Fighting the Hunger Epidemic in Working Families
40m Americans live in fear of not having the food they need. Most are from working families. These families have money, but not always at the right time to buy food. We’re creating a new type of savings tool to help.
What does hunger look like for a working mom?
Meet Jennie. She’s a single-mother of two boys, and works two jobs to support them. Having two jobs means she’s not poor — at least not by government income standards — yet for Jennie, feeding her family is a problem, especially at the end of the month, when money is scarce.
“I get paid once a month. I’m a single parent of growing kids and it’s hard at times to get money for food at the end of the month.” — Phoenix area mom.
(Jennie is our composite mom, but to better understand how she feels, we’ll use quotes like this from real moms.)
Jennie, like 40% of Americans, lives paycheck-to-paycheck.[1] While she can predict and plan for certain expenses (like rent and her phone bill), she can’t predict others (like utilities, kids activity fees, and medical bills). These fluctuating expenses, especially when combined with fluctuating income from unpredictable hours at her retail job, regularly cause her to run out of money.
She could borrow using a credit card, but after getting in over her head a few years ago, these are no longer an option.[2] She could take a payday loan, but knows these have incredibly high interest rates that can get her into trouble even faster than credit cards.[3] Or she can overdraw on her debit card, but that means $35 per transaction in overdraft fees.[4]
So, instead, she cuts-back on one expense that she can control: food.
She does this in a couple ways:
“I go without so my son has enough.”- Phoenix area mom
1. She buys less food. Sometimes she doesn’t eat so that her kids can. Through these times when she doesn’t know where their next meal will come from, the stress piles on. She can see the changes in her health.[5]
“Having to buy low grade / quality food.”- Phoenix area mom
2. She chooses cheaper, lower-quality food. Often this means fast food. In this case, she solves the short-term problem and everybody eats. But, not getting the nutrition they need, means bigger long-term problems for her two growing boys trying to do their best in school.[6][7]
It’s understandable Jennie, like so many in working families, feels like she’s being left behind.
Why Tend Grocery?
“My kids don’t eat as well and I get very stressed.”- Phoenix area mom
Hard working families should not live in fear that the next high bill or low paycheck means their kids don’t get the food they need. With Tend Grocery, we’re creating a better way.
Tend Grocery is a savings tool for groceries. It’s a short-term savings bank for food. Families can pre-buy and save groceries so they always have healthy food when they need it.
How does a working mom use Tend Grocery?
At the beginning of the month Jennie gets her paycheck and, like most months, has a little left over after paying bills. She sees a text from Tend:
“Jennie, this is your friendly payday reminder. Many Tend Grocery families use this time to build their Grocery Savings Accounts to make sure they have healthy food later in the month. Build yours at tendgrocery.com”
She knows she’d rather use some of her money now to make sure she has a backup of food than see it disappear next time her kids ask for ice cream or she goes out for lunch at work. So, she clicks on the payday reminder text and goes to tendgrocery.com. She pre-buys chicken, broccoli, eggs, and her favorite cereal. These go into her Tend Grocery Savings Account, a virtual savings account for groceries. Jennie feels secure knowing she has food for the next tight time and feels she did something to get one step ahead on her budget.
Later in the month, her electricity bill comes in high — the weather turned hot in Phoenix already. And a couple days before she gets her next paycheck, her money runs out. Worse, she doesn’t have anything for dinner in the fridge for tomorrow night. When this has happened in the past, it’s been a crisis. But now, with Tend, she knows she has backup.
She goes to her local Walmart, picks out the chicken and broccoli she pre-bought, and uses her Tend Grocery card to check out at the register. She doesn’t even need to use her calculator in the store because she’s not worried about her shopping trip going over budget. She’s already bought these items. Even if their prices change, her Tend Grocery card has her covered.
After she checks out at the Walmart register, she texts her receipt to Tend to get her 5% credit. Because she had saved her groceries in her Tend Savings Account for over 5 days, she gets 5% credit she can use on her next Tend purchase.
As she leaves the store, she’s happy she solved today’s problem. But she knows next month will be really tight. As soon as she gets her paycheck, she needs to put new brakes on her car so it passes inspection or she can’t get to work. She’s thinking it may be a good month for Tend’s “Borrow to Save.” She can borrow groceries when she needs, then repay and start saving groceries the next month. She’s happy to have Tend to help her manage her grocery buying.
She gets home and makes the chicken and broccoli for dinner. She feels like a good mom, knowing she was able to make sure her kids had the nutritious food they needed. That evening, after having a good dinner when she otherwise would have been hungry and stressed, she takes the time to read to her kids.
“I had just started a new job so money is tight. I had banked some Chicken and had no food last week for dinner so I pulled out the chicken… I plan on banking more so I have backup on the occasions I don’t have money for food. Thank you…for this great service.” — Phoenix area mom and Tend Grocery user
That’s Jennie’s story with Tend Grocery. And while Jennie is made up, she’s made up of the real problems families are facing and the real experiences families are having using Tend.
Why do families need savings tools?
Why do people use Tend Grocery to pre-buy and save groceries when they could just keep the the money in their purse and use it for whatever they wanted later in the month?
In short, because saving takes willpower. Willpower is hard.[8] And we all know we need a little protection from ourselves. So, how do we protect ourselves? We use savings tools.
Better off families aren’t facing the same problem as Jennie, but they also need to save. These families can think long-term and save for retirement and education. How do they make sure their money goes to retirement instead of mindlessly going into fancy meals or the “sports package” on dad’s new car? They use savings tools. They have a lot available, but for retirement they often use IRAs and for education 529 accounts. These tools use specific mechanisms to help people save. They:
1) Segment money for a specific use. When money comes from the general bank account… “Sports package?” “I’ll go for it.” When that same money needs to come from Caitlin’s college fund… “Sports package?” “Uhm. The standard package is already pretty fast.” Segmenting money like this is called mental accounting.[9]
2) Create a barrier to keep people on track. Year-end bonus… “Hawaii!” When that same money needs to come from the IRA with a 10% early withdrawal penalty… “The kids will enjoy Hawaii more when they’re a little older.” Creating a barrier to keep people on track for a future benefit is called a commitment device.
3) Provide incentives. IRA with tax deferred compounding… “This is free money. I can’t pass that up.” Incentives are ubiquitous because they work.[10]
But, back to Jennie. Jennie wishes her savings goal was retirement or college for her boys, but right now it’s just making her money last until the end of the month. Like most families living paycheck-to-paycheck (and contrary to popular belief) Jennie is saving. But she must think short-term.
“After I pay all my major bills, what’s left I try to put all into the groceries.” — Phoenix area mom
For Jennie, saving is repeatedly making small decisions to save with each paycheck, trying to make sure she can cover this month’s bills, other expenses, and food. It’s stressful for her to decide if she should bring her boys out for ice cream or buy that new pair of shoes when she’s not sure if she’ll have enough for groceries at the end of the month. Constantly saving a little then spending at the next tight time is how Jennie tries to manage her volatile income and expenses. This short-term saving is called high frequency savings.[11]
But, unlike IRAs and 529s for better off families, Jennie doesn’t have good tools to help her with this saving. Nearly all savings products are set up for long-term (life-cycle) savings. Families living paycheck-to-paycheck are left to struggle with high frequency savings on their own.
What do working families do without savings tools?
Without good tools, these families use hacks to help them in their battle to save:
One of these hacks is the “envelop system.” Families divide the money from their paycheck into envelopes marked rent, utilities, gas, groceries, etc. (This is similar to zero-based corporate budgeting, but for families.) This is helpful, but creating these budget categories takes work and sticking to them takes even more.
So, as their next hack, families try to create conditions that hold them to these budgets (commitment devices). One commitment device families use for groceries is “stockpiling.” At the beginning of the month mom does a big shopping trip and stocks up her pantry with food to save for when she needs it.
With follow through, these savings hacks can help. But the envelop system takes a very high level of budgeting awareness and discipline from an already stressed working mom. And stockpiling takes cupboard space and a lot of organizational energy to manage expiration date rotation. It doesn’t work for fresh items like milk or fruit. And, as the mom of any teenager knows, if food’s in the house, it disappears.
So, these hacks may work for the most dedicated families. But what can help the rest?
How is Tend a better savings tool for working families?
Tend Grocery is a savings tool for families living paycheck-to-paycheck. We help people manage high frequency savings, starting with one of their most important and most often sacrificed spend categories: food.
Tend borrows three important mechanisms from savings tools used by better-off families:
1) Tend segments money for a specific use. Grocery money can go to groceries before a new pair of shoes for mom.
2) Tend creates a barrier to keep people on track. The temptation to eat out at work disappears when it takes getting a refund for the chicken and broccoli already pre-bought on Tend.
3) Tend provides incentives. 5% back makes pre-buying a smart choice.
The aim is to make sure families always have the healthy food they need. And families using Tend Grocery report that it helps them feel more secure.
“Sometimes it’s hard to make ends meet and this program puts my mind so at ease.” –Arkansas mom and Tend Grocery user.
Why start with food?
The problem of food insecurity is and remains big. 40 million people in the US struggle with hunger. One in six kids in the US lives in a family that struggles with hunger.[12] The government’s long-term expansion of food stamps (SNAP) and a big ramp from charitable organizations like Feeding America’s food banks has helped many families.[13] Despite this, the rate of food insecurity has remained unchanged over the last 20 years.[14][15]
Low income families often struggle because, without work, they never have enough money for food. But, most food insecure families are working. And a new understanding of the challenges these families strive against has emerged. For these more than 20 million working families, food insecurity is largely tied to short-term financial insecurity. Working families living paycheck-to-paycheck have variable and unpredictable cash flow. This means they have money, but not always at the right time.[11] And without a small savings cushion, it’s often healthy food that gets sacrificed.[16]
What this means is it’s hard to sustainably fix food insecurity without addressing short term financial insecurity. And addressing financial insecurity among working families is an area that is deserving of much attention. But, low trust in financial products and small, volatile account balances present major challenges for banks and FinTech startups.
Understanding the link between financial and food insecurity, we are taking a different approach…helping families build a savings cushion with food.
1. The first reason Tend’s approach needs to be different is savings is scary. Many working families feel intimidated by financial products and feel savings is beyond them at the moment.
While Tend borrows important mechanisms from financial products, we differ in one major way. For Tend Grocery users, we’re not a financial product. We’re a way to make sure they have healthy food at the end of the month.
2. The second reason Tend’s approach needs to be different is it’s hard to generate revenue on financial products for moderate income families, particularly savings-based products. And a solid revenue stream is fundamental to allowing a business to grow and make a difference for a large market of people.
A food-based approach means Tend can avoid directly charging the families who depend so much on their last dollars. Instead, by aligning with the rapid expansion of grocery eCommerce, Tend can earn revenue from brands seeking to connect with shoppers online.
Tend offers deals on branded products and will earn a percent of brand funded deals as revenue. We will make money only when our users save money. With the average US family spending $4,300 per year on groceries, and with working and lower-middle income families making up two-thirds of the country, the opportunity is large.[4][17]
3. The third reason Tend’s approach needs to be different is it’s hard to help families better use their money without knowing what they’re spending it on. Managing money is more than just saving and accessing credit, it’s also spending in a way that best accomplishes families’ goals.
Whether it’s having a healthy dinner the night before payday, getting ready for that family gathering, or building a backup for the summer. Tend will provide grocery buying guidance to help families meet their goals.
By providing a service that truly helps families better manage food buying and by making money only when families save money, we can build a large, healthy business and help families build security.
How will we help working families build confidence in their everyday?
“I just get something to feed my children and I don’t eat. Either way it goes it’s not a good thing. You do what you have to do when you’re a parent.” — Phoenix area mom
Tend’s aim is to help families build food and financial security. To do this we’ll need to earn people’s trust by creating services that are straightforward, transparent, and effective. How we do this will evolve as we experiment and learn. But, our roadmap is to start by using Tend’s grocery savings tool to help families build a backup of food that can help mute short-term shocks. As families begin to build some stability and confidence, we can help with next steps towards financial health. They can move from saving groceries to saving for hard and soft goods, then to saving for less predictable costs like auto repairs and medical co-pays. Eventually, we can help them on a track to eliminate revolving debt and build long-term monetary savings for emergencies, retirement, and education.
Savings, like this, takes vigilance. And everyone needs prompting, help, and guidance. To move people along this path, we’ll use techniques rooted in behavioral economics combined with personalization enabled by automation. With this, we’ll provide the individualized goal setting, reminders, and encouragement people need, at scale. We won’t tell people how to live, but instead make it much easier for people to live in accordance with the goals they choose.
“I feel better that I can care for my family with being able to pre plan for hard times or big events. This is such a blessing!” - Phoenix area single mom of 3 and Tend Grocery user
This will be hard. We’re working to improve on what is perhaps the world’s most successful and pervasive invention: money. But, with the humility to understand the needs and desires of people’s everyday lives, we can remember that it’s not about money. It’s about what people do with money. And if we can keep this as our guide, we will find new ways to empower working families to live their everyday with confidence.
Tim Gernitis
Founder, Tend
If you care about this too and would like to join us, in whatever way you can, please contact us at founders@tendgrocery.com.
References
1. “Report on the Economic Well-Being of U.S. Households in 2017.” Board of Governors of the Federal Reserve System. 2018.
2. Claire Tsosie and Erin El Issa. “2018 American Household Credit Card Debt Study” NerdWallet. 2018.
3. “CFPB Finds Four Out Of Five Payday Loans Are Rolled Over Or Renewed” Consumer Financial Protection Bureau. 2014.
4. Eric Wilson and Eva Wolkowitz. “2017 Financially Underserved Market Size Study” Center for Financial Services Innovation. 2017.
5. Robert M. Sapolsky. Why Zebras Don’t Get Ulcers: An Updated Guide to Stress, Stress Related Diseases, and Coping. 1998.
6. “Promoting food security for all children.” Pediatrics, 136(5), e1431–e1438. American Academy of Pediatrics. 2015.
7. Maryah Stella Fram, Edward A. Frongillo, Sonya J. Jones, Roger C. Williams, Michael P. Burke, Kendra P. DeLoach, and Christine E. Blake “Children Are Aware of Food Insecurity and Take Responsibility for Managing Food Resources.” The Journal of Nutrition. 2011.
8. Sendhil Mullainathan and Eldar Shafi. Scarcity: Why Having Too Little Means So Much. 2013.
9. Richard H. Thaler and Cass R. Sunstein. Nudge: Improving Decisions About Health, Wealth, and Happiness. 2009.
10. Bartlett, Susan, Jacob Klerman, Lauren Olsho, et al. Evaluation of the Healthy Incentives Pilot (HIP): Final Report. Prepared by Abt Associates for the U.S. Department of Agriculture, Food and Nutrition Service, September 2014.
11. Jonathan Morduch and Rachel Schneider. The Financial Diaries: How American Families Cope in a World of Uncertainty. 2017.
12. Alisha Coleman-Jensen, Matthew P. Rabbitt, Christian A. Gregory, and Anita Singh. “Household Food Security in the United States in 2017.” USDA Economic Research Report Number 256. USDA. 2018.
13. Feeding America. 2019. https://www.feedingamerica.org/about-us/why-feeding-america
14. Mark Nord and Margaret Andrews. “Reducing Food Insecurity in the United States: Assessing Progress Toward a National Objective” Food Assistance and Nutrition Research Report Number 26–2. USDA. 2002.
15. “USDA Supplemental Nutrition Assistance Program Participation and Costs 2018” USDA. 2019.
16. Stephen Roll, David S. Mitchell, Krista Holub, Sam Bufe, and Michal Grinstein-Weis. “Responses to and Repercussions from Income Volatility in Low- and Moderate-Income Households: Results from a National Survey.” The Aspen Institute, EPIC 2017.
17. “Consumer Expenditures — 2017” Bureau of Labor Statistics. 2018.
