How a Community Can Transform Financial Health for Generations

Impacts a Community Can Bring + Improvement of Financial Well Being

By

Matt Lyons

on

Jan 21, 2021

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When people are consistently able to meet financial obligations, feel financially secure, and have more choices available, they are considered to have a high level of financial well-being. When people are unable to pay bills and feel a little bit more stressed about money, they may experience some negative impacts on their quality of life and health. To get an overall scope about someone’s financial health, you will have to consider things like income stream, amount in savings, and how much you ultimately have left after bills and other expenses have been paid.

While financial health is important person to person, financial health can also have a big impact when it comes to communities as a whole. Many poor communities out there have not had access to the right financial tools that build communities and make them stronger. Community-created financial health refers to members in a community coming together to lower financial risk, so that they have a higher chance of getting a credit or loan. When people are facing a problem together, more of them are willing to help out when needed.

The Common Cents Lab, or CCL, part of the Center for Advanced Hindsight at Duke University, has conducted behavioral research on the power of community to create financial health. Beginning research shows that delinquencies are uncommon and defaults are more rare. In some of these findings, 87% of people never miss a payment, and 10% rarely miss a payment, (once or twice). That amount equals  97% of people, which means that only 3% of people are missing more frequently. A survey of 400 people, in which 252 had their home paid off, support the idea that delinquencies are low in general.

6 Ways to Increase Financial Strength In a Community

Follow these 6 strategies, and your community will be on its way to financial strength in no time!

Take Budgets Seriously

It may take a couple of steps to finally reach good financial health, but you should start off with some budget planning. If a situation arises where you have the opportunity to donate/give back to your community, a little bit of budgeting can help you. 

Keep Track of Operating Accounts

You can build your operating fund by adding a contingency to your budget, which can be from revenue received for storage or parking rental, laundry income, and other income sources in your community. You should work to maintain your operating fund balance at a minimum of half a month’s expenses.

Reduce Bank Expenses and Earn Interest

There is always an opportunity to reduce expenses, and a great way you can do this is by not paying banking fees or even earning interest on your operating account. 

Attract more equity funding through CDFIs

CDFIs are referred to as mission-driven financial institutions that work to provide financing to underserved communities, businesses, and homes to create more economic opportunities and revitalize neighborhoods.

CDFIs have two main financial needs: debt capital to lend and invest and equity funding to support the organization and the investment activities. Lending and investing are the focal points, but CDFIs need a strong operation. An effective operation will require some sort of sufficient equity. Without sufficient equity, there are several things you may run into:

  • a CDFI cannot acquire debt funds to lend, because the CDFIs creditors want to know that the CDFI will have money to pay back the loan. 
  • A CDFI may not do the proper research and innovation when needed, which could mess with the government’s funding cycle. 
  • A CDFI cannot meet reserve and regulatory requirements.

Attract Non Traditional Investors

Many of the typical CDFI investors you will probably come across include the CDFI Fund, philanthropy, and banks motivated by the Community Reinvestment Act (CRA). Nontraditional investors may include particular individuals, foundation endowments, new partners like insurance companies, development finance agencies, and health care providers.

Attracting these kinds of investors will also require CDFIs to better understand what each segment is looking for, both financially and in terms of impact.  It can also be a challenge to structure some of these investments in a way that is beneficial for both parties. New investors are also unlikely to become equity providers, so investments must be structured to provide a return to the investor while also enabling the CDFI to enhance impact, improve its bottom line, and add to some of its reserves.

Donate to Programs Dedicated to Promote Financial Health

You have the ability to make a heavy impact in your community by donating to nonprofit organizations that teach people how to manage their own money. The YMCA and the United Way are some of the most well-known nonprofits that have done the work to fund financial literacy programs which help underserved families all over the United States. Poor financial health can place pressure on households, hinders community growth, and eventually has implications for state and federal governments. Several of these programs that are out there can help people in the community learn, grow, and ultimately become equipped to attain financial security. 

Do Your Part Today

Good financial standing and overall health is not only important for each individual, but also for communities so they can continue to thrive and grow. Get out there in your community and work with people who share some of the similar ideas that you have. 

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