A Challenge for Philanthropy: Spurring the Poor to Seek Social Mobility Over Stability

One day, Amy Cox (a pseudonym), a single mother of two living just outside Cincinnati, heard her daughter tell a friend that she didn’t need to go to college because her mother hadn’t.

Amy decided right then to set an example for her children and began making plans to go back to school. She visited the local community college and got help not only with signing up for a certificate program in early-childhood education but also in applying for financial aid. Amy qualified for a Pell Grant and for federally backed student loans.

So far, so good.

Told this way, Amy’s story sounds like the kind that we love to tell in philanthropy. But I know about Amy’s story because she was a participant in U.S. Financial Diaries, a study the Citi Foundation funded alongside the Ford Foundation and Omidyar Network.

Amy’s full story is much more complicated and much less encouraging.

The goal of the diaries study was to better understand the financial lives of low- and moderate-income American households, like Amy’s, by tracking all their financial (and nonfinancial) activities for a full year. This kind of detailed data has never been available before. It sheds a much-needed light on the day-to-day, week-to-week, and month-to-month choices and challenges that many American households face.

When you look closer at Amy’s story, you see troubling details. Amy technically isn’t poor. Her annual income is above poverty level. But that’s because of the earned income tax credit. On the one hand, that’s a big victory — the credit lifted Amy’s family out of poverty. On the other hand, in every month except for February, when Amy received her tax benefit, Amy’s income was well below the poverty line. When you count her tax refund and the financial aid, Amy received about half of her total cash inflow for the year in January and February. Managing on such a low income is hard enough. Managing a meager income when it spikes up and dips down is a much bigger challenge.

Amy is trying to improve her family’s life by pursuing additional education. But like many students, Amy is unclear how much the student loans she received will ultimately cost. Worse, it’s unclear whether Amy will find a job that pays significantly more than her present hourly wage, even as a certified child care worker. In other words, Amy is taking a big risk and will bear consequences she isn’t fully prepared for if things don’t go her way.

Alarm Bells for Grant Makers

Amy’s story, and the financial conditions of other households, are more common than we realize. In The Financial Diaries, Jonathan Morduch’s and Rachel Schneider’s book about the foundation-supported study, one insight stood out most for me: 92 percent of American households say they would prefer greater economic security to upward mobility.

A preference for stability over mobility should be deeply alarming to leaders in every part of our society, but particularly to all of us in philanthropy. After all, philanthropy’s reason for being is change. We must sit up and take notice when so many people are saying that “staying in the slow lane is fine, I just wish the car would stop breaking down.”

On average, households in the diaries study had more than five months a year when their monthly income was more than 25 percent above or below the annual average. Although Amy had relatively less volatility from month to month in her “normal” months, she still saw 20 percent monthly swings because of inconsistency in child-support payments and because of unpaid holidays and sick time. Combined with needs that were hard to predict in terms of timing or size, households like Amy’s were always playing catch-up, not looking ahead.

Wealth inequality transpires over decades and generations. Income inequality is felt yearly and monthly. Financial instability is felt every week, even every day. And it steadily erodes people’s most valuable asset: the belief that things can get better. Amy still chose to pursue mobility, but with the risks she’s taking, it’s easy to see why so many households say they wouldn’t.

Changing Strategies and Tactics

The Financial Diaries illuminates an urgent problem and has gotten a lot more people — researchers, policy makers, and think tanks — paying attention to income volatility. That’s important, but it only matters to the extent that it changes our strategies and tactics.

We won’t get mobility without addressing instability. We can’t extend opportunity to climb without firming up the ground the ladder is on. It’s not enough to help people manage scarcity. People need not only jobs, but good jobs, jobs that provide living wages, fair benefits, and steady pay.

I’m convinced that despite the growing obstacles to mobility, we can do better. Doing better isn’t about trying harder. To do better, we have to be sure we understand how the world is changing and how lower-income households and communities are adapting or experiencing these changes. The Financial Diaries research lays the groundwork for doing better.

We still need to know more about what causes the financial and other problems low-income people face. At the Citi Foundation, we’ll continue to invest in reliable research that allows us to take action and develop effective strategies. We’ll continue to invest in research that provides insight into short-run and long-run issues and outcomes.

Particularly, though, we are investing in our grantees’ ability to better understand the communities and individuals they serve, to be able to take a holistic view of their needs. That’s why we’ve invested $20 million more in our Community Progress Makers Fund, which provides unrestricted funds to nonprofits in six U.S. cities so that they can afford to learn and innovate. We realized we have to be partners in building our grantees’ capacity not only in what they are already good at, but also in what they need to be better at to extend their impact.

When we look at the programs our grantees are putting in place, we’ve learned that we too often have asked them to give priority to “long-term” or “strategic” ideas over short-term help (which often is unfortunately derided as “just charity.”) Our programs need to acknowledge that households have both short-term and long-term financial needs, and we must invest in both.

In terms of our own strategy, we’ve realized that our vision and our actions must be wider and more flexible. Our strategies must take into account that health issues are financial issues, financial issues are education issues, and education issues are poverty issues.

Fostering Collaboration

We also recognize we need other grant makers to join us. The challenge philanthropy faces in fighting poverty is not beyond our ability to overcome, but it is beyond single organizations to do it alone. As a first step, we are providing funds to our Community Progress Makers grantees so they can regularly get together to help us and help one another learn from missteps and successes.

We are also continually looking for ways that we can invest in building movements within communities so they can advocate for themselves and help build optimism and resilience. That’s vital to restoring hope to the large part of America whose highest aspiration has become just getting through the year without losing ground. Without that, short-term instability will continue to undermine any progress toward long-term mobility.

Brandee McHale is president of the Citi Foundation.