A new study of low-income households by the Federal Reserve Bank of Dallas shows that seeking professional financial advice is positively correlated with beneficial financial outcomes, but few avail themselves of this important stepping stone to financial security.
The Dallas Fed surveyed residents of Fair Park, an economically lagging South Dallas neighborhood where nearly half the residents have incomes below $10,000 (compared with 7% nationally). The project’s purpose was to empirically determine practices that relate positively to beneficial financial outcomes.
For example, financial training and education are often viewed as a pathway to saving and asset building, but Wenhua Di, Tammy Leonard and Emily Ryder, who conducted the research project, report that such programs offer no panacea for low-income communities. “Evaluations of these programs are scarce, and the existing few have shown limited and often ambiguous effectiveness in increasing financial stability,” the authors write.
A more reliable “gateway” to the financial mainstream is ownership of basic transaction products and services such as a checking account. South Dallas residents with a checking account are “4.6 times as likely to have a savings account and 2.3 times as likely to have a mortgage or cash their paychecks through direct deposit or at a bank,” the survey found.
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Beyond these elementary gateway measures are higher-level “stepping stones” that lead to beneficial financial outcomes (measured by whether families save for financial emergencies and have a consistent savings plan). These stepping stones are higher level practices that promote asset building such as seeking the advice of a professional financial advisor, having a savings account or mortgage, and cashing paychecks through direct deposit or at a bank.