Development Finance and Economic Security

Building Credit and Managing Debt: Ford Foundation Supports Initiatives to Bring Financial Security to America’s Low-Income Families

18 July 2007 — Leading consumer and advocacy groups from across the country have united to help American families think differently about their finances and avoid spiraling consumer debt through an initiative supported by the Ford Foundation.

Americans for Fairness in Lending (AFFIL) brings together a diverse collection of consumer, civil rights, faith-based, nonpartisan and grassroots organizations. Along with highlighting the growing number of predatory and unfair lending practices, AFFIL aims to provide Americans, particularly the least affluent, with the knowledge and resources necessary to achieve and maintain household financial stability.

“We think it's critical that families have the tools and opportunity, not only to build new assets, but to protect what they have already earned,” said Frank DeGiovanni, Director of Economic Development at the Ford Foundation.

Being Smart about Debt

With the foundation's $750,000 contribution, AFFIL is offering a one-stop information resource on lending practices and consumer debt. Shopping guides for loans, debt-relief tools, debt calculators and information about key local resources for communities around the country are among the tools available.

“The Ford Foundation's support for the AFFIL initiative is one element of the foundation's broader program to reduce poverty and help more people gain access to the economic mainstream,” said DeGiovanni.

The foundation is also planning to fund a survey to track how low and middle-income households use debt to manage finances. Conducted by Demos, a non-partisan, public policy research and advocacy organization and AFFIL member, the most recent poll suggests that much of the debt in these households is "safety net" debt. In many cases, families are using credit as a fallback to cover unexpected costs or fluctuations in income and to pay basic expenses such as rent, mortgage payments, groceries, utilities or insurance.

In addition, Ford is supporting efforts by the Center for Family Policy and Practice (CFFPP) that focus specifically on child support debt incurred by low-income, non-custodial parents. CFFPP is developing financial literacy, debt reduction and asset development strategies designed specifically for this group of parents. The center is also producing a series of policy and practice papers targeted at the financial education community, child support agencies and policy makers about the obstacles and challenges low-income, non-custodial parents face when trying to reduce debt and build assets.

Access to Homeownership

Ford has long recognized that at every income level the ability to accumulate wealth is fundamental to building household economic stability. The foundation is also aware that acquiring assets, such as savings or owning a home, has been out of reach for hundreds of thousands of Americans.

To address these issues, Ford made a major investment in the Center for Community Self-Help, giving $50 million in 1998 to Community Advantage, its homeownership program. The program buys from participating banks and credit unions affordable mortgages that have been made to low-income and minority families who have traditionally been shut out of the mainstream lending market.

Joining forces with Fannie Mae, the program has been an enormous success, demonstrating that home buyers with less than ideal credit scores or modest down payments can be reliable borrowers. Foreclosure and payment delinquencies remain low and participating homeowners have built an average $18,000 in equity.

A Head Start with Savings

Ford has also supported subsidized savings programs. Independent Development Accounts (IDAs) were created to encourage low income workers to accumulate savings by matching individual contributions with funds from federal and state governments, foundations, businesses and non-profit institutions. The money in these matching funds accounts are to be used for higher education, homeownership or investing in a small business. Participants in the program are also required to attend financial literacy and money management classes.

Debt management and reduction are essential components of a Ford supported IDA program run by The Organization for a New Equality (O·N·E). O·N·E recognized that while many people were successfully saving they still carried levels of debt that, for example, jeopardized their chances of securing home loans at the end of IDA programs. A Ford grant helped O·N·E restructure programs to provide participants with incentives to build savings while reducing debt.

Children's Savings Accounts (CSAs) build on the success of IDAs. Ideally, these long-term savings accounts would be established at birth and grow over the course of a lifetime. Seed funding would be provided by an initial government deposit of $500 to $1,000 and the account would grow over time with contributions made by family members, friends and the accountholders themselves. The accounts could also be augmented by other public and private sources. Ford has committed more than $25 million to fund pilot projects to test the impact that CSA's have on participating childrenand their families in the state of Oklahoma and in a dozen other communities around the country. The demonstration is being overseen by the Corporation for Enterprise Development together with the Center for Social Development at Washington University in St Louis.

Ford continues its longstanding support of grantees working to improve lives by providing asset building opportunities and financial education to Americans for whom wealth accumulation has been traditionally out of reach.

To learn more about building assets, read Ford Reports.