‘Empowerment centers’ set to teach financial literacy

Pilot program would aid NJ’s poorest residents, if Murphy agrees
Credit: (AP Photo/Lynne Sladky)
File photo: Teaching financial literacy

A bill that would establish “financial empowerment centers” to help boost the financial literacy of residents in some of New Jersey’s poorest communities picked up overwhelming, bipartisan support as it moved through both houses of the state Legislature earlier this year.

Now its fate rests in the hands of Gov. Phil Murphy.

The legislation calls for the creation of a pilot program for empowerment centers to provide residents with counseling on everything from how to open a secure, low-cost bank account to the importance of establishing and maintaining good credit.

Cities in the pilot program

The first centers would be opened in Camden, New Brunswick, Newark, Paterson and Trenton, according to the bill, which lawmakers sent to Murphy’s desk in late June.

Sponsors and other supporters of the bill have argued the funding for the financial-literacy initiative would be well-spent if it results in more residents having the tools they need to succeed financially.

The legislation would build on other efforts lawmakers have launched in recent years to improve financial literacy, including among New Jersey’s middle school and high school students. It has also drawn praise from advocacy groups like New Jersey Citizen Action, which works regularly with low-income residents, including by providing financial coaching.

“We know how critical this kind of program is to low- and moderate- income New Jerseyans desperately trying to navigate the complicated landscape of personal finance, including banking, credit and debt management,” said Phyllis Salowe-Kaye, the group’s executive director.

“As the state works to recover from the financial hardships of COVID-19, this legislation’s expansion of the capacity and outreach of organizations providing these financial services is particularly important,” she said.

And while the financial-literacy effort would initially be established as a three-year pilot program, it could be expanded to reach residents of other communities if it proves successful.

More than 100 million people across the country have been identified as “economically vulnerable” by the federal Consumer Financial Protection Bureau, which was founded in 2011 after the Great Recession.

In New Jersey, New Brunswick, Newark, Paterson and Trenton were all ranked among the state’s most distressed cities in a 2017 analysis published by the state Department of Community Affairs. Camden was ranked as the state’s most distressed city of all in that analysis, which considered factors like the rates of poverty and unemployment, and overall per-capita income.

Income inequality

While it’s not a panacea, studies have shown that improving financial literacy in low-income communities can be a useful tool for combating income inequality. And last year, New Jersey was ranked among the states where the gap between the rich and the poor has grown the widest, according to U.S. census data.

The legislation for the pilot program calls for the Department of Community Affairs to partner with municipal officials and nonprofit organizations to establish the financial empowerment centers in each of the five communities identified as top priorities.

The centers would have to be established where they could be “easily accessible to the residents,” according to the legislation.

Those who visit the centers would receive instruction on things like opening an affordable bank account, establishing or maintaining a good credit score and improving their personal savings. Instructors would also teach residents how to manage their personal debt, including nonmortgage debts like student loans, the bill says.

A report detailing the pilot program’s operations and success would have to be submitted to the governor and Legislature for review upon its conclusion, according to the bill. The report would also make recommendations about continuing the program and expanding it to more communities.

The legislation passed the Assembly in March in a 70-0 vote. It was approved by the Senate by a 39-0 margin in late June.

Financing the initiative

To finance the initiative, the measure calls for using funding the state received in a 2019 settlement of complaints against the consumer credit reporting agency Equifax following a 2017 data breach that affected more than 147 million Americans, including 4 million New Jersey residents.

According to the state attorney general’s office, which helped investigate the data breach, Equifax failed to establish adequate security despite knowing that a “critical vulnerability” had exposed highly sensitive personal information, including names, dates of birth, addresses, and Social Security and credit card numbers. Four members of the Chinese military were charged earlier this month by the U.S. Department of Justice with carrying out a cyberattack on Equifax’s networks.

New Jersey received $6.36 million in civil penalties from Equifax as part of a broader, $600 million settlement, the attorney general’s office announced in 2019.

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