or nonexistent savings

• High household debt-to-income levels

• No or negative household net worth

• Low credit scores

• Failure to file taxes

• Lack of awareness of – or difficulty accessing – government benefits

A number of leading-edge community organizations in Canada have begun experimenting with more comprehensive financial supports for low-income people that go beyond financial education alone to address these issues. Such interventions are proving successful at a neighborhood level, but there are few resources or strategies in place to deliver sustainable, scaled approaches.

 By contrast, a coalition of 12 major cities led by New York3 has invested in scaled-up, city-wide strategies and programs as part of the rapidly growing Financial Empowerment movement in the US.4 Evaluation has shown that these strategies and programs are tangibly improving the financial security of low-income households.5 More and more US cities are adopting these approaches in partnership with state and federal governments and community partners