The financial health of a city is closely tied to that of its residents. The Urban Institute’s research shows that when residents have very little savings and are financially insecure, cities spend millions of dollars in services to support their needs.

Many cities recognize this link and are launching financial empowerment centers to boost their residents’ financial health. A financial empowerment center isn’t so much a single brick-and-mortar location, but rather the provision of free, professional, and individualized financial coaching or counseling for residents that is embedded in existing city services and programs.

New York City initiated a center in 2008 and, since 2013, the Cities for Financial Empowerment Fund (CFE Fund) has replicated the model (PDF) in five additional cities (Denver, Colorado; Lansing, Michigan; Nashville, Tennessee; Philadelphia, Pennsylvania; and San Antonio, Texas) and has started the process in many others. As of 2018, over 82,000 mostly low-income clients have been served in the six cities with established financial empowerment centers, culminating in more than a $100 million reduction in their collective debt.

On March 1, the District of Columbia’s Department of Insurance, Securities and Banking (DISB) held a community meeting to unveil plans for a financial empowerment center in the city. Representatives from area nonprofits, major financial institutions, local credit unions, and the DC government attended to hear nascent plans and to participate in uplifting its future mission.

Such programs are needed, too. We published research today—a culmination of resident focus groups and expert interviews—that underscores the financial insecurity of many low- and middle-income District residents and highlights services and products that could help them improve their financial stability, including a financial empowerment center.

What financial challenges do DC residents face?

We learned in focus groups that high housing costs are a major concern for DC residents; three-quarters of the District’s low-income residents are housing-cost burdened, spending more than 30 percent of their household income on their rent or mortgage. This is especially prevalent east of the Anacostia River, where lower median incomes, rather than above-average rents, contribute to this outsized expense for residents.

Additional expenses like food, utilities, transportation, and child care strain residents’ budgets and limit their ability to save for short-term emergencies and long-term aspirations. As one focus group participant told us, “All I see is after I pay my bills, I don’t have anything. You know, a couple of hundred dollars is nothing, really. Because you’re takin’ that money and buyin’ food. After you pay your utilities and your rent, it’s like month to month that you’re livin’ just to live.”

District residents have few places to turn when they experience financial emergencies. Some focus group participants reported having credit cards, but not all had them or had available credit.

According to experts we interviewed, small-dollar loans—even if they are safe, affordable, and offered by a reputable lender—are not readily available in the District. Without a cushion of savings or access to credit, residents turn to friends and family for financial support, which can either be a help or a hindrance, depending on the relationship or the expectation of reciprocity.

Many residents also said they didn’t trust major financial institutions, based on their own or others’ negative experiences with banks’ reported treatment of low-income customers. As one resident responded, “If you don’t have $100,000 in the bank, I still should get your undivided attention and some type of clarity about my money and how I’m managing my money.” These attitudes reflect recent FDIC survey (PDF) findings that 30 percent of unbanked people report distrust of banks, and another 53 percent report not having enough money for a bank account.

Why does DC need a financial empowerment center?

DC has a robust network of government and nonprofit providers to help residents navigate financial issues, but there are gaps that a financial empowerment center could fill. We interviewed experts who raised unique financial issues encountered by special populations—immigrants, returning citizens, and people transitioning out of homelessness or off government assistance programs—that could be improved through a financial empowerment center.

For example, residents may find lower-rent apartments, but without a security deposit and first month’s rent saved, they may miss the opportunity to move. A targeted small-dollar loan product—connected to residents through a financial empowerment center—could help them move to a lower-cost apartment and serve as a credit-building vehicle if payments are reported to credit agencies. Similarly, a short-term loan could help families who are being evicted rent a moving van or a storage unit, which could help them keep their property and prevent further distress.

DC’s low-income residents would be well-served by a financial empowerment center, and the savings would not only be realized by residents but also by the city. By improving the financial lives of DC’s most insecure residents, the city can ensure that all residents—no matter their income—can participate in, contribute to, and thrive in its vibrant economy.