January 11, 2017 Reading Time: 3 minutes

In our January brief entitled “Why Can’t Americans Save,” I look at the numerous hurdles that different types of households face on the road to financial wellness. My research revealed that the bottom half of U.S. earners, roughly speaking, simply cannot afford to meet the goals experts put forward for saving, investing and debt.

So should lower-income Americans just give up? A review of data and programs targeted at low-income households reveal that there is some hope to be found, even though the path remains difficult.

One way to help address the financial wellness of lower-income Americans is to help steer them away from resources that end up hurting their financial condition in the long run. For example, in the event of emergencies, or even to meet short-term needs, low earners are sometimes forced to take short-term loans from pay-day renters at very high interest rates. The company PayActiv offers a market-based workaround to this issue by collaborating with employers to provide an innovative benefit.

Using PayActiv’s applications, employees are able to access income that has already been earned but not yet paid in the event of an emergency. If an employee has worked a week but payday isn’t for another week, he or she can access this money, which is then deducted from the next paycheck with an effective interest rate of zero. The benefits to lower-income employees are obvious. For the employer, risk is minimal, since it would end up paying this money to the employee anyway, and most companies likely have the liquidity to make the system possible. Employers benefit further from less stressed-out employees, as well as a benefit that makes working at their company more attractive.

Another partial solution is to facilitate at least some saving and investing by lower-income Americans, even if they can’t reach goals generally touted by experts. Accenture Consulting collaborated with nonprofit Goodwill Industries International to create a digital platform targeting the financial wellness of low-income workers. The program has two features: GoodCent$ is a digital education and information tool, while GoodMoney360 is a platform actually providing financial wellness services including interactive saving and budgeting tools and channels to obtain in person advice.

How much of an impact might these ideas have? While data on outcomes for these two programs are not available, Financial Finesse, which provides wellness programs to large employers, has tracked data specifically on low-income workers. The company touts a small increase in the number of such workers who have set up an emergency savings fund, from 36 percent in 2013 to 39 percent in 2014. It also notes that the percentage of low-income workers who made hardship withdrawals from 401(k) plans fell from 30 percent to 24 percent during this period.

These variables may be moving in the right direction, but the changes are modest, and the study does not establish a causal relationship between Financial Finesse’s programs and these outcomes. For example, both of these results could be driven by changes in the local or national economy. The results presented are therefore inconclusive.

We tend to think magic policy solutions exist when they almost never do. How many times have media pundits demanded that politicians “fix healthcare” or “fix the economy.” Financial wellness for lower-income Americans is yet another case where small, incremental steps may be the best we can do. Such solutions will not make the program go away, but still have the potential to make a positive difference in peoples’ lives.

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Max Gulker

Max Gulker

Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.

Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.

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