Predicting The Future

The Weather--And More
No one can predict the future, of course, but statistical analysis can make estimates with varying levels of accuracy about the future.  And we rely on these estimates all the time in our lives: the weather, risks associated with certain behaviors (smoking, eating fatty foods), the likelihood of a sporting team or political candidate winning, the ups and downs of the stock market.  Still, as we go about our days it can be easy to forget these probabilities; our most profound interaction with statistics, after all, is usually deciding whether or not to bring an umbrella to work.

In business, however--and especially in the social impact / financial services business--we are constantly making guesses about the future.  As a recent incident has highlighted, hiring an employee can be a crapshoot; when all is said and done, the interview process is all about reducing the risk of a bad hire to the lowest level possible. The challenge?  People are complicated.  They are hard to judge, and each person has different judgement.  One person may seem lackluster on paper and phenomenal in-person, only to turn out to be unreliable and irresponsible.  Another may receive a tepid letter of recommendation yet thrive in a particular role: maybe it's the new environment, maybe it's the tasks associated with the position, or maybe it's something else.

A Golden Opportunity, But Not For Long

The Golden Opportunity
For our friends in the banking sector--traditional banks as well as credit unions--the next few years represent a golden opportunity to find new customers, deliver them equitable services and turn them into sustainable sources of profit moving forward.  Why?  Two fundamental reasons: first, "28 percent of the U.S. population, or about 88 million people, are either unbanked (they have no checking or savings account) or underbanked (they have some relationship with an insured financial instution but still rely" on alternative, or predtaory, service providers (Forbes).  Second, the marketplace is rapidly changing, with pre-paid cards swooping in to take advantage of bank branch closures and fewer free checking accounts.

On the face of it, pre-paid cards are both simpler and cheaper than checking accounts.  No checks to deal with, no visits to the nearest bank branch, and it is impossible to overdraft because you can only spend whatever money you "load" onto the card.  But in reality many of them are quite costly.  Consider, for instance, one of the most popular cards, offered by Green Dot.  The fees include $4.95 to get the card in a retail store (it's free online); $5.95 monthly charge, unless you have a balance of $1,000 or make 30 purchases per month; $2.50 when you withdraw from an out-of-network ATM; and $4.95 to reload the card in a store.  These fees can quickly add up to tens of dollar per month, and are tantamount to a tax on money that has already been taxed.

The Pitfalls Of Pre-Paid Cards
Another disadvantage of pre-paid cards is that you aren't building a relationship with a financial instution, something that becomes critical when you are looking for a car or business loan, or a mortgage.  They tend to lack some of the security features of a debit card (such as fraud protections) and, finally, often don't offer checks.  This means that you must either pay for things with the card or with cash; how else will you pay your landlord, for example?  What's more, the lack of checks forces many people to run around town every month to pay bills in-person--utilities, cell phone, cable, etc.  For those barely able to afford a tank of gas, the financial burden can become overwhelming.  At the same time, however, new players are beginning to offer better and cheaper cards; one of the best examples is the AMEX Serve Card, whose fees are quite low.

So why aren't banks swooping in to secure these potential customers?  According to an article in The Guardian, it's because "banks...are leaving poor Americans behind.  Many Americans are not banks' ideal customers--not enough money, not enough transaction--and they are punished for it with a barrage of fees."  The same article points out that credit unions, which are owned by their depositors and aretherefore more responsive to their needs, are taking advantage: "In the last year, credit union membership [added] 2.85 million new members."  One obvious reason is that "about 72% of the nation's 50 largest credit unions...offer free checking...As for banks, that number dropped from 76% in 2009 to 38% in 2013."

Wake Up & Smell The Opportunity!
Still, credit unions have drawbacks, namely smaller networks of branches and ATMs and, in many cases, less robust online banking options.  Which is why we strongly encourage all depository financial instutions to wake up and seize the moment.  Recognize that if you don't compete on price and features, you will lose customers to the pre-paid cards, and once you lose them, you've likely lost them for life.  Recognize that even if you lose money on them in the short-term, in the long-run the investment will pay off.  And finally, recognize that a strong banking sector is essential to a strong and equitable economy, and it's incumbent on you to play a role in ensuring that mainstream financial services are available to all Americans.

All this said, banks aren't for everyone, nor will they ever be.  Below you can find out more information about pre-paid cards.

• 6 things to know about reloadable prepaid cards
• 8 ways to avoid getting burned with prepaid debit cards

Five Ways To Stay Motivated

When we were getting started and the going got tough, I would frequently receive the following advice: "Don't worry, it gets easier."  Nearly six years on, and I'm no longer waiting for that!  Instead, I've come to anticipate, prepare for and ride out the inevitable moments of frustration and despair, the way a sailor quickly adjusts to the roiling sea.  Still, no amount of preparation and acclimatization can inoculate you from burnout.  So here are five ways to stay motivated:

1. Let it out.  Something frustrating happen at work?  Go home and yell, or write an angry journal entry!  Sure, don't do anything stupid--no outbursts at the office, no emails you'll regret in the morning--but don't deny that you are a human being.  Remember the famous Seinfeld line, "Serenity now.  Insanity later."
2. Change It Up.  I am a creature of habit.  As a case-in-point, I eat two bagels with avocado for lunch nearly every day, and I never tire of it--well, almost never.  Every once in a while I have a sandwich or pizza or bowl of pasta for lunch.  Our jobs should be like those bagels--something we enjoy and look forward to, but we inevitably get sick of it at times. In those moments, you've gotta try something else.  Feeling antsy?  Why not take an hour break and go for a walk?  Bored? Watch a funny TED talk or a satirical expose of payday lending.  The idea is not to just goof off, but rather to engage your mind in a different way.  Yea?
3. Rest.  Sometimes you just need to step away, and when you do that, don't half ass it: rest means rest.  It doesn't mean checking your phone 50% of the time; it means shutting it off and going for a walk, bike ride, seeing a movie...you see what I mean.
4. Reconnect.  When I'm really down I like to read essays, watch videos or listen to talks by people who inspire me.  You can't go wrong with Letter From A Birmingham Jail, Civil Disobedience, or Making The Impossible Possible.
5. Get Over it.  Sure, we all know it, but it's worth remembering: we've got it pretty good.  Running water, AC and heat, enough to eat.  A little perspective goes a long way, and at some point you have to just suck it up and get back to work.

What do you do to stay motivated?

How Long Does It Take?

I'm an impatient person.  A two-edged sword, to be sure: Capital Good Fund has grown as quickly as it

Image Credit: Filter Forge

has in no small part due to that impatience, but I have also made more than my fair share of dumb decisions, personally as well as professionally, because I couldn't wait a bit.  Depending on the time of day, and my mood, my impatience is either something of which I'm proud, or something I seek to change.  Either way, it's there--an element of my personality, as elemental, it seems, as hydrogen and carbon.

But let's step back for a moment and ask what I think is one of the most important questions of them all: How long does it take to make change?  In so many ways, the world is getting better--less poverty, hunger, war and disease, and more opportunity, health and democracy.  But in so many others, we face problems that either must be solved urgently to be solved at all--namely, climate change--and those whose timetable represents for how long, and how much, poverty and injustice we are willing to accept.

Validation Of Our Underwriting Algorithm & Approach!

Note: Underwriting simply refers to the process of reviewing an application for credit.  In our case, it's how we review loan applications

Magic Algorithms?
There's no such thing as a "magic" underwriting algorithm--one that, using data alone, accurately predicts the likelihood of an applicant paying back a loan.  In fact, one could argue that so-called "data driven risk models" do more harm than good (think about the financial collapse and all the statistical geniuses who were behind Collateralized Debt Obligations and other weapons of financial mass destruction).

Still, there's no shortage of people trying to convince investors and the public that they have just such an algorithm.  An especially poignant example is a company called Zest Cash, the founder of which boldly proclaims that "all data is credit data..."  Wow, that sounds fantastic--data mining, algorithms...powerful stuff.  Except that when you go to their website, you see that the Annual Percentage Rate on their loans is 390%.  Let me make this extremely clear: if you are charging 390%, your algorithm is worthless.  You could close your eyes and make loan decisions based on the roll of a dice and still make money at that rate.  It's laughable.

If You Could Go Without Sleep, Would You?

Last night my girlfriend Bianca and I left Montreal, where we had gone for a mini vacation, at around 11 PM.  We then drove straight through the night and finally got home and to sleep in time to watch the sunrise at 6 AM.  Given that I spent  hours staring out a windshield at empty pavement stretching on for mile after mile, I had plenty of time to think, especially about the beauty we sometimes miss when we are exhausted and choose to go to sleep.

http://www.tunisiaonline.com/road-trips-for-beginners/

Stick with me here.  Yes, I was extremely tired.  Yes, sitting in a car for that long makes your body stiff and your mind numb. However, there was something gorgeous about that ride.  At times a thick fog pelted me with its haze, and the world around me dripped into a puddle of light, that suspended in front of my car.  The mountains of Vermont were like verdant dying embers, a flame that's fallen asleep to dream pleasant dreams.  There was a strident quiet pervading everything, despite the fact that I was hurling through space at 65 miles per hour.

Finally, my drowsy and groggy mind began to form a question from the silence: If I could go without sleep, would I?  How many more books could I read, bike trips could I take, poems could I write, things could I explore?  Daylight reveals what is already there, but darkness makes the mysteries of life crawl out from under the rocks.  Is it better to sleep and rest, or to stay awake and explore?

You can guess what the poet in me says!  But what about the social entrepreneur? I'm not so sure.  There's no doubt that I wasn't as productive today as I would have been had I had a full night's rest.  Still, maybe we are all too rested and too comfortable.  Maybe there is a delicate dance between physical limits--the body needs sleep--and emotional ones--the soul needs mystery.  And maybe the way we choose to dance dictates the way we lead our lives and the impact we have on the world.

So what will it be, then?  When shall we shut our eyes to dream, and when will we force them open to see what is already there?  Perhaps we do neither well enough, for to change the world we must both see things for what they are and dream up new ways for them to be.

Just some thoughts from a sleep-deprived mind.

Obamacare, Medicaid Expansion, And The Politics of Poverty

This is a guest post by Capital Good Fund intern Stephanie Johnson

The Patient Protection and Affordable Care Act, commonly referred to as Obamacare, is the Obama administration's signature piece of legislation. Passed in 2010, it is a complete overhaul of the United States’ healthcare system, with the ultimate goal of providing health insurance to the vast majority of Americans. The impetus for the ACA was the fact that for years health care costs had been exceeding the rate of inflation, to the point that by 2009 national health care spending exceeded $2.5 trillion, or ~17% of Gross Domestic Product[1]. 

 

Image Credit: Mark Fischer

 Ever since the debate over health insurance reform began, the issue has been deeply polarizing and partisan, resulting in a number of legal challenges, of which many have ended up in U.S. Supreme Court. A source of particular controversy was the federal mandate to raise the Medicaid eligibility bar to all individuals living at up to 138% of the federal poverty line. In effect expanding Medicaid coverage from $15,730 to $21,707.40 for a family of two, for instance, this move captures a majority of the uninsured population in the United States.  Many states sued the federal government, claiming that the mandate impinged on their sovereignty, even though the federal government would cover 100% of the costs through 2016, and between 93% and 95% of expansion costs thereafter[2].  Unfortunately, in June of 2012 the Supreme Court ruled in the National Federation of Independent Business V. Sebelius that the states had the right to choose whether to or not to participate in Medicaid expansion.