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  • For every Starbucks in America, there are more than two payday lending storefronts. Here's why that's a problem. Tweet This
  • Restoring financial stability among the poor requires replacing predatory lenders with thrift institutions. Tweet This

For every Starbucks location in America there are more than two payday lending storefronts, with their alluring offers and interest rates averaging 400 percent APR. The next time you drive down Main Street, look for the flashing neon signs: “Payday Loans: Get Ca$h Fast!” “Rent-to-Own: No Credit Needed!” “Snappy Title Loan: Bad Credit Okay!” If you see a lot of these, many of your neighbors are probably in what the 2008 report For a New Thrift dubs America’s “lottery class”: the bottom tier of our financial institutional system often targeted by “anti-thrift institutions” like payday lenders, state-sponsored lotteries, check cashers, rent-to-own merchants, and auto title lenders. If your Main Street lacks these outlets, your neighbors are probably in the “investor class”: the upper tier served by wealth-building gurus like investment bankers, insurance agents, and stockbrokers.

Lottery-class institutions do no favors to young adults looking to build financial stability and an intact family. So what can we do about this wealth-education gap and the resulting economic inequality?

As David Blankenhorn points out, contemporary leaders typically respond in two ways: they either recycle the “pull yourself up by your own bootstraps” line, or they prescribe public and private charity. But a venerable line of leaders in America’s thrift tradition rejected both attitudes. They embraced what Blankenhorn summarizes as “self-help with a helping hand,” or “self-help rightly understood.”

Benjamin Franklin preached thrift as the way to wealth and made countless disciples, his name emblazoning the institutions they founded.

Ben Franklin, known to generations of Americans as “the Apostle of Thrift,” embodies this attitude. As Barbara Dafoe Whitehead points out in Franklin’s Thrift: The Lost History of an American Virtue, Franklin landed in a Philadelphia full of European misfits who hoped to strike it rich, but were steeped in debt. With the hard-won fortune he amassed through “industry” and “frugality,” Franklin could have kept comfortably to himself, or written checks to his favorite charities from the comfort of his private library.

Instead, Franklin, ever the ingenious inventor, formed a mutual-benefit library and numerous other mutual assistance schemes: a self-perpetuating loan fund for young businessmen (an early form of the credit union), a volunteer-based firehouse, an insurance association, a university. These institutions helped those willing to help themselves and their communities. They reflected Franklin’s thrift ethic, summed up by John Wesley’s maxim: “Earn all you can, save all you can, give all you can.”

Franklin preached thrift as the way to wealth and made countless disciples, his name emblazoning the savings banks, building and loan associations, credit unions, school savings banks, and thrift societies they founded.

A century and a half later, Roy Bergengren set out on a similar crusade. This Harvard grad ended his promising law career in 1920 to heed department store magnate Edward Filene’s call to drive around America helping people of modest means form credit unions. At a time when few Americans had even heard of a credit union and salary-lending “loan sharks” abounded, Bergengren determined to “drive the usurious money lenders from the temple.” He established a credit union in every state, won passage of national legislation to support credit unions, and organized a national credit union association. In 1950, President Truman praised the credit union philosophy as a “tribute to the values of thrift and self-help and mutual assistance.”

Rita Haynes saw it as the credit union’s task to empower people to save and build wealth.

Then there’s Rita Haynes, an African-American woman who in the late 1950s started volunteering at her church’s struggling credit union, Cleveland’s Mount Sinai Baptist Church Credit Union. Haynes, who took leadership of the credit union, says the credit union was started as a way to help Mt. Sinai’s mostly African-American and blue-collar congregants to save and build wealth. While African Americans were told that they were “inferior” and weren’t supposed to own homes, and while traditional banks were fleeing the inner city and predatory lenders were moving in, Haynes saw it as the credit union’s task to empower people to save and build wealth. This meant personal responsibility, as well as mutual help. More than fifty years later, the credit union that started out in a church basement has 6,000 members and $12 million in assets. They still offer Grace Loans, short-term emergency loans up to $500, and “Mercy Mortgages,” which help members facing foreclosure.

Our history is full of forgotten leaders like Bergengren and Haynes whose promotion of thrift combined self-help with a helping hand. Thanks to the institutions they built, people aspiring to achieve the American Dream could, like the residents of Frank Capra’s Bedford Falls, walk down Main Street and find help at a “thrift institution” like Bailey’s Building and Loan. Unfortunately, today’s struggling Americans are often forced to turn to Pottersville-esque loan sharks, and the wealth-education gap gets worse.

The Institute for American Values’ new report The Way to Wealth, coinciding with the celebration of National Thrift Week, aims to combat the wealth-education gap. (Full disclosure: my wife, Amber, was the lead writer on the report, and it draws a few stories from our research with young adults in Ohio.) The report proposes four rules a person can follow to attain what Benjamin Franklin described as a “modest fortune”: work hard and honestly, spend less than you earn, give back as much as you can, and have a plan. It addresses common objections, like “I need more than a dead-end job,” and notes that working hard and showing up on time, even at the least glamorous jobs, help one to win trust and build a reputation. It says that giving back with your money and time is an important part of the way to wealth, because “it’s a way to be a part of a ‘we’ rather than ‘me,’” and because even the hardest workers sometimes suffer setbacks in life. We hear a lot today about the many forces working against poor and working-class young adults, but the report proposes steps anyone can take to begin pursuing financial stability.

Of course, restoring the financial stability of the “lottery class” will take more than those four rules—for instance, employers must take seriously their responsibility to their employees. And America’s thrift leaders usually had something to say about that, too. For instance, S.W. Straus, the early twentieth-century Chicago realty financier who helped to start the first National Thrift Week in 1916, established a profit-sharing program for his employees. Philadelphia’s John Wannamaker did the same, and also created for his employees a benefits association, savings programs, and a free library.

The economic inequality we hear so much about today roused previous generations of Americans to pioneer thrift institutions. If we hope to diminish the wealth-education gap so evident on modern Main Streets, we need more on-the-ground pioneers like them, helping young adults of modest means to practice the lost virtue of thrift.