On New Year's Resolutions & Behavior Change

Happy New Year!
It's that time of the year again: family gatherings, reflections on the past, and commitments for the future. That last item, New Year's Resolutions, is of particular interest to me.  I see a lot of similarity between the packed gyms of January 1, the "back to business as usual" gyms of January 30 and the challenges of affecting social change.  A fundamental tension seems to exist in humans; evolutionarily speaking, it is in our best interest to eat when the bounty if plentiful, for we know not when we will again be flush with food.  In modern life, however, we must constantly resist that instinct--when food isn't scarce and calories are cheap, the challenge is not starvation but rather obesity.*

Put another way, we struggle to think long-term and to delay gratification.  We eat too many sweets and tell ourselves we'll exercise tomorrow; we buy the cheapest appliance even though the more efficient one will cost less over time; and we avoid building retirement savings until it's too late.  So powerful is this dynamic that social science research has shown that "..a child's ability to delay [gratification]...predicted higher SAT scores and a lower Body Mass Index" thirty years after the initial study (the famous Marshmallow Test).  Why?  The hypothesis--and I think it makes perfect sense--is that those with better self-control are more likely to have the discipline to eat right and study.

Observations and Ideas (That Involve Dogs!)

Image Credit: The.Rohit

Dogs!
Bianca (my fiancee) and I are interested in adopting a dog and, as many perspective dog owners are wont to do, we've visited more than our fair share of adoption websites and shelters.  Throughout the process I've noted several things.  First, there are (obviously) far more dogs than there are people to adopt them.  No surprise there.  But second, I've been blown away by how many nonprofits exist to help animals: each shelter is full of volunteers and and veterinarians and computerized systems for keeping records on the animals.  And lastly, the more I pay attention to dog owners walking their dogs, the more I see that pets immediately bring smiles to strangers, passers-by, children, the elderly...pretty much anyone and everyone.

So what does all this have to do with Capital Good Fund and The Nonprofit Life?  Well, it seems to me that whenever there is an excess supply of something that brings people joy (adoptable dogs) and a lot of people in need of that joy (ex-offenders, the homeless, the elderly),  you have the opportunity to put two-and-two together and solve a problem.

Nonprofits & Sloppy Data

Suppose I were to tell you the following about Capital Good Fund clients: borrowers who pay off their loan on-time are more likely to build their credit than those who default.  I imagine you wouldn't find that surprising; after all, by virtue of making payments you are bettering your credit, and those who don't pay us are likely falling behind on other debts as well.

So far so good.  Now what about this: borrowers who complete Financial Coaching before taking out the loan are more likely to pay back than those who did not receive Coaching.  Again, not too surprising.  The skills you learn in Coaching translate to better and more responsible financial habits.

Into The Belly of the Beast

Going Undercover

"Pay Off Later", of course!

Once per quarter we gather the staff of Capital Good Fund for a half-day "staff date." Each of these staff dates revolves around a different topic: customer service, fundraising, social impact, etc.  Last Friday's topic was all about understanding our competition, and to do that we decided to go into the "belly of the beast."

We met at our storefront office in Woonsocket, RI and then split up into two-person teams.  We assigned each team to a predatory lender--payday lender, pawn shop, or rent-to-own store--and then sent them out to pose as customers and learn how they do business.  Laura, our Connecticut Programs Coordinator, and I posed as a brother and sister making $1,500 per month and looking to purchase the biggest TV possible.  To do that, we went to Aaron's Rent-to-Own, a publicly traded firm that sells TVs, furniture, appliances, and other electronics.  Our goal was to pay attention to signage, the layout of the store, the nature of our interactions with their employees, and how they pitched their products.

Predatory Lending - Brazil and the UK

I've spent so much time thinking about predatory lending here in the US that it's been a while since I've contemplated what the picture looks like in other countries. Sure, I know that Grameen Bank got started in Bangladesh in the '70s to put the money changers out of business, but I haven't stayed on top of what's going on today.

Some of Pocket Money's outrageous material.

Two articles this week helped me gain some perspective. First, Eli, my Development Assistant, spotted a hilarious art installation called Pocket Money Loans, which satirizes the payday loan industry in the UK; I highly recommend you check out their website, http://pocketmoneyloans.com. The joke is brilliant: pocket money cash advance loans for kids at the wonderful interest rate of 5,000%!

The fact that such a site exists indicates that payday lending is an issue in the UK, and that indeed is the case: according to Consumer Affairs, "In a relatively short period of time, the UK payday loan industry has experienced explosive growth" from about £900 million in 2009 to over £2 billion in 2012. And much as in the US, these payday lenders charge obscene interest rates; engage in shady, if not outright illegal, collection practices; and profit off the financial vulnerability of the working poor.

Second, a NY Times article blew my mind with the its opening paragraph: "Interest rates in Brazil would make an American loan shark blush. Credit cards charge more than 240 percent a year. Bank loans top 100 percent." After re-reading that three times, I still struggled to believe it; Brazilians pay more for "mainstream" financial services than Americans pay for "alternative" financial services. The article then goes on to note that pawn shops, which--thanks to the decree of a former dictator (a weird story in-and-of-itself)--can only charge 19%, have become one of the most viable and affordable options in the country. Talk about an interest rate environment that's wildly different than ours!

It's certainly not good that other nations struggle predatory lending, but it's undoubtedly interesting. To paraphrase the opening to Tolstoy's Anna Karenina: all equitable financial services are alike; each unjust financial service is unjust in its own way.



-Andy

The Financial Implications of the President's Executive Order

President Obama's recent executive order on immigration will have a significant impact on the 4-5 million immigrants who are at present living in this country illegally. I'm not interested in discussing the politics of his action, so no need to read on if you're looking for that! Rather, I want to go over a key challenge for immigrants who wish to participate in the programs (known as DACA and DAPA): the cost.

This is nothing new. Ever since our founding in 2009 we've been providing loans to cover the cost of applying for US citizenship: $680 to the government plus legal fees. For many low-income families, that cost is simply too high; in fact, the Pew Charitable Trusts estimates that there are 700,000 to 800,000 legal permanent residents in this country who are eligible for citizenship but don't begin the process due to cost.