Models of Financial Guidance for Disadvantaged Families

Background and Purpose:

The financial lives of disadvantaged families are increasingly complex (Martin, 2002), and accompanied by financial vulnerability due to stagnant wages, low net worth, lack of financial services, and exposure to financial scams (Baradaran, 2015; CFPB, 2017). Moreover, unlike the wealthy, they have low access to financial guidance; i.e., professional financial information, education, advice, coaching, and counseling that facilitates access to financial services, solves financial problems, and plans for financial security (CFPB, 2015). To address this disparity, the study systematically examines existing financial guidance services for disadvantaged populations, and identified their features and effectiveness. It informs policy and social work practice to provide financial guidance to disadvantaged families.

Methods:

The authors reviewed existing research and experts’ perspectives on financial guidance, followed by a specific search on academic databases, Google Scholar, government webpages, and professional journals using keywords such as financial education, financial counseling, financial coaching, tax services, accounting services, debt services, and asset building. The study reviewed each financial guidance program by the following dimensions: service provider, program mission, target population(s), service scope (e.g. debt, retirement savings), service platform (e.g., employment benefits, tax system), and tools. It then assessed the overall model by examining evidence of effectiveness, strengths, and limitations (e.g., Theodos, et al., 2015).      

Results: 

Three models of financial guidance are identified by sector (i.e., industry, non-profit, and public sectors). The industry model provides financial guidance, and at the same time contributes to industry profits. An example is financial institutions, such as credit unions and banks, which offer financial counseling alongside with financial services (National Federation, 2015). The non-profit model includes organizations that offer financial guidance as part of a broader mission, or as their sole mission. For example, community development organizations provide financial guidance alongside other services, such as affordable housing and job development (Swanstrom, et al., 2013). Finally, the public sector model includes programs sponsored or operated by government. For example, the military offers financial guidance to service members and their families (Carlson, et al., 2016), and the Internal Revenue Service sponsors tax preparation sites for low-income taxpayers and older adults (IRS, 2016).

The analysis shows that the industry model assists clients to solve relatively complex financial problems, but the scope is narrow (e.g., saving, credit/debt). The non-profit model demonstrates innovations in financial guidance in assisting low-income clients for a broader range of financial problems than the industry model, but the ability to reach scale is limited. Finally, the public model delivers limited (basic) financial guidance to low-income families, but it reaches greater scale than the other two models. While there is some evidence on effectiveness across the 3 models, overall, it is understudied. 

Conclusions:

The study builds knowledge for how delivery of financial guidance to disadvantaged families can be organized, and proposes a hybrid model that holds promise for effective financial guidance that reaches large numbers of disadvantaged people with basic financial guidance and avenues for specialized assistance. However, more research is needed, with better data and consistent measurement, especially benefit-cost and impact evaluations.