CFSI:The Future Of Financial Services: Recommendations for Asset Building
Posted: 12 April 2011 | Source: CFSI
The financial crisis and economic downturn have reshaped the financial services landscape. While these events have by no means run their course, it’s critical to start looking ahead. Over the past year, the Center for Financial Services Innovation (CFSI) has been studying the literature analyzing the impacts and future implications of the crisis; interviewing policy experts, business executives, academics, and thought leaders; and convening small group discussions. Our goal has been to understand how impending changes—in demographics, the macroeconomic environment, regulation and legislation, technology, cultural paradigms, and institutional dynamics—will affect the structure of the financial services industry.
While we don’t claim to have a crystal ball, this process has given us some sense of the opportunities and challenges these trends may create for the asset-building field. Like headwinds or tailwinds, these trends may make it either easier or more difficult for the leaders, funders, and practitioners who are working to shape the field’s future. Some strategies will find clear skies and fast sailing, while others will have to weather choppier waters.
Overwhelmingly, current trends show that the goal of asset builders—to enable low- and moderate-income individuals to save and build long-term financial prosperity—is more important than ever. Households are facing urgent financial threats. With home foreclosures and bankruptcies soaring and unemployment hovering near double digits, it is tempting for policymakers and others to focus entirely on short-term financial needs. But this strategy would be short-sighted. Decades of research have shown that, to effectively build assets, people must pursue long-term financial goals such as homeownership or education while simultaneously managing near-term financial challenges.
This moment of cultural, industry, and regulatory change presents an opportunity to strongly rearticulate the role that asset building can play in helping low- and moderate- income households improve their financial lives.
Doing so will require a reconsideration of the strategies and tactics that define asset-building as a field. The following graphic may be helpful. Individual financial needs exist along a continuum of lifelong requirements. Individualsneed to conduct day-to-day financial transactions, such as paying bills, converting income into usable currency, and sending money to friends or family. They need to build a credit history, not only to borrow money but often to rent an apartment, apply for a job, or obtain insurance. And, of course, to achieve greater financial prosperity over time, households need to save for short-term and long-term goals, such as emergencies, education, homeownership, small business investment, and retirement.
The asset-building community has traditionally focused on the far end of this spectrum and on helping lower-income communities. However, several factors suggest the need to expand this focus in two directions.