We can imagine a future where all families have the financial security to provide for their children, live a life of stability and dignity, and invest in their future.
This is the economic promise at the heart of the American dream, but realizing this dream for every family will require actors from all corners of society—government, businesses, nonprofits, and philanthropy—to work toward bold solutions.
Audacity is required because the needs are profound. Nearly 40 million Americans live in poverty. Work alone is no guarantee that families can afford their basic needs of food, shelter, and medical care. Many families lack the savings and supports to recover from financial shocks. And a long history of racist policies and practices has led to inequities in wealth and wealth-building opportunities that leave families of color particularly exposed to the risks of financial disruption.
In the decades ahead, rapid technological innovation, demographic shifts, and climate change threaten to widen these economic and racial divides. But changemakers are not sitting idle in the face of these challenges. Their efforts are an argument for optimism.
Financial Well-Being: Promising Solutions
Elected officials, financial institutions, and new mission-driven companies and nonprofits are experimenting with promising solutions to narrow economic and racial inequities and help families achieve financial well-being. Here, we highlight three bold strategies that could move people toward greater economic security. We begin with the most ambitious.
Guarantee stable incomes and jobs
In an effort led by Mayor Michael Tubbs, Stockton, California, is providing about 130 randomly selected residents with $500 a month for 18 months—no strings attached—to help them cover their basic needs.
Advocates and policymakers—including 2020 presidential candidates—are debating ways to ensure that all Americans have a stable income to meet basic living expenses.
- Stockton, California; Ontario, Canada; and Finland have each piloted basic income programs that provide monthly benefits with no strings attached.
- Two recent basic income proposals—Livable Incomes for Families Today and the Cost of Living Refund—require recipients to engage in an activity such as work, education, or caregiving to qualify.
Another way to guarantee income is to guarantee a job—specifically, a job that pays stable, living wages and benefits.
- The proposed Federal Jobs Guarantee Development Act, modeled on the National Investment Employment Corps proposal, would pilot guaranteed jobs in underprovided fields, such as elder care and infrastructure.
Protect family finances from financial shocks
Photo by James Keivom/New York Daily News via Getty Images.
Some employers, like Glitch in Manhattan, are introducing “climate leave,” or paid time off for employees whose work and financial stability are disrupted by extreme weather events.
Expanding the availability and coverage of wage and wealth insurance can help protect families from financial shocks, such as reduced job hours, unemployment, disability, and recessions.
- Advocacy organizations, such as the National Employment Law Project and the Center for American Progress, have proposed expanding unemployment insurance coverage for temporary workers, independent contractors, and gig-economy workers (perhaps through a portable benefits system), as well as low-wage workers with limited job histories.
- The Obama administration and other groups have proposed wage-loss insurance for unemployed workers who can’t find a new job that pays as much as their previous job.
- Some employers have introduced paid “climate leave” when extreme weather events cause job disruptions.
The threats families face in the modern economy are not only to wages and income but to wealth, which is primarily held in retirement savings and housing.
- New ideas are being explored for shared-responsibility mortgages that buffer against housing price declines.
- Options to protect retirement savings include a broader use of annuities and cash-balance retirement plans.
Expand products and services to support financial resilience
Photo by Andrew Harrer/Bloomberg via Getty Images.
“[E]ven small amounts of liquid savings can make a big difference. Unfortunately, 40 percent of Americans could not cover even a $400 emergency expense out of their own liquid savings. Many national organizations are working to help people to build a foundation of basic savings, and we are proud to join with them and support this effort.”
— Kathy Kraninger, Director of the Consumer Financial Protection Bureau
Government, nonprofits, and employers are exploring ways to ensure that all families can save, have access to credit, and benefit from next-generation financial products and services to build personal safety nets.
- Policymakers have proposed offering low-cost bank accounts through the US Postal Service, and the Treasury Department has experimented with providing low-cost accounts and basic financial services.
- Cities, nonprofits, and employers have piloted savings match programs, tax-time savings bonuses, and other vehicles for helping people build their savings.
- To meet the needs of consumers with limited credit histories, some companies—including Petal and Churchill Mortgage—are extending credit (e.g., loans and credit cards) based on broader data about consumers’ financial behavior.
- New financial technologies—such as apps for budgeting (e.g., Mint, Dave, and Wally) and for saving (e.g., EARN and Cookie Jar)—hold great promise for expanding access to quality financial products.
Financial Well-Being: Knowledge Priorities
Drawing on interviews and roundtable conversations with stakeholders, we identified five knowledge-building priorities that would inform and accelerate solutions to help all families achieve and maintain financial well-being.
Forecast the effects of income guarantees
“We aim to convene as broad and robust a conversation about these ideas as possible…thinking through how a basic income might work, how we might pay for it, how to most effectively talk about it, and what a political road map might be to put it in place.”
As federal lawmakers grapple with what the next generation of income supports will look like, they need consistent evidence on how different program designs will affect outcomes they care about, including family economic well-being, incentives for work and saving, and overall program costs, as well as broader macroeconomic effects. Because the latest pilots and demonstrations are applied in such different contexts and populations, it can be difficult to extrapolate general lessons.
A common yardstick would help policymakers evaluate the strengths and weaknesses of competing proposals. Building this knowledge would require
- monitoring and evaluating existing pilots and developing a repository of all data and findings,
- connecting current pilots and foundational research by developing new basic-income and job guarantee experiments focused on how specific program and design elements affect high-priority outcomes, and
- developing a microsimulation model that projects the effects of different policy alternatives, costs, and interactions with other safety net programs.
Assess wage insurance reforms
State and federal policymakers increasingly recognize that the current unemployment insurance system fails to serve growing segments of the modern workforce, but they lack evidence-based tools for assessing the likely effects of potential reforms. Existing research provides limited insight about policies to serve new groups of workers and address new forms of risk workers face.
Better evidence on how workers, labor markets, and the broader economy would likely respond to unemployment insurance reforms would allow federal and state policymakers to better assess costs and benefits and to prioritize alternatives. Generating that evidence would require
- engaging in more expansive policy experimentation and evaluation to gauge responses to and the effectiveness of policy reforms, and
- developing expanded capacity to project who would be affected and how, and what the likely outcomes would be for workers and for the economy.
Map the connections between climate change and financial well-being
“Low-income borrowers and people of color are often hit hardest by the financial after-effects of natural disasters. Expanding knowledge about climate change and financial stability holds the promise of mitigating outcomes that expand economic inequality.”
Policymakers at all levels of government as well as private-sector actors, like nonprofits and philanthropies, are only beginning to grapple with the challenges that climate change poses to individual and community financial well-being. Climate-driven events—from flooding and hurricanes to heat waves and wildfires—are growing more common and widespread, and growing numbers of families are likely to need a “climate safety net” to buffer the effects of severe weather events. But the data infrastructure that could build knowledge and aid in preparation and response is underdeveloped.
State and federal policymakers, as well as the public and private entities on the front lines of disaster planning and response, need information and data systems if they are to respond effectively to individual and community needs. Understanding the effects of climate change on financial well-being would require
- studying the short- and long-run effects of climate change–related events, including which financial and economic outcomes deteriorate following different types of disasters, by how much, for how long, and how these effects vary by event type and magnitude;
- gauging who is affected (which individuals and which communities) and how these events—and current policy—mitigate or worsen economic and racial inequities; and
- building a comprehensive data infrastructure connecting climate change–driven events with people’s financial and economic characteristics and outcomes.
Explore wealth insurance
“An important next step to informing wealth insurance is to quantify the economic costs and benefits of different possible designs…. What is the potential role for private-sector solutions, and what role must state or federal policymakers play?”
Financial institutions, business leaders, and federal policymakers need critical questions answered before advancing wealth insurance as a viable option. Where are needs greatest, and who is best positioned to meet them? Is there a business case for new products? What are the costs of wealth insurance, and who should bear them? And how much risk can private financial institutions bear before their safety and soundness are threatened? Filling these critical knowledge gaps would require
- establishing knowledge-sharing forums with financial institutions, federal and state insurance and financial regulators, and consumer groups to identify wealth-insurance benefits, hurdles, risks, and options; and
- developing a microsimulation model to test how wealth insurance could affect the entire economy.
Harness financial technology
“If we knew the things families needed to meaningfully improve their financial lives, we would definitely use it to inform our products and strategies going forward.”
Financial technology entrants, incumbent financial services firms, social entrepreneurs, and nonprofit service organizations are using new technology and consumer data to help people budget, access credit, and save. These providers, however, often have incomplete information about consumers’ financial lives, which limits their ability to tailor products to meet people’s needs. A clearer picture could also help governments better identify critical gaps in access and make smarter investments to address those gaps. Advancing this field would mean
- merging data from public- and private-sector sources into a database about households’ financial status, product use, personal and geographic characteristics, and other factors influencing financial decisionmaking;
- using these data to identify consumers’ evolving needs and resource gaps; and
- incorporating these data into other research tools that examine the effects of policy proposals to increase household financial stability.