Yesterday, I participated in the re-launch of the Financial Stability Partnership program held by the United Way of Tucson and Southern Arizona. I learned a great deal from this event. I was inspired by the efforts of the United Way and have committed my time to supporting their work in this area.
As a way of doing this, I have given yesterday’s presentation some thought and prepared a critical analysis of it.
For those of you who are familiar with my writing know that I can sometimes be a bit heavy handed. Trust me, the same is true of this review. However, make no mistake, my intent is not to needlessly criticize, or point blame at anyone.
On the contrary, I would simply like to raise awareness and create new thought and conversation around this subject matter.
Fortunately and Unfortunately, its not possible to do this without being direct.
Lets get started…
So exactly what is the Financial Stability Partnership?
The Financial Stability Partnership is a collaboration of mostly non-profit organizations and some businesses whose goal is to increase the number of individuals and families in Southern Arizona that are financially stable and live above a sustainable income level.
Over the last several years this organization has helped families save money by offering free tax preparation services and assisting eligible families in applying for the Earned Income Tax Credit (EITC) to increase their annual return amount.
The FSP has also assisted families living below the poverty level by helping them apply for food stamps, utility assistance and free or discounted healthcare programs. Families participating in this program also, learn about traditional banking products, credit reports and other financial services.
First of all, I must applaud this group for taking on such a large task. This is indeed a worthy cause for a non-profit like the United Way to pursue. I can certainly tell that the men and women running this program are committed to the goals of the program.
However, I in my biased opinion, as a financial planner and social entrepreneur, I believe the model being used to accomplish the aforementioned objectives is neither sustainable nor progressive enough or meet the desired goals.
Before we get into more detail about why currently hold this view point, lets review the program goals once more.
“To increase the number of individuals and families in Southern Arizona that are financially stable and live ABOVE a sustainable income level.”
Just to put this in perspective, being financially stable in Arizona, means that a family lives on an income 200% above the federal poverty level. For a family of 4 this equates to about $44,000 per year.
The $44,000 mentioned in this example does not include things like insurance, retirement accounts, going out to dinner, leaving an inheritance and many other basic quality of life enhancements.
In this example, it is clear that this family is not sustainable because it is not above a sustainable income level. In fact, this family is one pay check or emergency away from being plunged into poverty.
While I agree that the goal established by my local United Way is high, I don’t think it is high enough.
The past successes of our country were not achieved by people setting goals to just get by. This is no different than your kid trying to get a “C” in every class on his report card. We all know what happens when he doesn’t get the “C.” He has to repeat the class.
Repeating the class for the families looking for guidance from the United Way could mean, going back into debt, returning to public assistance programs, or even loosing a home. We must set goals that allow us to thrive. Otherwise why bother.
Why not set a goal of 400 or 500% above the federal poverty level. Is our sample family not smart enough or worthy of earning $80,000-100,000 a year?
Struggling to just get by requires the same amount of creativity, commitment, and energy as making $80,000 a year. So why not choose the latter.
All too often America is the land of opportunity for everyone except her own citizens.
This must change.
In order for this to happen our philosophy must change and we must raise the bar of success for all citizens.
Now, I know that you’re probably wondering exactly how does one meet such a lofty goal.
Here’s the answer. The above results can only be created by leveraging the United Way’s immense network of social capital to increase the financial literary of its constituency.
In other words they must put their biggest most successful donors to work educating program staff and United Way constituents on how they became successful.
If the donors are not willing to put in the sweat equity, then the United Way must gain access to the lessons of the wealthy through successful teachers, books, seminars, and CD’s and make these lessons available to their client base.
It’s not possible to create an extraordinary income with an ordinary understanding of the principles that govern money.
Unfortunately, I would suggest that this is the case with most Americans. Hence, the major economic losses suffered by those who could least afford it -the middle class. Many of which, I would suggest have a grade of “C” when it comes to money and they don’t even know it.
Before going further, lets talk about what financial literacy is NOT. Financial literacy is not about having a class on paying off debt, opening a checking account, or learning how to apply for public assistance programs.
These are indeed important things to know but none of them alone or collectively will increase one’s financial IQ enough to create a sustainable income.
To become financially literate, one must learn the history of money and banking in order to become a master of both as opposed to their slaves.
One must increase self esteem and critical thinking skills in order to have the courage to pursue opportunities and the knowledge to turn them into cash.
One must learn the 4 methods of generating income. A job is only one way. Small business, big business, and investments are the other three ways.
One must understand that paying taxes on W-2 Income or as an employee is the most expensive taxes one can pay. That is why it is advantageous to own a business even if it is part-time in addition to a job.
One must understand the difference between assets and liabilities when making buying decisions. Assets put money in your pocket. Liabilities take money out.
Finally, one must understand asset protection a legacy creation through the use of insurance, wills, corporate entities, trust, etc.
Now, It could be said that “this is not our job of the United Way” or “this stuff is just for the rich”. My response to such statements would be; this is the responsibility of the United Way because they choose this goal. And…how do you think the rich increased their income to become rich?
If the plan is to level the playing fields, then everyone must play with the same rules as the winning team. I’m sure the wealthy are not play with the goal of just getting by. Why should anyone else?
Now, let’s consider the model below used by the FSP. At first glance it looks great. The results are clear and it even uses the phrase “financial literacy” in the arrow below.
However, as you look closer at the circles, the meat of the diagram, you will notice that this model does not reflect the aforementioned critical knowledge areas required to make the desired results a reality.
Having the correct financial IQ is not up for debate. It is a must when it comes to meeting the objectives of the FSP.
The model presented is at best a recipe for mediocrity and limited quality of life due to constant struggle.
I know this sounds harsh but that really isn’t my intent.
There are many models available to create financial stability, created by those who are well respected in the personal finance and wealth education industries. Unfortunately, I don’t think that this model was designed by any of those people.
My suggestion would be to redesign the model and FSP program to include the basic ideologies and philosophy used by the wealthy, not a social model designed to maintain poverty.
The methods of the wealthy are the only methods that have ever been used to produce the results truly desired by the Financial Stability Partnership. I recommend that we all go back to the drawing board.
