Approximately 25% of youth ages 16-24 in the Unites States are unbanked or underbanked, or shut out of the mainstream financial system. This number is closer to half for African Americans and Latinos. Young people growing up in low-income communities and communities of color face serious financial access hurdles:
- Low cost, quality financial products such as savings accounts and credit builder loans are not available, while high cost transactional services and products are abundant.
- Low-income families often don’t have exposure to financial education and best practices to pass on to their children. Research says most of what we know, we learn from our parents.
- Without access to quality financial products and financial best practices, low-income young people are likely to remain trapped in poverty as adults. While recent Pew research reflects that reality, it also points to saving as the key to unlock mobility.
Economic Mobility at a Standstill
For generations in the United States, we grew up with a promise of economic mobility, and the idea that we would be better off than our parents or grandparents. For the first time in our nation’s history, this mobility is at a standstill. In this economy, young people do not have the same shot at a decent job, housing, economic mobility, or even financial security that previous generations had. In fact, we are seeing some loss of ground in families in the wake of the Great Recession, and recent reports show that the education and income level of parents is becoming the significant factor in a young person’s access to opportunity.
Young People Are Working Hard, Not Getting Ahead
Millions of low-income youth across the country participate in employment and workforce programs, positioning themselves to build their skills and earn money. When they get their paychecks, they face unique challenges. The “financial deserts” in their neighborhoods mean they pay up to 10% of their income in fees to cash their checks at retail check cashers. With cash in hand, they are more likely to spend it, and their personal safety is at risk.
Reaching Youth Entering the Workforce Can Make the Difference
In 2013 almost 20 million youth ages 16 to 24 enrolled in workforce programs. Reaching them at this critical teachable moment—when they are earning their first paychecks—offers the chance to turn their income stream into a mobility stream. For low-income young people in particular, it is a strategic moment to engage them in banking and money management, showing them how to use their money to meet personal and financial goals. MyPath (formerly Mission SF Community Financial Center) designs programs that do just that. Our programs provide youth with access to quality financial products, a working knowledge of the financial system and best practices, and a support system that encourages goal-setting and accountability. We build the capacity of youth-serving organizations and programs to deliver our programs, so they are integrated into the existing program format by trusted staff that have strong relationships with youth.
Learning to Save Early Can Break the Cycle of Poverty and Seed Mobility
Pew research found that a distinguishing factor for those who grew up poor and were able to move out of poverty as adults is that they grew up in households that saved. Other research has also strongly linked saving – even modest amounts – to upward mobility. For example, the Center for Social Development reports that young people with a college savings account in their name are seven times more likely to graduate from college. Saving is a financial practice that feeds aspiration and brings the future into focus in households that are struggling to make ends meet. While we know that addressing poverty requires many systemic changes, such as providing living wages, at MyPath we focus on creating greater access to the financial tools and supports that seed mobility.
Building sound financial behaviors, and savings behavior in particular, early in life can also prevent much of the financial hardship we see low-income adults experience when faced with no emergency fund or damaged credit, and can also be done at a significantly lower cost. MyPath programs do just that. We offer effective, behavior-focused programs that produce powerful behavior outcomes: 95% of our participants get banked and 85% of our participants meet their personal savings goals and credit-building goals. These first early wins produce statistically significant improvements in their financial self-efficacy and future outlook, and place them on a path to economic mobility and to achieving their full potential.