The Financial Health Network recently released its annual Financial Health Pulse 2023 U.S. Trends Report, the most comprehensive view of the ongoing financial health of all Americans, and the results are alarming. The ranks of America’s financially vulnerable are rising dramatically, particularly among people of color. Critically, there is a fundamental lack of emergency cash cushions for most Americans: ~50% are spending more than they make every year and few have the $2000 in recommended emergency cash savings that drives financial security.
The report is a rallying cry for investors like us at ResilienceVC who are laser-focused on helping drive financial stability for all Americans through technology and startup-led innovation. We believe that startups are the entities best positioned to meaningfully build resilience for LMI Americans while also building large, sustainable world-changing businesses. As Jennifer Tescher, founder and CEO of the Financial Health Network shared, “There is an opportunity for innovative products and services that help develop financial resilience – especially in the face of our latest findings on the declining financial health of people across America, particularly among historically marginalized groups.”
One key component driving financial resilience is figuring out ways to generate additional liquidity, exogenous to existing sources of income, that can help build short term savings and help Americans build an emergency savings buffer. ResilienceVC and investors like us are actively seeking out the new generation of fintech startups that are trying to exploit latencies in regulations, tax code, partnerships and technology to generate “Found Money:” new sources of income and expense reduction that can contribute to decreasing financial vulnerability.
Found Money startups often look for information asymmetry in tax and regulatory systems, where LMI and financially vulnerable Americans are not taking advantage of tax benefits and programs that are more readily available or obvious for higher income populations. Early-stage innovators like LetGetSet help Americans get tax credits (like child tax), even if they are not filing taxes otherwise, while Benny helps fund employee stock purchase plans. Alice (a ResilienceVC portfolio company) helps drive one additional week of annual income for service workers by helping them tax advantage of commuter benefits.
Some later stage startups, like Propel, are pioneering Found Money by reducing expenses for low-income consumers. As Jeff from Propel explains, “We build tools that help low-income families save money on everyday expenses—from utility assistance programs to broadband subsidies like the Affordable Connectivity Program. Millions of families use the Providers app every month find and enroll in these services, helping keep dollars in their pockets.”
There are still other avenues for generating Found Money for LMI populations and helping them build cash reserves. Some of these companies, like Dolr for student debt, Givers for caregivers, Acre for mortgages, and Viva for rent payments, are figuring out how to drive cash back (and startup-aligned incentives) through positive behavior on the part of the consumer. Others, like Sunny Day Fund and Canary, are pushing employers toward growing emergency savings pools through Secure Act enabled matching or new grant programs.
These companies and many like them are working toward a key end goal – figuring out how to put more money in consumers’ pockets for the rainy days that we know will come. Building these businesses isn’t easy, but the startups that win will identify true and sustainable win-wins between stakeholders – like employers, landlords and consumers – and develop unique technology to seamlessly connect them. Those companies will drive resilience for their customers, and the scale and positive unit economics investors seek. Fintech investors here in the US would be well-advised to find these innovators and support them.