MAKING THE SHIFT FROM FINANCIAL EDUCATION TO FINANCIAL CAPABILITY: Evidence from the Financial Capability Innovation Fund
The need for new ideas to improve Americans’ financial capability has been evident throughout the recent recession. Never before have Americans been so highly motivated to improve their financial behavior. At the same time, many people are confronting foreclosure, unemployment or other ills related to the downturn that impede behavioral change. As new financial products and services emerge, and as financial service providers respond to the new economic and regulatory environment, consumers need better guidance to make wise financial decisions.
In response to this growing need, the Center for Financial Services Innovation (CFSI) launched the Financial Capability Innovation Fund (FCIF). We issued a Request for Proposals in late 2010 from nonprofit applicants interested in creating new and innovative financial capability interventions. A collaborative of funders led by the Citi Foundation and also including Bank of America, Capital One, Morgan Stanley, Experian, U.S. Bank and Visa Inc. provided a total of $1.5 million in available grant funding. Applicants were encouraged to develop programs in partnership with organizations in the nonprofit, for profit, or government sectors. We planned to award four to six grants ranging from $200,000 to $300,000 each, giving priority to programs that coupled financial products and services with education; leveraged technology; and applied behavioral economics concepts to positively affect financial behavior.
We received 246 proposals totaling more than $67 million in requests from nonprofit organizations across the country. Five were chosen for funding:
• Consumer Credit Counseling Service of Delaware Valley, which will test whether social commitments and text alerts can help consumers reduce debt.
• Co-opportunity Inc., which will leverage technology to enhance its volunteer budget-coaching program.
• Filene Research Institute, which will test whether rewards for timeliness can improve loan repayment behavior.
• Mission Asset Fund, which will franchise its Cestas Populares peer loan program to help immigrants build credit and manage credit wisely.
• Grow Brooklyn and Piggymojo, which will help lowincome savers turn impulse buys into impulse saves.
As we reviewed the proposals, we realized they were not just part of a selection process. Collectively, these proposals reveal the way nonprofits are thinking about financial capability today. In particular, the proposals highlighted (1) cross-sector partnerships, (2) improved saving behavior, (3) an interest in scaling financial counseling and coaching programs, and (4) the use of incentives to drive behavior change.
This paper explores common themes among the proposals and recommends ways nonprofits could enhance their financial capability programs for greater effectiveness.