How can we shape an American economy with the goal of greater equity, 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 Fund, a national leader in financial inclusion, and Alison Lingane, co-founder of Project Equity, a national leader in employee ownership and vibrant local communities.
Michael Zakaras: José, Alison, a recent survey reported that 77% of Americans are anxious about their finances. What does financial freedom mean to you?
José Quiñonez: Whether you’re dreaming about buying a house, starting a business, or extending your education — developing your personhood, if you will — you’ll need some financial stability. To me, freedom is that secure foundation which allows you to pursue your dreams.
Alison Lingane: I couldn’t agree more. Financial freedom is getting to a place where you can breathe, where you don’t need to work so hard just to get by or worry about paying bills on time. But when we look at the wealth gaps in the United States, we see that tons of people don’t have any savings, much less what we’d consider wealth. We also see that median white families have forty-one times more savings than median Black families and 21% more than Latino families. Project Equity’s work is all about providing the stepping stones to financial freedom through employee ownership.
Zakaras: You’re probably familiar with the phrase, “It’s expensive to be poor.” Could you break it down for us?
Quiñonez: 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’re just lazy; they’re not spending wisely; something’s wrong with them. The phrase underscores how it costs more to access services when you’re poor because most financial services are designed for the middle class. For example: banks allow people like us to use their checking accounts for free. All you have to do is let $1000 or $2000 sit in that account. But if you don’t have that cushion, the banks charge you $12 or $20 monthly just to bank with them.
Zakaras: Another example might be access to credit, which varies so widely. That has major implications for people’s ability to climb the socio-economic ladder.
Quiñonez: Exactly. The credit system is set up around what they call risk-based pricing of loans. When they perceive you to be too risky, because of your income or zip code, they charge you more for those loans. If you don’t have a formal credit score or credit report, that’s a huge barrier to accessing loans. Depending on your immigration status, you may not even have any access to credit.
Zakaras: But what you point out, José, is that many immigrants are in fact engaged in all kinds of informal lending activity like lending circles — off the grid, so to speak — not to mention doing things like sending money to family members overseas. So it’s not that they are financially “illiterate” but rather that from a mainstream financial standpoint, they are invisible. And Mission Asset Fund is changing that.
Quiñonez: Exactly. We’re formalizing what people are already doing in a way that the financial system can understand. Essentially, we write a promissory note for the individual, for example: “I promise to put in $100 a month for the next 10 months on this $1,000 loan.” Then we provide the loan and report that activity to the credit bureaus so people can develop formal credit scores, access different kinds of loans, etc. We become a bridge between those two worlds.
Zakaras: Alison, Project Equity is also taking on the huge problem of a widening wealth gap, but you’re approaching it from the vantage point of small businesses.
Lingane: Project Equity is dismantling the traditional storyline, which says that a business must be in conflict with its workers. That if wages go up, then profit and growth have to go down. The practice of employee ownership turns this idea on its head. Study after study shows that when employees are highly engaged, when there’s a true ownership culture in the workplace, you get higher profits, higher growth, fewer layoffs, resilience in market downturns. For a business owner who is retiring, the opportunity to sell to your employees at a market rate gives you fair 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, all around.
Zakaras: Tell us why ownership is a better pathway to financial freedom than, say, higher wages?
Lingane: In today’s economy, it often takes two or three jobs to make ends meet, given how wages have fallen behind real dollars. We know that business ownership is one of the likeliest ways to ensure financial stability and wealth. One company we supported recently provided $15,000 to each of its employee-owners with its first profit-sharing check. That is real money, especially if you’re earning close to a minimum wage. One single mom described her first profit-sharing check as the largest check she’d ever received. Moreover, having a voice in your workplace can be a huge factor, not just in job satisfaction, but in having that workplace meet your needs. We’re talking about professional opportunities, safety, and benefits for potentially millions of employee-owners.
Zakaras: There’s a huge window of opportunity opening as we speak: all the businesses owned by baby boomers who are going to be retiring in the next ten years.
Lingane: That’s right. That silver tsunami, 2.9 million businesses owned by people 55 or older, accounts for one out of two privately-held companies. If all of those companies were employee-owned, 20% of private-sector employees would be owners! This retiring generation would have a buyer for their business right under their nose and be passing the entrepreneurial torch.
Zakaras: Not only is this idea aspirational, it’s deeply pragmatic. It doesn’t require federal legislation. There are already tax incentives in place for business owners to do this.
Lingane: And employees don’t need to have lots of cash or equity to make this happen. For example, say you have a business valued at ten million dollars. On the day of the sale, the business owner gets a check for seven million, made possible by a loan that the business took out from a bank. Then there’s three million dollars remaining. The business owner holds a note or a loan that gets paid back in regular payments by the business over, say, 5-7 years.
Zakaras: Alison, how are you thinking about getting your ideas traction at a really large scale? As you said, cities and mayors should want more employee-owned businesses. A company of 15 employees with roots in their community is not going to ship out of state to find cheaper labor.
Lingane: To scale our impact, we’re working to raise public sector awareness at the local and federal level. 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 opened into federal small business support. Also, just last week, the Commerce Department published a Job Quality Toolkit that included employee ownership as a strategy. As we raise awareness for this model, we’re also making sure that there are enough business advisors, exit planners, CPAs, etc. who know how to support companies through the transition.
Zakaras: Before we end this rich conversation, what call-to-action would you leave us with?
Lingane: If you are a business owner or know one, bring up this concept of employee ownership. It boosts employee retention and engagement and provides a built-in succession plan. Second, if you want to see your local economy have more high-quality jobs, advocate for employee ownership with your elected officials. If you want to learn more, our website is project-equity.org.
Quiñonez: My call-to-action is for us to rethink the tools that we are providing people who strive for financial freedom. That means people in finance creating products that are relevant for those at the margins of society and increasing access to opportunities. We have to make sure that we pass it through. Because everyone should have an honest shot at realizing 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.