Giving Thought: Shifting habits to create generational wealth

Would a $400 emergency be catastrophic for your family? Half of American households would answer “yes” or be unable to cover it without selling something they own, forgoing payment of other bills or borrowing.

With the rising cost of living and interest rates, more families are finding themselves in financial situations that show little promise of improving.

One in five households in Colorado have a zero or negative net worth, according to the Cities for Financial Empowerment Fund. Traditional wisdom and economic education suggests that a practice of savings and investing is critical for building wealth, but the financial reality faced by many of making just enough to cover their bills has impaired their ability to make this a practice.

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Almost 20% of Colorado families are unbanked or underbanked, meaning they are without access to traditional banking services or banking without fees. More than 25% keep all of their savings in their home, and 45% of Latinx families have no savings. For these families, one emergency can become the event that sends them into a financial dive that they cannot recover from with long-lasting implications for not only their families, but also for the community.

The pandemic has added another layer to the already precarious situation faced by the most financially vulnerable families. Previously, families without access to traditional banking or savings have relied on friends and family for loans in times of need. Due to widespread financial struggles, these channels are often exhausted, leaving those in need no choice but to seek out predatory lenders with interest rates that can be in the triple digits. Impact of these events compound and ultimately create struggles for our communities.

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A local nonprofit is seeking to change the banking and savings experience for those traditionally left out, especially the Latinx community. The Savings Collaborative launched as a pilot program at the end of 2018 with 15 members who saved $500. Its model is one of financial empowerment for families and communities by creating a habit of saving and culturally appropriate financial literacy education.

Led by Executive Director and Founder Dr. Barbara Freeman, The Savings Collaboarative has supported its nearly 1,700 members in saving over $1.1 million with a deposit average of $30. Over 95% of collaborative members are Latinx and are under/uninsured workers.  Members often do not have savings as a part of their habits or culture because traditional banking has not met their needs or been seen as a trusted ally.

At the collaborative, members are able to work with one of its community ambassadors to gain financial-literacy skills and receive support meeting their goals. The program also features a mobile app with “nudges” and other features to encourage members to increase their savings and accounts can be started with as little as $10.

Savings are accessible for emergencies or for making other financial investments, like buying a house or starting a business. Three members have been able to purchase their first homes, two have started small businesses and another has purchased commercial property as a result of their efforts. Because the collaborative connects members to its larger network of banking partners, they have access to opportunities that might otherwise be inaccessible.

In the event of emergencies, members are able to access emergency loans. Over $128,000 has been distributed to date with no defaults, and over 30% of these loans have been used to cover medical and dental emergencies.

During the pandemic, The Savings Collaborative was mobilized to distribute $3.3 million to more than 3,300 households (12,000 people) in emergency assistance funds. Now, by leveraging that relationship, the collaborative is finding that some of those that received assistance are now building a habit of savings.

Ingrid Zuniga, a collaborative ambassador, shared that one of the members she works with received assistance during the pandemic and now is actively saving to pay medical bills for his chronically-ill daughter. He shared that because he no longer worries as much about finances, he is able to better advocate for his daughter with medical staff. Financial independence supports confidence that ripples into other areas of life.

The work of the collaborative expands beyond their work with members as they are involved in multiple statewide and national networks working toward supporting financial independence and empowerment. They are also involved in statewide policy and advocacy efforts to support the financial independence of more Colordoans.

Many social programs and nonprofits focus on the distribution of resources, but the collaborative focuses its efforts on helping its members leverage their own resources to support future generations and build their communities. This effort and model take equity and social-justice work a step further, allowing change to happen within individuals using their own resources cultivating a sense of pride, which grows alongside their interest.

Allison Alexander is the development director of Aspen Community Foundation, which with the support of its donors, works with nonprofits in the Roaring Fork and Colorado River valleys.