Signs of economic recovery are beginning to show throughout the country. For example, the National Bureau of Economic Research says that the recession that began in December 2007 ended in June 2009, and that the economy has been in recovery ever since. However, for many Americans every day is still a struggle to stay afloat, with 9.6 percent officially unemployed and many more having just plain given up.
Statements that the economy is improving are based on a 3.1 percent increase in real Gross Domestic Product (GDP) between its low-point in June 2009 and the second quarter of 2010. While these numbers do signify moderate recovery, they are the broadest possible measures of economic activity and do not mean that all people have felt the benefits of recovery.
The U.S. Census Bureau recently released a commendable report, "Income, Poverty, and Health Insurance Coverage in the United States: 2009," which highlights the plight of low-income Americans who manage to survive in this deep recession, despite waning resources and disappearing wages. A recent study conducted for MoneyUP, a joint initiative of The Financial Clinic and United Way of New York City, mirrors the Census Bureau's analysis by showing that this increase in GDP has not resulted in a corresponding reduction in poverty.
MoneyUP takes an innovative approach to helping low-income New Yorkers become more financially secure and save for the future by offering free tax preparation to determine their eligibility for the Earned Income Tax Credit. Then, customers are invited to engage in year-round financial coaching where they learn how to set financial goals, reduce debut, and build savings.
MoneyUP conducted the "August 2010 MoneyUP Field Report", based on survey results from the previous tax filers from its free tax preparation sites. The findings showed that the nation's most financially vulnerable populations continue to struggle to meet their basic needs, including food, housing, and medical costs.
The "MoneyUP Field Report" is based on the experiences of previous tax filers from the initiative's free tax preparation sites. With more than 3,000 responses, we see a bleak picture of the challenges that the working poor face during these times. With a mean annual income of $12,018, one-quarter of the respondents reported losing a job in the last 12 months. Savings continues to be a major hurdle as well: 17 percent have between $101 and $500 in savings, 19 percent with less than $100, and an astonishing 40 percent report not even a dollar in savings. It isn't surprising that almost one-third pay their bills "always" or "often" late.
While traditional economic indicators may point to the recession's end, this is hardly translating to working poor families. These families will for the foreseeable future struggle within a fog of diminishing resources, continuing unavailability of jobs and lack of safety nets. In perhaps the most disheartening but relevant statistic from the Field Report, 43 percent reported "a lot" or "extreme" stress.
The public sector has a responsibility to ensure that this vulnerable population recovers from the recession along with the rest of the country. In addition to extending unemployment benefits, greater focus should be placed on enhancing financial training and literacy programs that help the most vulnerable build for the future.
MoneyUP's survey showed that customers who engage in regular financial coaching over the course of the year are more likely to be able to identify an asset-oriented financial goal, and more likely to have confidence that they will achieve that financial goal. The findings also confirm that a coaching customer who can articulate a financial goal is more likely to engage in such positive financial behaviors as: budgeting; saving consistently, and being able to manage debt. These customers are also less likely to use fringe financial services that include pawn shop loans and check cashers.
Despite their bleak economic outlook and very limited income, nearly one quarter of MoneyUP respondents reported having more than $500 in savings. Moreover, 35 percent of them report having a written budget or spending plan. The findings suggest MoneyUP customers greatly benefit from financial coaching and goal-setting, which makes them more likely than other low-income New Yorkers to achieve financial security in the long run.
While economic conditions may appear to be improving overall, high poverty levels indicate that the battle is not over for low income Americans, who are still f acing great financial stress. The public sector shouldn't stop searching for solutions until recovery reaches all income levels. Fortunately, financial coaching that encourages goal-setting and debt reduction can provide significant benefits and can help put families on a sustainable track to financial stability.
By Gordon J. Campbell, President & CEO, United Way of New York City and Mae Watson Grote, Executive Director, The Financial Clinic