Low-income neighborhoods often lack banks and credit unions but are ripe with check-cashing services and payday lenders. When young people living in these communities begin working, they’re likely to use these convenient services, which charge high interest rates and offer no opportunities to help customers save income and pursue long-term financial goals.
To counteract this phenomenon, the San Francisco-based nonprofit MyPath works to help low-income youth transform their earnings into opportunities to build wealth and financial security. Working with nonprofit and municipal youth employment programs, MyPath gives young people access to checking and savings accounts, direct deposit and auto-splitting options to help them save a portion of their income, along with educational tools to help them develop smart financial habits.
Silicon Valley Community Foundation’s $70,000 grant helped expand MyPath’s programs into San Jose.
“We focus on integrating banking, saving and credit-building directly into youth employment programs,” said MyPath Executive Director Margaret Libby. “So as young people are earning those first paychecks, they’re getting direct deposit, they’re opening a checking account and savings account. Then our platform helps them set personal savings goals and work toward achieving them.”
The MyPath Savings program has helped young people in San Jose’s largest youth employment program open more than 400 checking and savings accounts. To date, 75 percent of participants have reached their savings goals, on average saving 30 percent of their income. Two-thirds of enrollees said they are more likely to consider whether something is a need or a want before spending money, thanks to what they’ve learned through MyPath Savings.
MyPath Credit helps young adults who are 18 and older attain credit-building loans to establish or improve their credit scores. With financial coaching, participants use direct deposits to make automatic payments on small loans, thereby building a credit history that establishes or improves their credit scores.
MyPath has enrolled 89 Year Up San Jose program participants in credit-builder loans along with one-on-one financial coaching. Forty three percent of enrollees started with no credit and 47 percent had a credit score of 680 or below. On average, students with no score established FICO scores of 680-700, and those who started with low scores improved them by 10-20 points.
Because major purchases, apartment leases and even job opportunities often depend on positive credit scores, building a responsible credit history helps people live better lives. MyPath’s programs make a difference just as these students are starting out, setting them on a secure path.
Here’s an example showcased by MyPath: A young man using MyPath services told his financial coach he wanted to buy a car, but he had no credit score. His coach helped him enroll in a credit-builder loan. After one year, the financial coach helped him open his own secured credit card account. Managing these accounts carefully and responsibly helped him quickly establish a FICO score strong enough to qualify for the best available interest rate on a car loan. At the same time, he was saving part of his paychecks, so he had a down payment available when he was ready to buy.
“If you don’t have tools to save and borrow, and the chance to learn how to use them, it’s pretty hard to get ahead in life,” Libby said. “You have to save or borrow for just about anything you want to do in life, so putting those tools in the hands of young people when they’re getting their first paychecks is important to give them a real shot at their goals.”
For more information about MyPath, visit www.mypathus.org.