For someone working at a minimum wage job, an unexpected expense–like a repair bill when the car they need to use to get to work breaks down–can be a crisis: only a small fraction of low-wage workers have at least $500 in savings. In the event of unforeseen expenses, many people turn to payday loans that can charge as much as 300% in annual interest.
An app from a new startup called Onward is designed to help low-wage workers steadily save, and also offers a line of credit with relatively low interest rates if someone needs a little extra in an emergency.
Onward partners with employers to help workers save through small deductions directly from each paycheck. Workers set a savings target through an app–perhaps $5 or $10 per check for an initial goal of a few hundred dollars–and then watch the total automatically grow over time. Once someone has participated for three months, they become eligible for a small loan, with no credit check required, if an emergency comes up. (The loan can be no more than twice the amount that the worker has saved, up to a maximum loan of $1,000 if someone has saved $500.) When they repay the loan, they can build a credit history.
Founder Ronnie Washington saw his uncle, a grocery-store worker who carefully set money aside from his six-day-a-week job, scramble for help when he had a car repair bill he couldn’t afford. Washington, a consultant for Deloitte at the time, was able to step in. “I was there for my uncle, but I wondered, what do all these other folks do who don’t have friends or family that could support them?”
A few years later, as an MBA student at Stanford, he started thinking about how to develop a service to help very low-income workers. In interviews with workers in East Palo Alto and Oakland, he kept hearing the same stories.
“Folks were hard workers, going to work every day, sometimes working multiple jobs, trying to set money aside, but still seeing their savings washed away, and not having enough and ending up at the door of some predatory lenders,” he says. “I just felt like I needed to do something about it.”
The startup is currently piloting the program with a manufacturer in Kansas City and a local credit union that offers the loans. After nine months, everyone who signed up is still enrolled in the program. “We’re serving folks earning minimum wage or just above that, folks who thought they couldn’t save are actually saving,” says Washington. “Nearly half of Americans can’t come up with $400. The people that are in our program have already reached that if not surpassed it, without even thinking about it.”
Though a couple of people have requested loans, Washington says that it’s been most interesting to see how participating has started to change mindsets about how and when to save, and to give people a sense of financial security so they don’t react with panic when an unexpected expense occurs.
In January, the manufacturer plans to begin matching savings for its employees, as a further incentive for people to save. The credit union is also expanding the program to municipal employees who bank with it. Next, Washington plans to begin working with national financial institutions that can offer the program in other parts of the country, and with payroll processing companies so that HR managers can easily add Onward.
He sees the program as a first step for workers who aren’t participating in 401(k) programs because emergencies in the present mean they can’t think 30 years in the future. “I would call it an on-ramp to beginning to build habits of saving and then the 401(k) is kind of like this upper-level goal that people can then graduate into once they have their near-term financial security covered,” he says, adding, “I would love to see Onward as ubiquitous as 401(k)s.”