FAIR Money came to be out of frustration with the CFPB, which initially declined to tackle payday loans. But now some new rules appear to be under consideration, according to this press release. Here’s the summary:
[CFPB] “is considering proposing rules that would end payday debt traps by requiring lenders to take steps to make sure consumers can repay their loans. The proposals under consideration would also restrict lenders from attempting to collect payment from consumers’ bank accounts in ways that tend to rack up excessive fees. The strong consumer protections being considered would apply to payday loans, vehicle title loans, deposit advance products, and certain high-cost installment loans and open-end loans.”
Better late than never. But it will be interesting to see what happens if the new rules go into effect. In all likelihood, the people who need emergency cash the most will be the least likely to be underwritten, if a means test of some sort is applied. So then what? It could create an opening for more communitarian, informal solutions to deal with cash crunches. Or it could drive more folks into the arms of the internet lenders.
Remember the Walmart siblings? Well, they are not the only ones who can give us a measure of how unequal things really are.
In “Off the Deep End,” Sarah Anderson of the Institute for Policy Studies calculates that Wall Street bonuses for 2014 are double the size of the total earnings of all full-time minimum-wage earners in America combined. The approximately 1 million full-time minimum wage workers in this country all together pulled down about $14 billion. The bonuses of the 167,000 people on Wall Street came to $28.5 billion.
So if you took those bonuses, Anderson points out, you could just double the minimum wage.
FAIR Money is kicking off a monthly Meetup on Saturday March 21 in San Francisco. We’re hoping to meet other people who are interested in inequality and who are itching to do something constructive about it. Interested in joining us? Check out the Meetup page.
We’re planning to make it a movable feast and pick different locations around the Bay Area, so if you can’t make it this time, perhaps another month will work for you.
FAIR Money has just published its first report, Good with Money: Getting by in Silicon Valley. The report, which is based on interviews and a diary study with 10 people struggling to gain or hang on to firm financial footing in a booming local economy, focuses on the most striking finding: how skilled people are with money and how little their skill set overlaps with the money management skills traditionally taught in financial literacy classes.
The report’s introduction sums up the central arguments:
The “master narrative” of financial probity that dominates American culture at this historical moment makes it almost impossible to see the financial behavior of low- and middle-income Americans without a strong punitive bias. This dominant narrative focuses on living well within one’s means, using credit cards responsibly, saving for financial milestones, and managing one’s credit score. It refuses to acknowledge that wage stagnation, underemployment, and rising costs of health care and education leave vast numbers of Americans with insufficient income to cover basic expenses. When we consider financial actions and decisions from the inside out, in their full complexity and in the context of meaningful relationships and life choices, it becomes readily apparent that struggle, hard work, ingenuity, and bad luck are much more common than financial irresponsibility or ignorance.
One of the practical manifestations of this master narrative of (assumed lack of) financial probity is the financial literacy industry, both for-profit and not-for-profit. Financial literacy education makes a foundational assumption that adverse financial outcomes are due to ignorance and/or irresponsibility and that education can effectively eradicate both. This report argues that offering education as a solution to financial struggle is a fairy tale that does real harm. It obscures the massive 30-year-long redistribution of wealth to the very top of American society. It blames the victims of this redistribution for their misfortune and distorts our thinking and our judgment. In obscuring the causes of the financial struggles experienced by average Americans, financial literacy education also makes it much more difficult to think about true solutions.
Good with Money discusses particular “scripts” in the master narrative condemning people who struggle financially, and it proposes a different way to think about their choices and decisions. The report also contains the financial stories of the research participants told through a lens of empathy and historical understanding.
FAIR Money dedicates itself to citizen anthropology. We are committed to observing and elucidating the process by which decades of organized redistribution of wealth pushes the majority of Americans into ever more precarious financial situations.
Anna Bahr presents an analysis of the impact of Obama’s recent “Pay as You Earn” legislation, suggesting that it might really stand for PAY Extra. According to Bahr, “PAYE tends to save money only for those low-income borrowers who have incurred an unusually large federal debt.” Bahr offers a few examples of people with more usual loan amounts, who would actually pay more under PAYE than under current rules, because as they repay more slowly they will incur more interest on their outstanding loans.
According to Susan Dynarski and Judith Scott-Clayton, the FAFSA could consist of just 2 questions and more people would manage to go to college and stay there until they get their degree (The Cost of Complexity in Federal Student Aid).
I have a lot of other questions. For instance, what would happen then? Would we have more college grads with good jobs and solid prospects? Or would we have even more young adults with staggering educational debt and a hard time finding a halfway decent job? It’s instructive to consider the post-graduation realities laid out in It’s Official: The Boomerang Won’t Leave. According to that article, “more than half of recent college graduates are unemployed or underemployed, meaning that they make substandard wages, in jobs that don’t require a college degree.”
Maria Konnikova has an excellent article in the New York Times today, entitled “No Money, No Time: The Poor Are Under a Deadline that Never Lifts.” She sums up the experimental work of Sendhil Mullainathan and Eldar Shafir on the effects of poverty and works her way backwards to reality, applying their conclusions to the lives of the people at the bottom of the heap. In the lab, people in artificially induced states of poverty perform worse than people operating under conditions of abundance. Mullainathan and Shafir also conclude that they tend to solve for the present moment more–meaning they borrow, handicapping their future performance.
Mullainathan and Shafir decompose poverty into three components: lack of money, lack of time, and lack of bandwidth (by which the mean the ability do dedicate sufficient mental resources to any given problem so as to make good decisions). Their argument is that a lack of money correlates with a lack of time in the real world, and that both conspire to reduce available bandwidth for decision-making.
Shafir recommends designing programs to reduce bandwidth demands and uses the FAFSA as an example:
“If I give people a very complicated form, it’s a big demand on cognitive capacity,” Mr. Shafir says. “Take something like the Fafsa” — the Free Application for Federal Student Aid — “Why is pickup for the low-income families less than 30 percent? People are already overwhelmed, and you go and give them an incredibly complicated form.”
To him, the obvious conclusion is to radically change our thinking. “Just like you wouldn’t charge them $1,000 to fill out a form, you shouldn’t charge them $1,000 in cognitive complexity,” he says. One study found that if you offer help with filling out the Fafsa form, pickup goes up significantly.
Interestingly, their work also seems to support one of the tentative findings from FAIR Money’s Payday loan study, that talking about one’s situation, even if only to a researcher who offered no comment, seemed to have an effect on decisions about how to handle one’s financial dilemmas. By paying people to participate in our study and talk about their situation, we paid them to take time to reflect, alleviating some of the pressure on two of those three dimensions of poverty.
The Economic Policy Institute calculates that in 2010, six members of the Walton family siphoning profits from the Walmart empire were together worth $89.5 billion. That amount of wealth is equal to the total value held by the bottom 41.5% of Americans, a staggering 48.8 million US households.
2014 marks the anniversary of LBJ’s War on Poverty. 50 years later, in a series on American hardship, Trip Gabriel writes about entrenched rural poverty in his article “50 Years Into the War on Poverty, Hardship Hits Back”. The article is a heartbreaking look at how government has failed the rural poor in Appalachia, a place where economic opportunities are scarce and roughly 47% of the population relies on social security as their only personal income. Their story reflects that of many, disenfranchised and disinvested in across the United States, as the Unconditional War on Poverty waned in popularity, leaving young people with little hope and few options. As Donald Bolden, quoted in the article, says, “‘Ain’t that a shame: I’m 30 years old and carrying my life around in a backpack.’”
FAIR MONEY 