It Might Surprise You
We all understand that we need to strengthen and protect our health. We know we need to eat well, exercise, get a good night’s rest, and avoid risky behaviors. By taking care of ourselves, we not only live a better life today, we are able to have a better life in the future. We also have financial health. Our financial health is measured by our ability to manage our day-to-day financial lives, to be resilient in the face of ups and downs, and to plan for our future.
Unfortunately, the American family’s financial health picture pretty closely mirrors that of our physical health – it isn’t very good. More than half of American families – 57% (about 138 million) – are struggling financially. They have a hard time paying their bills on time, experience cash flow challenges, and find it very difficult to plan for the future.
The Center for Financial Services Innovation (in partnership with American Express, the Ford Foundation and the MetLife Foundation) recently released a sweeping study called “Understanding and Improving Consumer Financial Health in America.” The study surveyed over 7,000 people on their financial attitudes, behaviors and preferences and, through their research they categorized the population into three groups – Financially Healthy, Financially Coping, and Financially Vulnerable.
One of the most significant findings, in my opinion, is that increasing incomes is not really the answer. Having more money doesn’t necessarily mean that a consumer is financially healthy. Behaviors are the key. Those who are able to plan ahead for large, irregular expenses are ten times as likely to be in the Financially Healthy segment compared to those who do not, and those who have a planned savings habit are four times as likely to be in a Financially Healthy segment compared with those who do not.
It seems like common sense, but I think this is very important for policy-makers to consider. No one disputes that we want lower-income people to make a better income, but, the best way to help people of any income level live better lives, is to give them the tools that encourage planning and savings.
We have definitely seen this at On the Road Lending. Some of our clients make pretty good incomes — $45,000 to $55,000 per year – but struggle to pay their bills on time. Others make less, but their car payment is never late. Our most successful clients are planning for the future. We have had several ask us recently for advice on how to buy a house. These clients are much better able to withstand periodic “shocks to the system,” because their resiliency is much greater, as is their likelihood of having a strong future. We really believe that our clients need to build financial health, which will contribute to their family’s overall wellbeing for the long haul.
The Impact of Dodd-Frank after Five Years
Economies operate in cycles. There are periods of growth, followed by periods of contraction, followed again by periods of more growth. Many US consumers do not pay close attention to financial cycles, but they certainly know it when there are major shocks in the economy. When the US financial system nearly collapsed several years ago, the impact was felt by pretty much everyone in some way or another. For many people, it meant job loss. For others, it meant lost retirement savings. One lingering effect is lack of access to capital – illiquidity in the system.
Regulators are typically reactionary. Governments respond to what happens in society and try to course-correct to prevent negative situations from recurring. But often these legislative mandates end up causing unintended consequences, frequently because they go too far – in trying to solve one problem, they often create others. When you have a headache, you take a couple of aspirin, not the whole bottle.
Dodd-Frank was a major piece of legislation that was adopted in response to the concern about financial institutions that were so interwoven in the economy that their failure could trigger failure in many others – the so-called “too big to fail” syndrome. The legislation imposed a massive amount of federal oversight for banks and other financial institutions that was intended to reduce risk-taking, largely because of the investment in subprime mortgages and other financial products. One byproduct of Dodd-Frank (which has happened in other cycles with prior legislation) is a tightening of lending underwriting. This was intended to discourage banks from making loans to risky borrowers. When these policy changes happen, the credit markets contract, making it difficult for everyone (even people with high levels of income) to get loans. This is why there is a need for an organization like On the Road Lending. For people with weak credit, accessing affordable loans is nearly impossible.
We have seen the impact of legislation like Dodd-Frank on our business. There are many banks in our region that would like to partner with us, but find it difficult to do so because of regulatory oversight. Ironically, it would be easier for them to partner with less charitably-oriented organizations than ours because those businesses are so profitable, they are considered less risky than us.
As we move further away from the impact of the Great Recession, lending standards will ease again and people will once more be able to access the credit markets. Banks are, after all, in the business of loaning money. We will likely see banks be better able to serve the people we serve (although there will always be a need for the tremendous services that OTRL provides, in addition to facilitating car loans) and we expect that the banks will have an easier time partnering with us. The pendulum will swing again in the other direction, but hopefully with less abandon than the last time.
We get asked quite often how car-sharing services like Uber and Lyft factor into our thinking about how to enable families to have access to better transportation. I’m always a little bit surprised by this. Uber and Lyft are really alternatives to taxi services and, unless you live in New York, you probably don’t use a taxi as your primary form of transportation. It’s expensive, but also hard to comprehend that this could work for your daily commute or going to the grocery store.
Fortune Magazine just ran a feature about an organization in LA called “HopSkipDrive,” that has apparently just received several million dollars in venture capital funding to expand to other cities. The company is billed as an “Uber-for-kids” concept for busy parents, that combines childcare and transportation services into one technology-provided platform. I have to say I’m skeptical.
One of the most difficult things for transportation-challenged parents is the impact to their children of not having a car. Getting kids to school on time, enabling them to participate in after-school activities, and enabling them to access their “social networks” of church, organizations, and family or friends, is infinitely harder to accomplish without reliable, personal transportation. We have heard from our On the Road Lending clients that having a car has made their lives richer and less complicated. Their kids’ lives are better too.
Parents understandably are reluctant to let their kids ride public transportation alone. How do you keep them from harm? I don’t see the “Uber-for-Kids” concept as being much different. Wouldn’t that kind of company be a magnet for pedophiles? It’s one thing for a parent to ask a friend to pick up their kids from soccer practice, but I have a hard time thinking that most parents would feel comfortable going to an app on their phone and hiring a total stranger pick up their kids. How do you reconcile “telling your child this is okay” with admonishments about “stranger danger?” As a business owner who is trying to address transportation needs for people, I’d be very worried about the liability of offering a service like this. I can see the horrible headlines now.
What are your thoughts?
Access to Food, Access to Transit
Most socially aware people have heard of “food deserts,” areas in a community that are not well served by grocery stores. Food deserts are of concern to social scientists and policy-makers because lack of access to healthy food choices means that people who live in those communities end up buying poor quality packaged foods at corner convenience stores, resulting in compromised health, especially obesity. These food choices also tend to be more expensive, so the negative influences are many and varied.
A less well-known concept is that of a “transit desert,” which are areas in a community that are not well served by public transportation options. The Center for Sustainable Development at the University of Texas’ School of Architecture just released a study called “Identifying Transit Deserts in Texas Cities, the Gap between Supply and Demand.” These researchers developed formulas for evaluating populated areas where there was likely to be a high need for transit (demographic and economic factors) and measured demand against available supply (bus/train stops) in five Texas cities – Dallas, Fort Worth, Houston, Austin and San Antonio. Because these transit systems and generally “hub and spoke” layouts, there tends to be a high concentration of transit in the center cities that gets more sporadic as it moves outward into the region. In Dallas they found several areas where there were transit gaps – transit deserts – most notably in north Dallas.
This research is not surprising. Even in cities as dense as New York, it is practically impossible to get mass transit to fully cover the geography. DART (Dallas Area Rapid Transit) is the largest mass transit system in North America with 12,000 bus stops, 61 light rail stations, 10 commuter rail stations, and 93 linear miles of rail, covering a geographic footprint of over 700 square miles across 13 cities. There is just no way for the system to “go everywhere,” so it is reasonable that there would be areas that would be underserved.
An interesting analysis would merge the transit desert and food desert ideas and consider alternatives that mitigate both — a person who has their own car is not impacted by either.