How can we shape an American economy with the goal of more justice, not more wealth concentration? And a financial system where everyone belongs? Here we discuss effective strategies with social innovators José Quiñonez, CEO of Mission Asset Funda national leader in financial inclusion, and Alison Lingane, co-founder of Project Assetsa national leader in employee ownership and vibrant local communities.
Michael Zakaras: José, Alison, a recent survey reported that 77% of Americans are concerned about their finances. What does financial freedom mean to you?
Jose Quinonez: Whether you dream about buying a house, starting a business or expanding your education – developing your personality, if you want – you need some financial stability. For me, freedom is that secure base that allows you to pursue your dreams.
Alison Lingane: I don’t agree anymore. Financial freedom is reaching a place where you can breathe, where you don’t have to work so hard to get by or worry about paying bills on time. But if we look at the wealth gaps in the United States, we see that tons of people have no savings, let alone what we would consider wealth. We also see that average white families have forty-one times more savings than average black families and 21% more than Latino families. Project Equity’s work is all about providing the springboard to financial freedom through employee ownership.
Zakara: You are probably familiar with the expression, “It is expensive to be poor.” Can you break it down for us?
Quinonez: When that phrase came out in the early 2000s, it just blew people’s minds. It was common, and perhaps still is, to blame the poor for their poverty: they are just lazy; they don’t spend wisely; there is something wrong with them. The sentence underlines the more it costs to access services when you are poor, as most financial services are designed for the middle class. For example: banks allow people like us to use their checking account for free. All you need to do is leave $1000 or $2000 in that account. But if you don’t have that pillow, the banks will charge you $12 or $20 monthly to bank with them.
Zakaras: Another example could be access to credit, which varies so widely. This has major consequences for people’s ability to climb the socio-economic ladder.
Quinonez: Precisely. The credit system is built around what they call risk-based loan pricing. If they find you too risky, because of your income or zip code, they will charge you more for those loans. Not having a formal credit score or credit report is a huge barrier to accessing loans. Depending on your immigration status, you may not even have access to credit.
Zakara: But what you point out, José, is that many immigrants are actually involved in all sorts of informal lending activities, such as lending circles—off-the-grid, so to speak—not to mention things like sending money to relatives abroad. So it’s not that they are financially “illiterate,” but rather that they are invisible from a general financial standpoint. And Mission Asset Fund is changing that.
Quinonez: Precisely. We formalize what people are already doing in a way that the financial system can understand. Essentially, we’re writing a promissory note for the individual, for example, “I promise to put $100 per month on this $1,000 loan for the next 10 months.” Then we provide the loan and report that activity to the credit bureaus so that people can develop formal credit scores, access different types of loans, etc. We become a bridge between those two worlds.
Zakara: Alison, Project Equity also tackles the huge problem of a widening wealth gap, but you approach it from a small business perspective.
lingan: Project Equity dismantles the traditional storyline, which says a company must be in conflict with its employees. That if wages rise, profits and growth must fall. The practice of employee ownership turns this idea on its head. Study after study shows that when employees are highly engaged, when there is a true ownership culture in the workplace, you get higher profits, higher growth, fewer layoffs and resilience to market declines. For a business owner who is retiring, the opportunity to sell to your employees at a competitive price gives you real value for your life’s work, while creating an opportunity for ownership and wealth creation for your employees. That’s not a trade-off, it’s a win-win, everywhere.
Zakara: Tell us why property is a better path to financial freedom than, say, higher wages?
lingan: In today’s economy, it often takes two or three jobs to make ends meet, as wages have fallen behind real dollars. We know that corporate ownership is one of the most likely ways to ensure financial stability and prosperity. A company we supported recently gave $15,000 to each of its employee owners with its first profit-sharing check. That’s real money, especially if you’re earning close to minimum wage. A single mom described her first profit-sharing check as the largest check she’d ever received. Plus, having a voice in your workplace can be a huge factor, not only for job satisfaction, but also for making sure that workplace meets your needs. We’re talking about professional opportunities, safety and benefits for potentially millions of employee-owners.
Zakaras: There’s a huge opportunity open right now: all the companies owned by baby boomers who are retiring in the next ten years.
lingan: Correct. That silver tsunami, 2.9 million companies owned by over-55s, accounts for one in two private companies. If all those companies were owned by employees, 20% of the private sector employees would be owned! This retiring generation would have a buyer for their business right under their noses and pass the entrepreneurial torch.
Zakara: This idea is not only ambitious, it is also very pragmatic. It does not require federal law. There are already tax incentives for entrepreneurs to do this.
Lingan: And employees don’t need to have a lot of money or equity to make this happen. Let’s say you own a company worth ten million dollars. On the day of the sale, the entrepreneur receives a check for seven million, made possible by a loan that the entrepreneur has taken out with a bank. That leaves three million dollars. The business owner has a banknote or loan that is repaid by the business in regular payments over say 5-7 years.
Zakara: Alison, how do you feel about taking your ideas on a really big scale? As you mentioned, cities and mayors should want more companies owned by employees. A company of 15 employees with roots in their community doesn’t go out of the state to find cheaper labor.
lingan: To increase our impact, we are working to raise public sector awareness at the local and federal levels. For example, the new CHIPS and Science Act allows government-funded manufacturing support organizations to contract for education and training on employee ownership. That’s a door that opened to federal support for small businesses. Last week, the Commerce Department also released a Job Quality Toolkit that included employee ownership as a strategy. While raising awareness for this model, we also ensure that there are enough business advisors, exit planners, CPAs, etc. who know how to support companies in the transition.
Zakaras: What call-to-action would you give us before we end this extended conversation?
lingan: If you are a business owner or know one, bring up this concept of employee ownership. It increases employee retention and engagement and provides a built-in succession plan. Second, if you want your local economy to have more quality jobs, advocate employee ownership among your elected officials. If you want to know more, our website is project-equity.org.
Quinonez: My call to action is for us to rethink the tools we provide to people striving for financial freedom. This means that people in the financial world create products that are relevant to people on the margins of society and increase access to opportunities. We have to make sure we pass it. Because everyone should have a fair chance to realize their dreams.
This conversation is part of a series on financial freedom co-produced by the Motley Fool Foundation and Ashoka. José Quiñonez and Alison Lingane are Ashoka Fellows.