We sat down with Karen, the co-founder of Leap Fund, to see what the “benefits cliff” is all about. Learn more in our interview below!
What is Leap Fund?
A financial solution that helps people manage their benefits “cliff” to create a path toward financial independence.
Where are they located?
Brooklyn, New York
What is their vision for scale:
We are seeking to eliminate the existence of benefits cliffs. Traditionally, problems associated with public benefits have been solved through legislation and policy change. While we applaud legislation being enacted that ends the punishment of working low-income families who try to move ahead and earn more, the process to pass these laws takes a long time, and solutions are needed to alleviate the effects of the policies that are blocking progress.
Taken to scale, our calculator can be white-labeled and distributed for use across the country, producing the data points that researchers (and government agencies) have struggled to present thus far and painting an accurate picture of the scale of the problem for legislators.
Once we prove out our financial product through our proof-of-concept pilot, we will have a blueprint to share with other cities and states for how to plug into Leap Fund, so that we can translate complicated, disparate state policies into a format that works for people on the ground today, across the country.
Describe the problem you are working on – why is it a problem and what do you wish people knew about it?
Many low-income workers are deciding not to take pay raises, increase their hours at work, or advance in their careers based on the threat of a “benefits cliff”. While the exact number of people facing this has not been fully documented, it is a nationwide problem and multiple studies have been done to warn of the consequences. A study by the Ohio Chamber of Commerce shows 20% of businesses have employees facing a benefits cliff, and here in New York State, legislation we advocated for was passed to begin a study of the benefits cliff and its effects on workers in the state. Currently there are no financial vehicles aimed specifically at getting people over the benefits cliff, and calculators built to screen for benefits eligibility are poorly designed and not reliably maintained (and don’t reflect benefits cliffs).
Leap Fund is changing that. One of the biggest challenges about the benefits cliff is that it is very difficult to predict when it will occur since it depends on so many different factors and varies household to household. We have built a calculator – the only one of its kind – that can predict individualized cliffs. Users can assess the impact of work and life decisions on their overall income by calculating their net income based on potential household and earning scenarios.
This calculator enables us to build the second element of Leap Fund: a financial vehicle that allows users to defer their income until they earn enough to replace what they’ll lose in benefits. The model is currently being developed and piloted with the guidance of tax lawyers, accountants, benefits specialists, compliance experts, wealth managers, and users to ensure it is safe, legal, and appealing. Eligible participants are identified using the calculator and then partnered with a financial coach to help them understand how the deferment works and how to prepare for surpassing the cliff.
Our goal is to provide proof that when people are allowed to build assets and phase off benefits slowly, they can (and will) build financial independence for themselves and their families. Leap Fund is creating products that empower optimism, financial and career growth, future planning, and security for low-income families that need it most.
From what you have seen, why have traditional markets failed to address this issue?
Strangely, benefits cliffs are not something that traditional markets have even noticed, for three main reasons: (un)awareness, politics, and industry silos. For middle and high income earners, they most likely don’t even know that this problem exists for public benefits recipients. In the workforce, employers don’t realize that this is a problem their workers face, because employees don’t tend to want to share their benefits status with their bosses. Additionally, public benefits are a politicized area, which makes change slow-moving (would you believe that people squabble about whether benefits cliffs even exist? NOTE: they do, and there are multiple studies to back it up), and other political issues get tangled up as well. We saw that benefits cliffs are a multi-industry, multi-agency, public and private issue, and we have leveraged expertise and experience across sectors to bring our solutions to life.
Tell us a story about someone your venture helped that inspires you:
One of the things we’re excited about with Leap Fund’s calculator is that is provides transparency to what is otherwise a blackbox algorithm that runs against people on public benefits. There is a group of people actually affected by benefits cliffs, but there is an even larger number of families who may or may not be at risk of hitting a cliff, but have “parked” themselves where they are for lack of information, which creates the fear of hitting a cliff. To be able to bring clarity, and easy to understand facts into what’s been a real vague and misinformation laden experience – that really gets us going in all the right ways.
Here’s an example of the typical example of what we see: imagine a woman, let’s call her Tanya, a single mother with 3 kids, that works full time, is eligible for SNAP and WIC. After using Leap Fund’s calculator, she discovers that for her situation, if she takes a raise on her yearly salary this year, she will hit a benefits cliff, but that it is actually only $40/month. She knows she has a raise coming next year, and she’s excited because while she’ll feel that $0 a month, she thinks it’s manageable, and worth it, so that she can continue to move ahead, and exit her cliff next year. The power of transparency and information here is crucial.
Now, let’s imagine another typical situation, where Tanya discovers that she will hit a benefits cliff of $200 or more? This is too much of a financial strain for her to bear, and she cannot weather it for the year or more it will take her to surpass here cliff. This is why the financial solution we’ve developed is so critical: people want to move ahead in their careers and earning power, and there should be pathways to it.