PROspective Vol II No IV May 2011
David Marzahl, President of the Center for Economic Progress in Chicago, describes the unique challenges of financial planning and counseling for the working poor, and how his organization tries to meet those challenges.
Chuck Miller: What’s the purpose of the Center for Economic Progress?
David Marzhal: The Center for Economic Progress helps hard-working, low-income families move from financial uncertainty to financial security. On a local level, we operate one of the largest and most established free tax preparation programs in Chicago and Illinois. Since 1990, we’ve served more than 270,000 families, returning over $400 million in refunds. This tax season, we will return more than $45 million in refunds to 25,000 families and their communities. On a national level, we advocate for policies and practices that will create a financial system that works for all.
In order for CEP’s mission to work, however, we need a strong volunteer corps. Through Volunteer Income Tax Assistance (VITA) programs like ours, our volunteers ensure that workers keep 100 percent of their tax refunds and avoid high-cost loan products. In one hour with CEP, a volunteer can return $2,100 to a hard-working family. The more volunteers we have, the more families we can help move toward financial security.
CM: What are some of the unique problems of the working poor as taxpayers?
DM: In today’s turbulent economy, low-income families have been hit hardest. With the growing complexity of the tax code, coupled with lack of knowledge and awareness, many low-income workers often pay sky-high prices for everyday transactions such as filing taxes, cashing checks and securing short-term credit—often up to 10 percent of their yearly salary. Low income families are spending dollars they can’t afford to file their tax returns— and, in some cases, leaving dollars on the table when they do. Tax programs like ours help low-income workers access tax benefits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit for free.
CM: Do the working poor need financial planning?
DM: Yes, of course. Tax time is a perfect time for an annual financial check-up, with their tax refund as a down payment on the future and a vital source of emergency funds. The average family we serve receives $2,100 back at tax time-likely the largest lump sum they’ll see all year and the best opportunity to start getting ahead. Families with emergency savings of at least $500 are four times less likely to take out a payday loan, which is why we encourage our clients to save at least part of their tax refund.
This tax season, we offered a mix of financial services and low-cost products through dozens of bank and credit union partners right at tax sites to help families make the most of their tax refund and prepare for the future.
Also, with college costs on the rise, it’s more important than ever for students and their parents to seek out financial aid options. Many students and families consider finances the biggest barrier to college. By providing financial counseling and assisting with completing Free Application for Federal Student Aid (FAFSA), often right at the tax sites, we help families access the financial aid system, pay for college, and reach their full potential. Eligible students are encouraged to submit as early as possible to increase their chances of receiving a higher amount of financial aid.
CM: What’s the difference between financial coaching and financial planning?
DM: Coaching is a strategy for facilitating performance improvements that have been applied in a wide range of settings, from business management to family relations. Financial coaching means providing regular one-on-one sessions in order to coach performance improvements to meet goals mutually set by the coach and the client.
Financial planning is a systematic approach whereby the financial planner helps the client to maximize their existing financial resource by utilizing financial tools to achieve their long term financial goals.
At the Center for Economic Progress we focus on financial coaching on top of the transactional services we offer such as tax preparation and FAFSA assistance.
CM: The Center also works with small businesses…why and how?
DM: Owning a small business or pursuing self-employment can help put an individual on the road to financial success. At the same time, a very high ratio of start-up businesses fail. CEP offers help to small business owners/sole proprietors to develop the tools and skills to track their income and expenses with an eye towards preparing their tax returns. Small business owners often run afoul of self-employment tax laws and need to carefully record all of their business-related transactions. We offer classes on record keeping and tax laws as well as help with their tax returns.
To find out more information about all of our programs and services, go to www.economicprogress.org