Tag: Impact Investing

Millennials are receiving quite the attention from the media. We are often characterized as lazy and entitled. What I find to be true is that our generation has little trust in large institutions — from governmental offices to our large banks and financial institutions. We are steeped in our values and want our money aligned with our desires for a more sustainable planet. We are poised to catalyze big shifts in how financial services operate. What has yet to be adequately covered are the ways many millennials are left out and marginalized from our financial systems.

Making Do

Growing up in a low-income immigrant community in Los Angeles, I witnessed and experienced first-hand this lack of financial access. In my community, most people did not have access to checking accounts or relationships with banks. They lived paycheck-to-paycheck, not earning enough to maintain an account free of monthly fees. For some, legal status required living in the shadows and that influenced their interactions with money as well.

Without access to financial services, raising families in the informal economy is an uphill battle. Most of the women in my community stay home to care for their children and find ways to make extra money by engaging in entrepreneurial activities such as selling food and clothing, cutting hair, cleaning houses, providing childcare and much more.

Without banking or credit cards, these communities have no credit scores and therefore struggle with basic needs such as renting a home or buying a car. Out of necessity, many operate in cash or trade, while some fall victim to predatory payday lenders. Despite being excluded from the formal economy, many in my community have extensive experience with savings and loans through their lending circles. Family, friends, and neighbors lent and borrowed money in small groups called “tandas,” with each person contributing a set amount each month and one person from the group taking the pot each month. This informal “line of credit” came in handy many times. I recall what a relief it was when a family member was able to use the tanda to help with the unexpected expense of repairing his car.

Eyes Toward the Future

In 2004, I was one of the fortunate few in my community to earn a scholarship to attend college. There I met other millennials who experienced money very differently. A classmate told me her parents opened a brokerage account for her when she was 16 and her money had been growing ever since. I had heard of a brokerage account in my economics course, but it was not a tangible concept for me, as having extra money to put into such an account was completely foreign. Other students referred to each other as “trust fund babies,” — another concept difficult to relate to. Despite the vast differences in our financial backgrounds, the promise of a top-notch education offered me the comfort that someday I would be able to earn enough money to enter the formal economy, open a savings account, start investing and saving for my future.

As a senior in college, I was ready to take on the world — and then the financial crisis hit. I graduated alongside 1.4 million millennials, who had taken on more student debt than ever before, amid the largest financial meltdown since the 1930s. We graduated to an environment with dramatically low wages, high unemployment, and a changing political landscape. The economic conditions made it incredibly difficult for millennials to find stable jobs, and as a result many of us went back to school, accruing even more debt.

I wanted to be a public servant — to engage in and work toward solutions for the income inequality that I knew was a big issue for our nation. With that in mind, I pursued a Master’s in Public Administration. During graduate school, I encountered the concept of Social Impact Bonds. I was excited to learn that private companies and public entities could form partnerships to lower recidivism in New York jails. Intrigued, I did more research. I learned about impact investing and was won over by the possibilities of shifting capital for good. In 2014, I read of a company turning guns into luxury jewelry, an endeavor that took weapons off the streets and helped fund gun-control advocacy. Still reeling from the Sandy Hook Elementary shooting, I could see that impact investing was a force for positive change and I had to be part of it.

Working to Shift Capital

Today, I have the privilege to work for a company that believes in, and works for, equity, diversity, inclusion, women’s empowerment, and social justice. We at Nia Impact Capital understand that for everyone to thrive, we must include everyone. This means having equal representation in leadership, empowering women with financial education, removing the stigma around lack of financial literacy, and making financial products accessible to those who have been traditionally excluded.

At Nia, we are activist investors, engaging our portfolio companies and other asset managers to move the needle on social change issues.

My background has influenced the work I do and the issues I care about, and my work has influenced my personal relationship with money.

I am clear I do not want my money sitting in the big banks causing crisis. Growing up amongst women without access to capital, I want my savings account to work for them, so I invest with CNote. I also provide loans to women through Kiva. Having benefited personally from non-profit organizations that help low-income communities, I value charitable giving and give annually to organizations improving college access to underrepresented students.

One of the most meaningful actions I have taken is gifting my parents an Individual Retirement Account. When I discussed opening an IRA with my stepfather, he was nervous because he was unfamiliar with the concept, but as I explained the benefits, he became excited about having savings for retirement. My parents have since been contributing to their IRA in small amounts and I try to match their contributions annually.

When I think of my parents or the many entrepreneurial women in my community, I see unlocked economic potential from a population more than willing to contribute to financial growth. For many millennials whose families and communities have been systematically excluded from the financial system, the cycle of exclusion will continue until we begin to focus on the benefits of bringing these communities into the formal economy.

I cannot speak for all millennials, though, from my view, millennials have similar goals to other generations. We want financial security, we want to contribute to the economy, and have the freedom to choose a job that brings us purpose and joy. This clarity around our values is often mistaken for entitlement, and yet millennials are uniquely positioned to help solve for some of the world’s most difficult challenges. We grew up in era of major technological transition and political change, and we have lived through the Great Recession of 2008. All these experiences have helped–if not forced us–to identify and assess our values. While we have varying backgrounds and paths on our money journey, as millennials we share a desire for a sustainable world. Our collective economic power is already shaping the way we invest our dollars and as that economic power grows, we must remember that the sustainable future we seek must also be inclusive.

Article by Erika Andraca. Director of Operations & Client Services for Nia Impact Capital, a woman-owned, women-led Registered Investment Advisor firm.

Prior to joining Nia Global Solutions, Erika worked as a Legislative Assistant for the City of Berkeley, where she oversaw community engagement projects and economic development research. Erika also has over five years of experience as a Legal Assistant for a private law firm in Berkeley, CA, where she handled civil litigation cases. Immediately after college, Erika had the opportunity to work with the Feminist Majority Foundation where she provided testimony before the California Commission on the Status of Women, for protections against predatory Crisis Pregnancy Centers.

Erika received her Master’s degree in Public Administration from San Francisco State University and her Bachelor’s degree in Government and History from Claremont McKenna College.

Growing up in Mumbai, India’s financial hub, it was hard to escape the pervasive Slumdog Millionaire-esque wealth disparities. Coupled with other issues like gender-based violence, Mumbai served as my primer for recognizing that socioeconomic issues like poverty are a systems issue involving multiple, interdependent systems, and can’t be solved by one or two interventions alone. It also lit a fire in me to use a justice-based lens to dismantle the intersecting systems of oppression that create outcomes where a small percentage of people at the top thrive at the expense — and severe detriment — of the majority at the bottom. That fire stayed with me as I moved across continents in 2007 to pursue a dual degree in Finance and Economics at The University of Texas at Austin. It was an interesting time to be studying those topics. Amid the global financial meltdown, I found myself having more questions than answers about our current economic system of capitalism. I decided to shift my energy to grassroots international development and student organizing instead. As part of an interdisciplinary research study on Microfinance and Sustainable Development in Developing Countries, I spent several summers and winters in South Asia researching grassroots development — including an internship with the Nobel Laureate Grameen Bank in Bangladesh. When back on campus during the fall and spring semesters, I spent time organizing with student-led movements around anti-poverty and climate action campaigns.

At the time, microfinance (specifically microcredit) was being touted as a panacea of sorts to ending extreme poverty. It involved giving small, uncollateralized micro-loans to the poorest of women so they could start businesses and help pull their families out of poverty. Women were the primary targets of these loans for two key reasons: the data showed that women spent a higher percentage of their earnings on the well-being of their families than men did, and empowering women economically meant empowering them socially as well — which was of particular significance for communities with rampant gender-based violence. In theory, this seemed to work well for a few years. Women that were previously left out of the formal economy entirely were able to start micro-businesses and contribute financially to sustaining their households.

However, as microfinance started to scale, questions around its true impact surfaced, and the industry experienced a bubble and crash of its own. One of the main critiques of microfinance was its high interest rate, which often climbed over 35 percent and as high as 80 percent in some markets. Theoretically, the risk/return trade off that institutional finance hinges on justified such high interest rates. The borrowers were the poorest of the poor—often unbanked, without any formal identification, and without collateral to back the loan—thereby making them the most risky investment. But it is important to question who bears the true risk in interventions like this — the lender with wealth or the borrower that is already struggling below the poverty line — and whether there is another trade off at play between scale at “market rate” and real impact. The dark side of microfinance that I bore witness to as part of my research was that borrowers who defaulted on their payments were often left worse off than they were before accepting the loan. The lessons from microfinance, and what I learned subsequently in my career after graduating college, have given me a renewed focus in how I approach my work in this industry of Sustainable Business and Impact Investing.

When it was time to think about life after college, I had the choice to either go back home to India and work on grassroots economic development, or stay and find a job in the U.S. I chose the latter with the understanding that so much of what I identified as the root causes of global problems (i.e., capitalism) had its basis and stronghold in the U.S. So after graduating, I went to work at a management consulting firm — one of the few companies that hired international students who required work visas — where I worked my way to our newly minted social impact and sustainability consulting practice. There, I worked with Fortune 500 clients on their sustainability strategies, helping them transition to renewable energy, implement community impact initiatives, and reduce carbon emissions. Much like my experience with microfinance, what soon became apparent and frustrating — millennials are nothing if not impatient, right? — was that all of our work in corporate responsibility was only having an incremental impact at best. But the severity of the problem demanded exponential and transformative change. As businesses continue their pursuit of relentless growth, wealth continues to accumulate at the top while climate change continues to accelerate at a truly apocalyptic pace. And, increasingly, more middle and low-income communities are stripped of their autonomy and power.

What impact is Sustainable Business and Impact Investing having on a net basis? As impact investing moves from niche to mainstream, it is critical we ask these questions. The majority of impact investing funds today seek a market rate-return, and while the last few decades have proven that investing for impact can indeed be profitable, we need to question to what extent they need to be profitable. As microfinance has shown us, market returns can help achieve scale, but not necessarily impact. Consider the history (and present) of this country’s economy — built by enslaved labor on stolen land and furthered by free-market capitalism that keeps Black and Brown labor in global supply chains oppressed while continuing to extract natural resources at unsustainable rates. What does a market-rate return perpetuate in a market that is based on these fundamentals?

Bringing this line of questioning home, I examine my personal finances by asking myself three overarching questions: How am I making money? How am I investing it? And how am I spending it? As I’ve transitioned from working a job to becoming a full-time social entrepreneur, I routinely ask myself if I’m making money in a way that allows me to have the impact I want, or if I’m unintentionally reinforcing oppressive systems. From an investment perspective, at a minimum, I recommend examining your banking relationship. I opened an account with a credit union last year and am working on fully transitioning out of my current account with a large bank. We millennials love our convenience, and while credit unions don’t always offer the same online banking experience as the bigger banks, they also don’t do the same kind of harm. Most multinational banks fund (with our deposits) private prisons and pipelines that destroy indigenous lands, while community banks and credit unions are more likely to fund small businesses in our communities. If you have an IRA/401K along with a regular savings account, you can also look into platforms like Swell Investing and OpenInvest or work with a fund manager to screen for and divest from investments in the weapons industry, fossil fuels, etc. I also invest a portion of my savings with RSF Social Finance through a social investment fund note. The returns are small and fixed — but at 1.25% they’re greater than what you’d make if the money was in a savings account, and it’s comparable from a liquidity standpoint, and you get the opportunity to directly invest in social enterprises that are making an impact on issues you care about. If you’re a millennial with sizable wealth, you can even go a step further: Millennial-led organizations like the left-leaning Resource Generation are committed to investing in the equitable distribution of wealth and power. And finally, am I spending money on ethical consumption or am I contributing to our impending ecological crisis? Do I have a giving strategy that is proportionate to the amount of money I save?

I still have a long way to go, but asking myself these questions along the way helps me recenter and refocus my priorities. The most important work of our time, is building a new economy that is based on entirely different fundamentals than our current extractive economy, and it’s heartening to know and work with so many of my fellow millennials who are leading the charge.

About five years ago, I had a conversation about finance with my friend Anna. She told me, “I want to tell you something I haven’t told anyone else before.” I thought she was going to spill some big family secret, but she said “A few weeks ago, I walked into a branch of my bank where I had my first and only checking account. I approached one of the bankers there and explained that I wanted to open up an investment account—he came back with a stack of papers and brochures, passing the pile to me he said, ‘go home, read it and come back.’” My friend paused. “I went home but I did not come back.”

Embarrassed, Anna admitted to me, “I tried to look at the materials, but they were overwhelming. All the fine print, disclosures, financial lingo—it made me feel dumb.” Which was surprising coming from such a sharp person, one who had majored in business and now is an HR executive at a big technology company. She continued: “I don’t think investing is for me. I guess I’ll just leave things the way they are, keeping my money in cash.” The only thing I could squeeze out, “Believe me you are not dumb and I am sorry people, like me, in finance, made you feel this way.”

At that time I worked on Wall Street in product development and risk management and was heavily involved in creating products and explaining them in the way that made my friends feel “dumb.”

Understanding Why Millennials Have a Strained Relationship with Money

This conversation with Anna was one of many that I had with my friends, mostly millennials, about money and their limited interactions with the financial world. Sadly, there were not many bright spots. What I heard were concerns about student debt, credit card debt, and distrust towards a system that had failed them and their parents. The last recession and market crash had left real scars. The fear of loss never disappeared and there was an external pressure to invest because ‘it is what you’re supposed to do as an adult’ and yet most of my friends felt like they weren’t equipped. If I had to summarize my friends’ attitude towards money in a few words it would be “intimidated”, “overwhelmed”, and “embarrassed.”

I grew up in the Soviet Union, in a family where we had to be strict with our money because we did not have debt available to us. We could only spend what we had. We never had enough and we were always operating in scarcity mode. I was raised to be very careful with money. What I discovered to my surprise when I moved to the U.S. is that even though we think of the U.S. as this universally prosperous country, the discrepancy in wealth is drastic.

The access to financial services and products is not equally distributed and is influenced by biases involving gender, race, and even location. Access to financial products is like entering a high-rise building—most of us only have access to the first few floors. For example, when my friend Anna tried to get in the elevator up to the investments floor, she was handed a stack of papers and effectively turned away at the lobby. Can you blame her for feeling intimidated?

Searching for a Better Way

While difficult at the moment, the conversations with my friends about money inspired me to explore a different path. Conversation after conversation, I started to chip away at what felt wrong about money, and we would talk about their “wish list” when it comes to finance. What came up again and again was the desire to feel smart about money decisions – “whatever I do should be easy to understand, available to all, convenient to do, and make me feel good and empowered.”

I discovered that for many of my millennial friends, money decisions are not about high returns and becoming rich. Their goal is to have enough money to support their lifestyle and feel empowered about the decisions they make. They also had strong views that “how” they make money matters. Indeed, millennials are two times more likely to make investments that target specific social goals than your typical investor[1]. They already buy fair trade coffee at local cafes, shop for organic produce at farmers markets and avoid clothing that isn’t sourced from an ethical supply chain. So, why can’t they request that same transparency from their banks and other financial institutions?

Call it “impact investing,” “aligning your money with your values,” or “socially responsible investing,” — what they wanted to do was to make a difference with their dollars. The challenge is that impact investing is generally unavailable to the masses and often requires a big bankroll or “being in the know.” Even if you just want to buy an ESG ETF, you need to have a brokerage account, which is a non-starter for many. What if we made it easier? And, what if the ability to connect your money with meaning changed the way you felt about your finances?

Which leads me to why I started my company, CNote.

Knowing that 76 percent of millennials see investment decisions as a way to express their social, political and environmental values[2], we wanted to make investing simple and impactful. With CNote, our members’ money works hard to revitalize communities around the country; women and minorities get loans to start and scale their businesses; affordable housing gets built in lower middle income (LMI) communities; and new charter schools open their doors — all because someone like Anna opens a CNote account and invests.

Small Investments, Big Change

We tend to underestimate the collective power our money can have. Even just a few hundred dollars from a few hundred people can drive significant change. That’s why I named my company CNote; it’s slang for “$100 bill” and short for “Community Note.” Together, our $100s become $millions, and these millions have tremendous power. To illustrate, CNote members have already helped create and maintain over 2,000 jobs in America, and that’s just the beginning.

When friends ask me for money advice, what I typically say is, “Whatever unfortunate experience you’ve had so far with finance, don’t get discouraged. Reflect on the goals you have, your ideal lifestyle and balance that with the social outcomes that matter to you. That will be your compass.” And, remember, every $100 matters. Whether you invest with CNote or somewhere else, make sure your money is working for you in a way that makes you proud. If you do, your feelings about money and finance will likely change drastically for the better.

Article by Yuliya Tarasava, the COO and Co-founder of CNote

mycnote.com, an impact investment platform delivering competitive returns by investing in women, minorities and low-income communities across America. As an experienced financial professional with expertise in risk management and product development, Yuliya focuses on leveraging financial tools to increase economic opportunity for everyone.

Previously, Yuliya led the quantitative due diligence for over 20 mutual funds across multiple asset classes for AMG Funds. Later at Summit Rock Advisors, she co-developed the proprietary analytics and risk management framework for a portfolio of over $10B in assets. She was one of 12 individuals selected for Acumen’s Global Fellows program, which led to her running strategy and operations for Juhudi Kilimo, a micro-financial institution in Nairobi that supports farmers and small-to-medium agro-businesses throughout Kenya. Yuliya was born and raised in Belarus and moved to the United States in 2004. She is a CFA charterholder.

Article Notes:

[1] https://www.ey.com/Publication/vwLUAssets/ey-sustainable-investing-the-millennial-investor-gl/$FILE/ey-sustainable-investing-the-millennial-investor.pdf

[2] https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/working.papers/CRI69_FINAL.pdf