A Summer Job is a Key Financial Milestone for Youth

A summer job is not only a critical milestone in a youth’s career, it is a key milestone in their financial life as they earn their first paycheck.  Access to the right tools and products in this moment can help set youth on a financially healthy path.

The City and County of San Francisco believes in the importance of summer jobs programs and so in 2012, Mayor Ed Lee launched the Youth Jobs+ Initiative to connect young adults to summer employment in San Francisco’s businesses, non-profits and city departments. In 2017, this program placed nearly 7,000 youth in jobs, providing youth an opportunity to build career skills and networks.

While summer jobs programs exist in many cities, a 2014 survey by the CFE Fund found that more than half of participants in five cities did not have a bank or credit union account in which to deposit their paycheck. Youth instead turned to check cashers to cash their paychecks, taking a huge financial hit to access their hard-earned money and setting them on a costly path utilizing predatory services to meet their financial needs. A study from the Brookings Institution (2008) found that, over a lifetime, relying on check cashers instead of a low-cost or free checking account could cost a low-income worker more than $40,000 in fees.

This finding propelled the OFE, the Department of Children, Youth, and Their Families (DCYF), and MyPath to launch San Francisco’s Summer Jobs Connect in 2015, an innovative initiative to integrate access to a safe and affordable account coupled with financial capability training into youth employment programs. The non-custodial accounts at our partner credit union, San Francisco Federal Credit Union, provide youth with banking autonomy and are the only non-custodial accounts for youth under 18 years old in San Francisco.

To date, more than 2,100 youth in San Francisco have accounts at SF Federal Credit Union with a total balance of $1.25 million in their checking and savings accounts. Youth on average save $460, or more than 30% of their paycheck, to meet their saving needs to purchase school supplies, attend social activities and pay for college tuition. More importantly, youth are starting to build financially healthy habits utilizing a checking and savings account, and direct deposit. At a recent Youth Jobs+ celebration hosted by Mayor Lee, Fernando, a junior at Lowell High School, shared his valuable work experience interning at the California Academy of Sciences and his experience learning to save his money with the MyPath curriculum. By the end of the summer, he had met 100% of his savings goal.

While we see the immediate success of Summer Jobs Connect, we also know the longer-term potential of a program that provides access to safe, affordable products and financial capability training at a crucial milestone in a youth’s financial life. With the support of Cities for Financial Empowerment and Citi Foundation, Summer Jobs Connect continues to grow, with the goal of scaling the program to provide safe accounts, direct deposit, and financial capability training to all youth working in San Francisco.

Consumer Profile: Working in the Gig Economy

Like many San Francisco residents, Mike struggles to make ends meet each month. A musician by trade, he has turned to the gig economy to piece together small income streams to cover his monthly expenses. Taking advantage of the region’s vibrant start up environment, Mike earns $300 to $500 per month doing user testing for various apps and websites, opportunities he finds advertised on Craigslist. To fill gaps in income, he works as an independent contractor, relying on his social network to pick up occasional administrative jobs for nonprofits.

While Mike enjoys the freedom of the gig economy, each month is a financial struggle that sometimes demands 16-hour work days. Usually he can bring enough money in “nine months out of ten” through his efforts. However, he sacrifices playing in music events, and the cost of living continues to rise making it harder for him to meet his financial needs. He says that he would need to make $1,000 more per month to have the quality of life he would like, an amount that would give him peace of mind knowing he has the funds to cover fixed, non-discretionary expenses such as rent and transportation.

Working as an independent contractor comes with additional challenges. A 1099 worker has less job protections and access to benefits than a traditional W-2 employee. Independent contractors like Mike do not pay into Social Security Disability Insurance (SDI) or Unemployment Insurance (UI), so they don’t have access to benefits when they are unable to work. Life events like illness, injury, childbirth or a sick family member means a loss in wages, with little to no safety net. Gig workers also lack access to employer-subsidized health insurance plans and employer contributions to workplace retirement plans.

Many gig workers like Mike are also disconnected from the financial mainstream. Mike opened a checking account to take advantage of a $200 cash promotion for opening an account, but his income streams come in small check amounts that he usually cashes or gift cards that he sells at a discount for cash. He remains underbanked, relying on check cashers to cash his checks and other fringe financial products to meet his short-term needs.

In 2016, the Rockefeller Foundation and the Bridgespan Group reported that at least 36 million workers are engaged in independent work, or roughly a quarter of the U.S. workforce. This number could reach between 33-50% of the workforce by 2020. Earlier this August, OFE teamed up with the Alameda County Community Asset Network to host an event, Prevailing Financial Challenges in the Bay Area, that focused on issues facing gig workers and provided local resources to non-profits reaching these clients.

As we anticipate more and more workers entering and relying on the gig economy, we see a need to innovate to provide households like Mike’s access to portable benefits, from paid sick leave to retirement benefits, and tools to help them manage the volatility in their income and expense flows.

This conversation with Mike is part of a series of interviews OFE is doing to better understand the financial lives and decision-making of low income families. These interviews provide an opportunity to dig deeper into the financial lives of households that live, work or reside in San Francisco and glean insight that can inform OFE’s design of tools, products and services to meet the needs of families in our city.

If you or your organization serve independent contractors, like Mike, check out the following resources:

The Urgency of Our Work

I believe our work is more important now than ever.

A growing number of families across the country face chronic economic insecurity, unable to stabilize their financial lives and get ahead. Over half of Americans experience volatility in their income and bills, and more than half either break-even or spend more than they make in most months (Pew 2015). And while parents struggle to achieve economic security, their children face a life of diminishing upward mobility (Pew, 2012).

In San Francisco, these challenges are acute. Dramatic income and wealth inequality increasingly divides those at the center of the city’s booming economy from those at its margins, particularly communities of color. 170,000 San Francisco families (47%) are financially insecure, with less than $2,000 in savings (Urban Institute, 2017).

Achieving economic security is not only a critical challenge for San Francisco residents—the financial health of the city depends on it. When families experience a financial shock, they are more likely to miss bills, face eviction and fail to meet other financial obligations that are often ultimately borne by the city. The Urban Institute estimated the cost to San Francisco from evictions, and unpaid property taxes and utility bills at $24-$54 million in 2016.

Families striving to achieve economic security need policies that enable them to build wealth and resiliency, and address predatory practices that strip what few resources they do have. Given the current federal government’s retreat from consumer financial protection and policies that support a fair and inclusive economy, we believe cities are more important now than ever and the work of the OFE imperative.

So, with a new strategy to guide us and renewed commitment, we are sharpening our focus on those struggling most, marshaling finite city and philanthropic resources, and working in concert—in new ways—with public, private and nonprofit allies to strengthen the economic security and mobility of low income families.

Meeting the Needs of Our Immigrant Families

Roberto left his home in Michoacán, Mexico in 1993 and migrated to the Bay Area, hoping to find safety and greater economic opportunity. He found a job as a farmworker, got married and had two daughters. However, as an undocumented immigrant, Roberto has faced challenges in achieving economic security, unable to access safe financial products and services for him and his family.

The San Francisco Bay Area has welcomed 1.4 million immigrants over the years, about 40% of them undocumented. As a sanctuary city, San Francisco legally protects its undocumented immigrants but many barriers to economic security persist for immigrants and are more acute for those who are undocumented.

Access to formal financial services and products plays a significant role in economic stability and mobility, but can be inaccessible for immigrants, with many barriers from language to restrictive ID policies. Trust in institutions has also declined rapidly in the new federal climate and undocumented immigrants are retreating into the shadows to protect themselves and their families. This makes it more important now than ever for local governments, non-profits and the private sector to design financial programs, products and policies that are safe and inclusive for immigrant families.

Use of predatory financial services has put Roberto’s financial security and personal safety at risk. Until recently, he relied on check cashers to cash his paychecks, a service that came at a high price. Each check cashed meant a loss of $20 to $30 in income to meet his family’s needs. Carrying cash made him a target; he has been robbed twice. But recently Roberto was able to access financial counseling at the Mexican Consulate’s Ventanilla de Asesoría Financiera, a joint effort between the Consulate, Mission Asset Fund (MAF), and the San Francisco Office of Financial Empowerment (OFE), with support from Citi Community Development. With help from a MAF financial coach at the Ventanilla, Roberto learned how and where to open a safe, affordable bank account to deposit his paychecks and start building his credit.

Innovative programs like the Ventanilla ensure that everyone has access to financial services to keep their money safe and reduce reliance on wealth-stripping predatory practices. For the OFE, it is important that financial programs, products and services are inclusive with features that specifically meet the needs of our immigrant families.  For example, our Kindergarten to College program is designed as an opt-out custodial account, requiring no citizenship information or ID for student participation. Bank On San Francisco sets local standards for participating banks and credit unions that enable immigrants to open accounts with alternative IDs.

The OFE will continue to work with partners to address challenges faced by immigrants and feels urgency in prioritizing and meeting their financial needs so they feel financially safe and secure in our city.