Leigh Phillips is the CEO of EARN, a San Francisco–based nonprofit that leverages technology to help low-income people save money, build assets, and establish saving habits. Phillips began her career in financial inclusion working for the San Francisco treasurer, which jump-started her interest in helping low-income people better manage their financial lives. Through her work with the San Francisco Office of Financial Empowerment, she lead the Bank On San Francisco campaign, which was one of the first efforts by a local municipal government to help bank the unbanked and is now a national program. She also launched Kindergarten to College, which automatically enrolls kindergarten students in a college savings program. She also helped found the national organization Cities for Financial Empowerment, before taking on the CEO role at EARN, which she has been leading since September 2015. Phillips is particularly fascinated by how financial technology can be used to create programs that serve and support low-income people and give them greater economic stability. In collaboration with the San Francisco Office of Financial Empowerment, EARN recently launched the SaverLife campaign, which combines financial rewards for saving every month with weekly saving tips to promote healthy financial habits among Bay Area residents.
Plaid's Stephanie Tsimis had the opportunity to talk with Phillips about the state of financial inclusion, how nonprofits are leading the way, and how saving even just a little bit can make a huge difference. This interview has been edited for clarity and brevity.
ST: You’ve been working in financial inclusion for most of your career. Can you comment on what you think the state of financial inclusion is in the United States today and how that’s changed over time?
LP: I think that we’ve made some inroads. Over the last 10-15 years we’ve had the chance to understand a lot more about how people manage their financial lives and how that actually impacts their ability to experience economic stability. In the past, we’ve focused very much on things like financial education and the idea that if people know better they will do better. What we’ve found over the years is that actual products and services really play a huge role. These are things that provide access to safe and affordable banking, provide the opportunity to build credit, prevent people from being the victims of predatory loans and scams, and leverage people’s ability to move up the economic ladder.
But financial fragility and lack of resilience is still a major issue. The fact that half of the people in this country don’t have $400 in the bank that they could use to weather an emergency is shocking to many people. What do we do about that, and what does it really mean when you don’t have $400? We’ve been focusing on helping people take positive first steps to become savers, to build that $400 or $500 emergency cushion that will then allow them to really reach for long-term stability.
ST: Do most EARN users have savings accounts before they join your programs and sign up for your tools, or is using EARN the impetus that first makes them think, “Oh, this is something that I should do”?
LP: It’s both. In our program, earning rewards provides people with monthly cash incentives for regular savings habits, but you have to have an account of some kind to bring to the platform to start saving. But we do find that people get accounts, and maybe for the first time, because they want to start saving with us. Most importantly, we’re finding that over 70 percent of the people who join our program have saved nothing in the six months prior to joining.
ST: What do you see as the biggest key to changing people’s behavior around saving money? Is it the incentives that you offer, or is it the educational component and the financial coaching?
LP: The advantage of the digital program that we have built is that it allows people to take action in the moment. Many people want to save more than they are currently saving, but it’s hard to get going. We joke that savings is something everybody wants to start doing tomorrow. And what technology has done is allow people to start. I think the fact that you can become a saver in 10 minutes on an app is pretty game changing.
And the relatively small incentives encourage people to change their behavior. The number-one thing people report at the end of an EARN program as the major benefit isn’t the money—it’s the fact that they became a saver. They went from being someone that never saved or rarely saved to saving consistently. Once they become a saver, about 80 percent of the folks go on to continue that saving habit. We think that’s pretty critical.
ST: Do you think that the ubiquity of mobile phones has anything to do with that being able to take off?
LP: 90 percent of the people who use the EARN program do so on mobile, and it’s tied to the fact that people are taking action to start saving in the moment. Low-to-moderate income people may not have access to broadband internet at home, or they are less likely to have the type of job where you’re sitting at a desk all day accessing things and online. Using a mobile platform is one of the things that helps people take that immediate step to join a program like the one that we offer, but it also allows us a really terrific opportunity to stay connected with people and help them throughout this process.
ST: Absolutely. There’s a stat on your website from the Urban Institute that says that all it takes is as little as $250 to $750 to prevent bad outcomes like being evicted or missing a payment. Can you talk about the concept of micro-savings and why that’s the model that EARN focuses on?
LP: Yeah, absolutely. Over the years, we’ve learned that encouraging regular, consistent savings is critical. Programs we’ve run where people were required to make a contribution every month have a much greater impact in encouraging people to become life-long savers than programs in which, for example, you can save $500 in one go.
We know that low-income people can and will save if given the right incentive and motivation and opportunity to do so. However, we also know that it’s pretty hard for people to stay on track for long-term goals if they don’t have any financial resilience. What I mean by that is whether you have money in the bank that would allow you to get through an emergency or allow you to take advantage of an opportunity. That $250-to-$750 number is so important because it means that low-income households that have a regular habit of saving are more financially stable than higher income households that do not have long-term savings.
If you imagine a scenario where something happens—like you get a flat tire or a driving ticket—and you don’t have money to pay to replace your tire or to pay your ticket, those payments quickly spiral into a much bigger problem. We get asked all the time: “Come on, 500 bucks in a city like San Francisco? What difference is that going to make?” Well, what it does is it prevents a traffic ticket from becoming a lost driver’s license, and a lost driver’s license from becoming an inability to work. It prevents having to stay home with a sick child and missing a couple of days of income from becoming an inability to pay your utilities.
But we also see a remarkable increase in self-confidence in people’s ability to take on bigger challenges because they’ve been successful in saving. Folks are able to take advantage of opportunities with a bit of money set aside. So you see people begin to save, then get a car, and then use that car to get a new job. It impacts people to move upwards.
ST: You recently launched the SaverLife campaign, which promotes greater financial stability for Bay Area families by encouraging healthy savings habits through financial incentives and educational resources. You cite that financial instability costs the city of San Francisco $24 million to $54 million per year. Can you talk more about the negative externalities of financial instability and the impact you see beyond individual families?
LP: Our community is only as strong as its residents, right? So you can only have a strong and thriving community or city if the people that live within that community have some degree of stability. That report refers to the cost of things like eviction, homelessness, or having your utilities cut off. The study showed that you’re 14 times more likely to be evicted from your home, three times more likely to fall behind on your utilities, and significantly more likely to be forced to rely on public benefits if you don’t have savings. And that’s a problem. It costs taxpayers real money for the city and county to deal with evictions, turning utilities back on, and having to pay for people who are forced to rely on public benefits if their income gets interrupted.
ST: How are nonprofits uniquely suited to tackle the challenges of financial inclusion, and do you think there are any lessons or best practices from the nonprofit sector that for-profit companies could apply to what they’re doing?
LP: Nonprofits have a huge ability to engage in financial technology, and we are thrilled to be one of the leading organizations working on advancing that concept. We actually created a group called Nonprofit Leaders in Financial Technology because we’re not the only nonprofit that’s leveraging this approach.
I’ll say first and foremost that nonprofits need to engage in technology, because that’s where the world is going. There are three major factors where nonprofits are really well placed to engage in fintech. The first is that we have a much deeper understanding of the community that we’re serving than many for-profit companies have. We’ve been working in this space for over 15 years, so working with low-income communities on financial solutions isn’t new. What is new is leveraging technology to help us achieve our goals. We have a lot of knowledge and expertise about the people that we’re working with—both in understanding what impacts their lives and in co-creating and crafting services alongside the consumers who will use them.
The second factor is that, as a nonprofit, we don’t have to compromise our products and services to make a profit. That becomes hugely important, especially when you’re talking about things like small-dollar savings. No one’s getting rich offering small-dollar savings. So our nonprofit nature means that we are able to put the consumer first, to think about what their needs are, and to really offer the best products and services that we can based on those needs.
And the third thing is the use of data insights. Nonprofits use data to inform policy, for example, or to educate the public about what’s going on. The fact that we can help be a part of the bigger conversation about financial solutions and financial services in this country as they relate to stability is really important.
ST: I’m interested to know more about what the technology group at EARN looks like. I would imagine that it’s more lean than at a for-profit company that’s focused on the savings space. How do you use technology to create scalable and user-friendly experiences while also keeping the team and resources lean?
LP: Yeah, that’s a really good question because I think it’s something that a lot of nonprofits struggle with. We don’t have venture capitalists throwing millions of dollars at us, so we have to be strategic and thoughtful about how we do it.
We’ve transitioned from a service organization to a technology organization in a relatively short period of time, and it’s important for us to be able to build and have the ability to manage our technologies and apps. We have an in-house team that manages the product, and we combine that with off-shore engineering resources.
ST: I’d love to hear your thoughts on what the future of financial inclusion in the U.S. should look like, and what steps need to be taken to get us there.
LP: I will say that I think technology, and financial technology in particular, has the ability to create solutions that are more designed to facilitate positive outcomes for low-to-moderate-income people. We have a financial system that is pretty much based around the idea that one or two people in the household get paid the same amount of money on the same schedule, and they pay their bills all at the same time. But increasingly, we’re seeing that people’s expenses are not consistent, that people may not have enough money on the 1st of the month to pay all the rent or their mortgage. What technology can do is be more responsive to the way people live with their money. We need to encourage more of that.
The second thing to be clear about is that low-income or moderate-income consumers are just as diverse as any other consumer group. When we’re talking about the folks that don’t have $400, we’re talking about half of America: That’s individuals, that’s families, that’s seniors, all different people. Being respectful and acknowledging the diversity in the market is really important as well. There’s no one-size-fits-all solution.
Also, on the advocacy, policy, and regulatory side we need to make sure that consumers’ money is safe and that people aren’t being preyed upon by bad actors. Technology allows us to see a lot more clearly what people are actually experiencing.
So big picture, we need to stay focused on being user driven, deepening our understanding of the market, and providing fresh solutions that actually respond to consumers’ needs, which may not be what is currently being offered by mainstream banking.