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Amid broader view of forces shaping health, access to credit and savings plays a key role

Amid broader view of forces shaping health, access to credit and savings plays a key role

When Jennifer Bui, a resident of the low-income San Diego neighborhood of City Heights, turned 18, she started concentrating on her financial future.

“I was really interested in building my credit and building my financial power, in a way,” said Bui, now 19 and studying engineering and physics at Brown University in Rhode Island.

After watching her mother struggle with debt, she was determined take control of her finances. “It’s so heartbreaking to see my mom paying all of this interest,” Bui said. Her mother opened department store credit cards, but didn’t understand that the high interest rate accrues on the entire amount, if not paid in full. Occasionally she also forgot the due date, and got hit with late fees.

“It definitely stresses her out. She worries about it all the time, like how to pay them off,” Bui said.

Bui was leery of opening a credit card account, in part because of her mother’s experience. Then she learned of a new credit union in City Heights — a rare offering in an area with far more payday lenders, pawn shops and check-cashing outlets than bank branches.

It’s called Self-Help Federal Credit Union, and it opened in April 2017, largely through a $3 million loan and with $400,000 in grants from the California Endowment, the state’s largest health foundation (and the founding funder of the USC Center for Health Journalism). The credit union, with 30 branches in three states, typically operates in low-income and rural communities, and has the support of numerous foundations.

IRS rules, however, require the California Endowment to stick to its mission of promoting health in disseminating its funds. So how does a health foundation justify financing a credit union?

Steve Eldred, a City Heights-based program manager with the California Endowment, said one key rationale was that the union could support small-scale healthy food entrepreneurs — a community priority — through various banking services. The broader rationale was the pioneering role the Self-Help organization plays in advancing state and national policies to cultivate financial stability, which numerous studies link to better health.

“There is no shortage of evidence that shows how financial instability affects health,” said Lili Farhang, co-director of Human Impact Partners in Oakland, California, which prepares “health impact assessments” of policies across a range of issues. “The challenge is it’s often not brought together in a way that tells the whole story about the health effects of wealth drain, financial stress and lack of empowerment,” she said.

Farhang co-authored a 2016 report examining the health effects of payday lenders. These businesses charge interest rates that sometimes exceed 400 percent annually (yes, it’s legal), and trap borrowers in a cycle of debt. Fees and interest commonly double or triple the original loan amount before the besieged borrower finally pays it off.

In the report, Farhang and her colleagues make a connection between financial distress and health. They cite research showing a correlation between wealth and good health, while lower income can be predictive of poorer outcomes. Inadequate banking options, they said, can keep poor neighborhoods poor.

In California, 60 percent of low-income neighborhoods lack a bank or credit union, with payday lenders and check-cashing outlets filling the void and subsequently extracting significant wealth. Nationwide, borrowers spend nearly $9 billion annually in payday loan fees. And check cashing outlets typically charge 5 percent fees, further reducing incomes already stretched thin.

“There is no shortage of evidence that shows how financial instability affects health,” said Lili Farhang, co-director of Human Impact Partners in Oakland, California, which prepares “health impact assessments” of policies across a range of issues. “The challenge is it’s often not brought together in a way that tells the whole story about the health effects of wealth drain, financial stress and lack of empowerment.

This wealth drain makes it impossible for many low-income people to save or invest in resources that can improve their financial status, like a reliable car or business equipment. Moreover, the strain caused by financial hardship is among the worst types of chronic stress.

Chronic stress is associated with elevated risk for developing cancer, cardiovascular disease, diabetes, hypertension and compromised immune function, among other maladies. Such stress can also lead to mental health disorders and substance abuse. It’s one way in which the wealth gap can perpetuate the health gap.

Jennifer Bui took out a “Fresh Start” loan with Self-Help Federal Credit Union, which helps people establish or repair credit history. The credit union deposits the low-interest loan funds into an account that can’t be withdrawn until it’s repaid, so the borrower saves money while building credit. 

Bui pays $43 a month for a 12-month loan of $500. She’s also helping her mother reduce debt with her newfound knowledge.

Salvador Terrones, a 21-year-old former foster youth in San Diego, also took out a Fresh Start loan last year to improve his credit, with the goal of eventually securing a home loan. He’ll graduate from college next year and plans a career as a real estate broker. Terrones learned about the credit union through a nonprofit called Just in Time, which helps former foster youth transition to independence.

The branch opened in April 2017, in an area where payday lenders, pawnshops and check-cashing stores outnumber bank branches.

 Maria Martinez encountered the City Heights credit union through her “Women’s Empowerment” group, one of several in the area that meet to build savings accounts and foster entrepreneurship. The group initially stashed its cash in a small safe disguised as a book. But group members agreed to deposit the cash at the credit union. Many have opened personal accounts as well, depositing $5 weekly, and often more once they realize how easy it is, said Sandra Martinez, a program manager with PCI, the organization running the empowerment groups. She added that Maria Martinez’s group now saves at more than triple the rate of two other Women’s Empowerment groups who still stash their cash on their own.

“Our mission is creating and protecting economic opportunities for all, especially people of color, women, rural residents and low-wealth families and communities” said Elaine Holman, the credit union branch manager. And while Holman emphasizes the economic benefits, it’s a mission that also protects their clients’ health, helping to break the pattern of financially-induced stress.

Suzanne Bohan, a veteran reporter and former Center for Health Journalism Fellow, is the author of the forthcoming book "20 Years of Life: Why the Poor Die Earlier and How to Challenge Inequity" (Island Press).

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