Interesting piece in yesterday’s New York Times about a Wisconsin Goodwill‘s venture into the payday loan business. Through a program called GoodMoney, the charity offers consolidated loans to people who’ve gotten themselves into serious debt using those incredibly expensive short-term loans that are both necessary and dangerous to the financial health of poor people. GoodMoney loans come as part of a package that includes credit counseling and mandatory savings, in an effort to help erstwhile borrowers accumulate capital for long-term needs rather than having to go into debt to pay this month’s rent.
There’s been a certain amount of hullabaloo about the interest Goodwill charges on GoodMoney loans, which strikes the Nonprofiteer as fundamentally misguided. The charity is, after all, paying off loans at roughly double that rate, and even this can’t be sustainable endlessly. What would be the virtue in reducing the interest rate still further, at the cost of serving fewer people and/or bankrupting the program?
But it’s important to have statistics, and not merely anecdotes, about how many payday debtors manage to dig themselves out using GoodMoney. If it’s 50% of those entering the program, is that a good result? Or should it be 75%, or 90%? And what constitutes digging themselves out? Is it $1000 in savings by the end of the first year, or simple freedom from debt? As with all nonprofit efforts–and all business efforts, come to that–first we need to determine what constitutes success; then, given that metric, we need to discover whether this particular program is one.
[One does have to wonder about a possible conflict of interest in the GoodMoney program, a joint venture of Goodwill and Prospera Bank:
"Our goal is to change behavior, to interrupt the cycle of debt," said
Ken Eiden, president of Prospera, who is also a director at Goodwill.]
Be that as it may, too few programs help people with financial literacy, let alone actual payday-to-payday financial management. Goodwill is to be congratulated on its efforts to do so, while at the same time being monitored and evaluated on the success of those efforts.