Ronnie Washington was just beginning his research into the financial pain points of America’s working poor when he met Amanda. The 22-year-old was working at a retail chain for roughly minimum wage and living with her grandmother as she tried to save enough money to go to graduate school.
“She was really trying to save and really trying to do better,” said Washington. His nearly hourlong conversation with Amanda was one of more than 60 interviews he held on street corners or in front of convenience stores and fast food restaurants. “She had all these tricks to help keep her money in savings, like depositing into her sister’s bank account to prevent frivolous spending. The only way she could withdraw money would be to ask her sister.”
Then, Amanda told him, her car broke down. Despite all her efforts, the savings that resulted from her months of effort disappeared with one $700 bill.
Washington, a 2016 Stanford Graduate School of Business MBA, channeled the insights he gained from Amanda and her peers into his idea for the nonprofit Onward, a financial safety net for the working poor. During his year as a Social Innovation Fellow, Washington will follow further develop and test the employer-sponsored benefit program, which features an app that makes it easier for people to save and includes access to credit.
About 10.5 million people in the United States are classified as working poor, out of an overall poor population of some 45 million. They work, or look for work, more than 27 hours a week, but their annual incomes still put them beneath the poverty threshold: about $12,000 for a single person in 2013, for example. The working poor are among those who would have trouble paying for an unexpected expense of around $1,000; one study showed that 4 of 10 respondents or their immediate family ran into a major unexpected expense in 2015. Onward will not only make it easier for low-income workers to save, but also give them the option to use their savings or tap into a loan when needed.
“Having the ability to choose between savings and/or credit is empowering. It helps break up big expenses, such as a car repair, without a person’s entire savings being ‘washed away’ — something that takes a toll on the psychology of workers and can create a disincentive for future saving,” said Washington.
America’s working poor have few options to handle the expense of an emergency such as a malfunctioning appliance or a child’s broken bone. Lacking access to low-interest credit, they often turn to payday lenders, which commonly charge interest rates in the double digits and potentially charge more than 500 percent annually. Even when people in low-income jobs have savings accounts, the hard-won balances may be so small that they are wiped away by a single financial shock.
The lack of options and the sense of never being able to get ahead can destroy the motivation to keep saving, points out Washington.
The Novel Solution
Washington began working on the idea of creating a financial safety net for the working poor while taking a course called Startup Garage at Stanford GSB in fall 2015. He had fallen in love with social entrepreneurship, the idea of “doing well while doing good,” and had come to the MBA program primed to explore the question of how financial technology can improve the lives of people who are underserved by financial systems.
As he interviewed people for his Startup Garage work, with the support of a classmate, he found that in situations that call for the unexpected outlay of a small lump sum of cash, people often lack a sense of control.
In order to meet their needs, Washington designed Onward as an employer-based savings and lending product. That way, workers can easily begin to save directly from their paychecks, making the task easier and relatively painless. Onward will offer a gamified user experience, allowing people to easily keep track of their savings and request emergency low-interest credit when they need it. In addition, education that promotes good financial habits will be layered in. Employees who enroll and stay enrolled can expect to become more financially secure.
Throughout his year as a Social Innovation Fellow, Washington will work full time, continuing to refine his idea. He will conduct a range of experiments following design thinking methodology before ultimately launching Onward.
Washington traces the beginning of his journey toward social entrepreneurship to his childhood outside Washington, D.C. At every turn, he remained open to learning from his environment and people around him.
He remembers being aware, as a child, of the gap between the well-to-do and people who had much less.
“I just couldn’t understand why on one side of the street, there was a row of nice cars and on the other, a line of homeless people waiting for food and shelter,” he said.
Washington, whose parents divorced when he was 5, also grew up with a sense of responsibility and the idea that he ought to make his single mother’s sacrifices worthwhile.
“She did paralegal work on the side and refinanced our home to put me through college,” he said. “She really believed that Morehouse, where they pride themselves on creating servant-leaders, would help me learn what it meant to be a man.”
At Morehouse College, Washington studied economics, minoring in mathematics. He was headed down a fairly typical path — his first job out of college was at Deloitte Consulting — when a pro bono gig changed his life. He volunteered with Global Brigades, which then offered him the chance to help the organization build out its microfinance program in Ghana.
“I saw the potential for fintech to help people who don’t have access to capital, even small amounts, that could help them start a small business,” he said.
Washington headed for the MBA program at Stanford GSB with an eye toward creating a venture of his own. He had some doubts about whether he would be able to cope with the highs and lows of entrepreneurship. But an internship through the Stanford Institute for Innovation in Developing Economies at Ghana-based Knoxxi gave him confidence. At Knoxxi, an emerging mobile-money platform run by CoreNett, he shadowed CoreNett CEO Michael Amankwa.
“He really demystified entrepreneurship for me, and helped me see how passion and focus can carry you through. He has this out-of-this-world intelligence, and a lot of perseverance,” Washington said.
Washington designed the Onward platform with empathy in mind — a concept he learned during another internship, this time at RevolutionCredit, a behavioral analytics fintech company based in Newport Beach, Calif. There, he worked on putting himself in the place of the working poor and learned some of the behavioral biases that cause people to act against their own interests.
“If small crises in your life wipe out your savings over and over again, it’s natural to give up on saving,” Washington said. “This is a new pathway to financial resilience for the working poor.”
Ronnie Washington received his MBA from Stanford GSB in 2016. He was awarded Stanford GSB’s Social Innovation Fellowship, which provides up to $180,000 in funding, advising, and support to graduating Stanford GSB students who want to start a nonprofit venture to address a pressing social or environmental need during the year after graduation.