One of the biggest headline-grabbing statistics to come out of the Federal Reserve in 2018 was the disturbing fact that four out of 10 Americans said they could not cover a $400 emergency expense. They just didn’t have that kind of extra money on-hand after paying monthly expenses, such as rent, student loans, car payments, and food.
January is Economic Mobility Action Month in Philadelphia, which makes this a good time to discuss the challenges faced by many area residents. It is well known that Philadelphia has the highest poverty rate among the largest U.S. cities. But those included in that number are not the only ones struggling. The $400 statistic is one example of economic insecurity — the precarious knowledge that one flat tire, one trip to urgent care will put you far behind on your bills, creating a cascade effect of unpaid bills, debt collector phone calls, and many, many stressful nights.
Take an unexpected plumbing problem or drafty windows. Although most homeowners use savings for home projects, sometimes it is not enough. This is where economic insecurity can seep in. A recent study by two researchers in the Philadelphia Fed’s Community Development and Regional Outreach Department found that low- and moderate-income (LMI) homeowners face the biggest hurdles financing repairs.
About three out of four home improvement loan applications from LMI homeowners were denied in Philadelphia and Delaware County. Without access to bank loans, LMI homeowners may resort to higher-cost financial products such as credit cards for home projects, thus exacerbating the financial squeeze.
What can be done? It is critically important to remember that the “poor” and “struggling” are not monoliths that exist far beyond our front door. Like many of you reading this, each household has its singular tale of falling financially behind. Our prosperity as a region is linked to our ability to include all talents, businesses, and neighborhoods in our growth. That’s why we should not expect that one organization, one program will solve all ills. Instead, it will take all of us, working together, to create an economy that allows all residents the opportunity to become more economically secure.
That’s why the upcoming Prosperity Symposium is so important. The Symposium, to be held Jan. 18 at the Convention Center, will be a collaboration of “uncommon partners,” including the Philadelphia Fed, Resolve Philadelphia, and the University of Pennsylvania’s School of Social Policy & Practice, coming together to explore not one solution for struggling households but many potential answers.
As will be discussed at the symposium, we need to consider unlikely partnerships to help Philadelphia’s most economically insecure individuals. Referring back to the home-repair problem, what if prepurchase counseling services joined with a home improvement store to teach potential homeowners how to perform relatively minor repairs, thus reducing their reliance on more costly contractor services and preventing problems from worsening over time?
At the Philadelphia Fed, we understand the economic imperative of expanding opportunity and are bringing our two main strengths to the conversation: our depth of research and our convening authority.
As an example of our research, members of our Economic Growth & Mobility Project recently created a data dashboard that tracks poverty rates, labor data, and other economic statistics across the Federal Reserve Third District, comprised of Delaware, southern New Jersey, and central and eastern Pennsylvania. This dashboard enables users to identify pockets of poverty and areas of strengths across the three states and is available on our website at www.philadelphiafed.org.
On the second front, we have learned the importance of bringing disparate voices together around one table to discuss solutions and form partnerships that can move the needle on economic challenges. Over the past two years, we brought together representatives from the nonprofit, business, and government sectors to discuss the limited access to transportation in northeastern Pennsylvania. While each entity struggled with changing the situation, they are now partnering to find solutions that enable people who do not have cars to get to their jobs, school, and medical appointments.
The benefits of more equitable growth trickle through the economy. Research from the International Monetary Fund shows that when the income share of the bottom 20 percent of income earners increases by 1 percentage point, gross domestic product growth is higher in the following five years. (When the top 20 percent see a 1-point increase in income share, GDP growth actually declines a bit.) In other words, we are all better off when the lowest income earners get a boost.
The future of Philadelphia lies in our ability to not only address persistent economic insecurity but also leverage our local talents, local businesses and local resources to build a better city.