At Treasury, we are working on many fronts to both increase financial access and promote the financial capability of American households. It is clear that these objectives are overlapping and interrelated—promoting financial capability through informed decision-making often requires individuals have access to safe and high quality financial products. Given this overlap, Treasury recently supported research on the effect of pairing increased financial access with financial counseling in order to test how these tools might inform financial decision-making.
With support from Treasury, the Corporation for Enterprise Development (CFED), the Center for Financial Security at the University of Wisconsin-Madison (CFS) and the New York City Department of Consumer Affairs Office of Financial Empowerment (OFE) developed a pilot program that paired access to a basic checking account with an average of one to two hours of financial counseling for a population of adults who were transitioning off of public benefits in New York City. All 1,034 study participants were offered safe, affordable bank accounts with direct deposit, and half were also offered free one-on-one financial counseling with trained providers through the City’s Financial Empowerment Centers.
The pilot allowed researchers to examine the impact of the financial counseling on participants’ financial capability, including credit history, financial behavior, and attitudes. Overall, the research found that participants who received the one-on-one counseling were more likely to stay current on debt payments at the six and 12-month follow-ups. Moreover, the results demonstrated that integrating access to accounts into the transitional workforce program dramatically increased the banked status of the population. Over the course of the study, the percentage of participants who reported being banked moved from one-third at baseline to almost 60 percent at six months, and more than half still reported being banked at 12 months.
The study also examined how financial empowerment services can effectively be integrated into an existing workforce program. For example, the pilot provided access to a checking account with no minimum monthly balance, and other features designed to be helpful to low-income workers; additionally, accounts could be opened at the job site by bank employees. There was a higher than expected level of take up and continued use of such accounts. Programs working with clients in financial transition such as transitional employment, welfare-to-work, youth aging out of foster care and prisoner re-entry programs might achieve stronger outcomes if their clients are given tools to better manage their money, improve their credit scores, and plan their financial futures. These findings may be useful to other employers of unbanked, low-wage workers.
Treasury will use the findings of the pilot as it considers policies to help people manage their money, transition back into the workforce, and move up the economic ladder. We also plan to share the findings with the President’s Advisory Council on Financial Capability for Young Americans, and our partner federal agencies in the Financial Literacy and Education Commission.
This new study offers a range of insights for both policy and practice. We hope it will continue to stimulate new research on best practices for pairing financial access and financial capability on the ground. To read the results of the study, please click HERE
Louisa Quittman is the Director of Financial Education in the Office of Consumer Policy at the United States Department of the Treasury.