The nation's premier event on domestic Microfinance - Microfinance USA - opens here in San Francisco on May 20th. I have the privilege to speak on a plenary on savings at the conference, and look forward to what I know will be a fascinating conversation. There appears to be a consensus among those of us working to encourage savings among lower income earners, that driving savings is a powerful strategy that can help people create prosperity. But there are sharply divergent views over the best way to encourage savings, and lots of data and perspectives that inform the arguments.
I was really heartened to learn that Opportunity Fund, the excellent organizers of this event, added a plenary specifically on savings. I have always been one of the folks pushing for the microfinance world to think of capital the way markets do - including equity and debt - and allowing for goals to drive a personal financing strategy - rather than leaning solely on debt. At EARN, where we run one of the nation's largest matched savings programs, we find a lot of burgeoning entrepreneurs who would be poorly served by debt, but could make breakthroughs toward their goals with small amounts of equity, in the form of their own savings, and any match that can be provided to their savings through something like an Individual Development Account.
But savings is a powerful asset that extends well beyond the dollars in equity the money provides toward a small business, pursuing college education or even getting ready to buy a first home. Savings can be a form of insurance against disaster for very vulnerable people. While folks may start off to save toward a lofty goal - like launching a small business - they may find themselves faced with something like having to get a car out of tow. This may be an annoyance to a middle class person who winces at the $300+ it costs to get their car back. This could be a disaster for a low income earner who is stretched so thin financially that a car getting towed means they may be unable to pay rent. Not having the money to get the car out of tow could mean not being able to get to work and potentially even losing a job.
As concrete as the conversation will be, I hope to get people to think about the long tail of savings. We have done research at EARN that shows that lower income earners who sustain a pattern of savings keep it up over time, even if their income doesn't increase. Our research also shows that savings can be spark for other really positive behavior changes.
People make different choices that can really positively alter the financial and life path they walk. If you watch the short video above, you'll see a powerful story about an incredible woman named Dametra - who has struggled mightily and is making different choices that continue to lead her and her daughter to a better financial situation. Her journey took her from being homeless to getting a scholarship to and graduating from an elite private college. Dametra's next goal is starting a small business. Knowing Dametra, I believe she'll have great success.
While debt can play a role in financing some dreams, it's missing all these positive ancillary effects. I am excited to have Microfinance USA put this discussion on the table.