Thinking Outside The (Post Office) Box

Photo credit bettybl 

The crisis of inequality in America has many consquences, one of which is that those least able to afford it spend the most on financial services.  As Elizabeth Warren points out in an article dated February 1st, "68 million Americans are...underserved by the banking system. Collectively, these households spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household." At 10% of income, that's about as much as they spend on food!

This data should put a nail in the coffin of the notion that financial services aren't an essential tool to tackling poverty.  Just consider this: given how much more affordable our loans are, and given how much families save on their taxes and on their budgets thanks to our Financial Coaching and free tax preparation, we could easily cut that $2,412 figure in half.  That's an additional $1,200 that can be used for food, housing, transportation, education, savings, vehicle repairs...That's transformational!

One challenge, however, is how to reach those 68 million Americans in a cost-effective manner.  After all, the 'downside,' if you want to call it that, of designing our products to be affordable, is that our margins our tight: we make very little money per borrower.  Anything that increases our costs--dozens of new offices, aggressive marketing, etc.--severely limits our ability to scale.  So that's why I'm so excited that the Office of the Inspector General of the United States Postal Service (USPS) has an intriguing idea, which he shared in a report titled 'Providing Non-Bank Financial Services for the Underserved.'  Simply put, the USPS is proposing that they use their national brick-and-mortar infrastructure of stores, combined with the trust people already place in them, to deliver affordable services to those in need.

I love this idea for several reasons.  First, it solves a challenge we have: how do we compete with the predatory financial services industry, which is well financed and can afford to have a ubquitious presence in poor communities?  Under this model, we could potentially co-locate at the post office, enabling us to dramatically lower our costs.  The magic word in retail, after all, is 'foot traffic,' and the post office already has that; foot traffic means a much lower customer acquisition costs (much lower marketing costs).

Second, it allows us to leverage one of the most trusted entities in the country, the postal service, to immediately gain access to millions of potential customers.  That is the kind of reach many companies dream of!  Ordinarily the process of opening a new office entails a lengthy period of building partnerships and establishing trust.  Partnering with the USPS wouldn't eliminate that, of course, but it would sure make it easier and faster.

And finally, a partnership with the USPS could open the door to countless other opportunities--using postal offices to do free tax preparation and Financial Coaching sessions, especially after hours; co-branding financial products, such as prepaid debit cards; and turning postal offices into community hubs that offer other services, such as wireless access, that the community needs.

So let me close by asking you this question: how do we go about forging this partnership?  According to the Inspector General's report, they are looking to "...introduce products through pilot programs for market tests...in select geographic areas."  How wonderful and powerful would it be for us to be involved in such a pilot?

Let's make it happen!

Teach Him To Fish - By Cameron Cunningham

We’ve all heard the age old phrase, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Perhaps the place where this proverb fits most aptly is the fight on global poverty. Poverty is a very real issue today: in the words of former Financial Coaching Fellow, Jerome Thompson, “the fight on poverty is this generation’s civil rights movement.” There are opposing theories on the best way to address the issue of poverty – give the fish or the lesson? Or, does the issue go deeper? Should we be asking which method is better, or should we be examining the way in which the methods are administered?

The Paradox of the Panhandler

The Parable of the Starfish

We’ve all heard the parable of the starfish: a man comes across a young boy throwing starfish into the ocean.  The man, seeing this, tells the boy that what he’s doing is a waste of time because, there being thousands of starfish, his actions won’t make a difference.  And then comes the boy’s famous response.  Picking up a starfish, he says, “It makes a difference to this one!”

I got to thinking about the starfish story as I was driving home from work today and passed a homeless man panhandling on the side of the road.  It’s a frigid day—windy and cold, with a chance of rain and sleet in the afternoon.  In short, a day that must make the despair of homelessness even more biting and sharp.  Stopped at a red light, I looked at the man, bundled up yet shivering, holding up his makeshift sign, and wondered what I should do.  Give him a dollar?  Ignore him?  Work for systemic change that will end homelessness? 

The Mental Stress of Fewer Options

My Experience

The summer before college I found a job babysitting that would earn me enough to cover my first year books and possibly leave some left over for some fun college activities.  The job was in Newport, about 45 minutes (on a good day) from my house.  Rather than waste money on gas, I decided to take the bus every day.  One summer morning, I went to my usual stop, walking just over a mile to get there.  I saw the bus coming down the street and stepped forward with my change in-hand.  I was standing in plain sight, right under the bus sign but that bus didn’t even slow down.  I even saw a few people point at me as I waved my arms in an attempt to get the attention of the driver, but no luck.

A Frank Discussion About Money

Cut The Euphemisms
I feel that so much of our modern lives are shrouded in euphemisms that rarely do we say what we mean; instead we hide behind safer language, safer feelings.  Beer and shampoo and a host of other consumer product commercials imply that use of the product will result in dates, in sex, in beauty, in success.  To sell sugar water Coca Cola shows us polar bears enjoying the beverage: let's make something lacking any nutritional value seem cute and refreshing!  Exxon doesn't rapaciously exploit natural resources: it "delivers value" to its stakeholders.  The wealthy get preferential treatment (11% taxes on capital gains!) not because they have the clout to lobby for that treatment, but rather because they are job creators.  Financial institutions behind the global recession are spared criminal suits, not because they have the power to intimidate the government and the legal team to fight it, but because they are too big too fail.  Benefits and programs to support the poor and middle class--food stamps, unemployment insurance, job training, infrastructure improvements--are continually whittled down, not because they lack political power...No! It's because government is too big and they are too dependent on government largesse.  And so on.

You Gotta Plan...And You Gotta Believe

More Than A Plan, More Than a Dream: A Belief
Martin Luther King didn't just have a dream, he had a plan: marches, sit-ins, legislative advocacy.  But no amount of dreaming, and no amount of planning, could comfort him when the death threats rained upon him, when the Churches were bombed and the dogs set loose; no, in those all-too-frequent (if not constant) moments, he needed something else: belief.  Belief that was not always justifiable; belief that strained the bounds of credulity; belief that he almost certainly struggled to believe himself.  Yet that belief remained, and it resonated in the hearts and minds of the countless thousands that risked their lives for justice, and it resonated even in the hearts and minds of those who would prefer to look the other way--but couldn't, because the Civil Rights movement forced them to...forced them to believe that change was coming.

O, but it's so hard.  During the darkest days of the Cuban Missile Crisis, or the Battle of Britain, or the Civil War, or the American Revolution, or the myriad other events that shaped history, how many times did the way forward seem impossible, unthinkable?  How often were the best of plans laid to waste, the best thinkers proven wrong?  And yet sometimes, in the midst of strife--moments when all the roads to Justice have been washed away by a torrent of hopelessness--a path is forged.  It is a path that defies logic, that shouldn't work...and then somehow does.

What Do Our Customers Need?

I just finished reading a fantastic book titled Portfolios of the Poor: How The World's Poor Live on $2 a Day, a provocative look at how the poor actually related to and make use of financial services.  By meeting with hundreds of families every two weeks for a year, the authors were able to not only understand how much money they bring in per year--which is the number we usually hear of--but also what their cash flow looks like month-to-month.  As I've come to learn over the years, cash flow is king: it doesn't matter how much money you have, if the timing of inflows doesn't match the timing of outflows, you've got a problem!