Walking to work in the Mission District of San Francisco, John Luna noticed a pattern. Just after the first and the 15th of the month, he says, he saw long lines of people.
"It's like trying to get into the most popular nightclub in the city," says Luna. But what he found at the front of the line was not a bar or lounge. Instead, the long lines led to check cashing outlets and payday lenders.
Luna, who is a financial adviser, grew up in this historically Latino neighborhood, where many of the residents are unbanked. Without a traditional bank account, they often turn to those check cashing outlets and payday lenders, where interest rates can top 300 percent.
What makes Luna particularly concerned are the young people he sees waiting in line. Joshua Ontiveros was one of them.
"They give you $150 [as a loan] and you are paying $100 in interest," says Ontiveros, 26. "It's like double distress."
Working odd jobs, Ontiveros says he saw his earnings evaporate time and again. Soon, he was waking up in the middle of the night feeling trapped. He'd ask himself: "How do I do it? Where do I go?"
Scenarios like this one prompted the Obama administration to propose new rules last month that crack down on such predatory lending practices. It also prompted Luna to leave his job at a larger brokerage seven years ago and start working as a financial adviser to young adults.
The value of that first paycheck
Luna joined a nonprofit called MyPath. Now, he is based on Mission Street among all those payday lenders and check cashing outlets. And he is focused on that same population: low-income, young people often with their first steady job.
"When young people are earning their first paycheck, it's this powerful teachable moment," says Margaret Libby, who founded MyPath.
The financial habits you establish right then, she says, can set you on a good financial path or a bad one. To reach this population, MyPath embedded in 50 youth-employment programs in seven cities.
Now, as these young people get job training and paid internships, they also get financial coaching in the form of a customized app, group discussions and one-on-one advising sessions.
"But it's not enough to give people information," says Libby. "You have to give them opportunities to put that information into action."
So MyPath set to work getting banks and credit unions involved. Working with a team of young people, the nonprofit helps the banks and credit unions design financial products that work for low-income, young adults.
They push for banks to accept a school ID instead of a driver's license. They want to lower the minimum balance requirements. They set up savings accounts that pay the account owner for achieving savings goals.
Tired of odd jobs, Ontiveros signed up for one of the youth employment programs. That's where he met Luna.
"Where are you at, right now?" Luna would ask Ontiveros during their one-on-one sessions.
Ontiveros says this was his first introduction to savings accounts, financial goals and emergency funds. Growing up, he didn't plan ahead because, he says, there wasn't really any point.
"Ninety-five percent of my friends are not here," says Ontiveros. "They're either incarcerated or they've passed away."
But after talking with Luna, Ontiveros started planning. He enrolled in MyPath's newest financial product: a credit-building loan.
It's a loan with a catch: You can't spend the money. You pay off the loan each month and, slowly, your credit score goes up. Then, at the end of a year, you get all the money in the form of an emergency fund.
Each time Luna and Ontiveros meet, they check on whether the loan is improving Ontiveros' credit. As Luna pulls up the latest credit score, Ontiveros's reaction is swift: "Oh! We're on our way up!"
What do the data say?
Mary Caplan, a professor at the University of Georgia, says it's more than just Ontiveros' score that has gone up.
"Their credit scores improved dramatically," says Caplan, of the more than 100 young adults who have completed the loan. She studies this initiative with her colleagues Soonok An and Megan Lee.
Caplan says their findings show that "when young people are exposed to the opportunity to build credit, they will build credit."
Same with saving. Researchers at the Federal Reserve Bank of San Francisco found that young adults who enrolled in the MyPath savings accounts were saving about 34 percent of their paycheck. They say this is important because there's a link between saving and economic mobility.
A key question, Caplan says, is whether these habits will stick. Do young adults who start on a good financial path keep saving and maintain their credit scores over the next few decades?
Ontiveros, who just got a full-time job, says he is planning to keep it up. Because, he says, "being financially stable just feels really good."
AUDIE CORNISH, HOST:
Think back to your very first paycheck, what it was like to have your own money in your pocket, thinking about what to buy. It's an exciting moment. It's also a teachable one - the difference between heading down a good financial path or bad one. Gabrielle Emanuel of the NPR Ed team sent this report.
JOHN LUNA: So you're looking at payday lenders, check-cashing outlets...
GABRIELLE EMANUEL, BYLINE: In San Francisco, I meet up with John Luna on the corner of Mission and 20th. It's a busy block with food trucks and thrift stores, pharmacies and liquor stores. But Luna isn't looking at that.
LUNA: I mean we could see it from here - money loaned.
EMANUEL: Luna grew up in this area, where many people are unbanked. Without a traditional bank account, they often turn to stores like these which have really high interest rates.
LUNA: Walking to work the first of month, the 15th, you see those payday lender lines just - it's like trying to get into the most popular nightclub in the city.
EMANUEL: In those long lines, there are lots of young people, many with that very first paycheck in their pocket, often hoping to borrow against the check. Joshua Ontiveros was one of them.
JOSHUA ONTIVEROS: You know - and I have to take money out. And then you got to pay them back, like, two weeks, you know, later with interest. It's stressful, you know what I mean?
EMANUEL: He's 26 and grew up working odd jobs and going to a payday lender one block over.
ONTIVEROS: They give you, like, 150, and you're paying, like, $100 in interest. It's double the stress.
EMANUEL: Ontiveros saw his earnings evaporate again and again. Soon he was waking up in the middle of the night, feeling trapped.
ONTIVEROS: You're kind of lost in a daze, so to say.
EMANUEL: But that changed when he got tired of odd jobs and enrolled in a youth employment program. That's where he met John Luna and became part of a financial program called MyPath.
LUNA: What's up, Joshua? How are you doing?
ONTIVEROS: All right. How are you doing, John?
LUNA: I'm doing well, Man. I'm doing well.
EMANUEL: MyPath aims to help people right when they're earning their first paycheck.
LUNA: Catch me up, like, where you're at right now.
ONTIVEROS: So I have two savings accounts now.
EMANUEL: Ontiveros says John Luna was the first person to introduce him to savings accounts, financial goals and emergency funds. Growing up, Ontiveros never thought about these things. There wasn't really any point.
ONTIVEROS: Like, 95 percent of my friends are not here no more. They're either incarcerated or, you know, they passed away.
EMANUEL: Now things have begun to stabilize. And MyPath hasn't just taught Ontiveros about money. They've also worked with banks and credit unions to design accounts that fit the needs of low-income young people. Like what? Well, there's a savings account that rewards you for meeting your savings goals. And John Luna just launched a new initiative.
LUNA: We link them to this credit builder loan.
EMANUEL: It's a loan, but there's a catch. You can't spend the money. So as you pay off the loan, your credit score goes up. And at the end, you get all the money in the form of an emergency fund.
LUNA: I just wanted to kind of go over when we first pulled your credit report, kind of the baseline score.
ONTIVEROS: Which one was that? That's - oh, this one right here.
ONTIVEROS: Oh, we on our way up.
LUNA: We're on our way up. We're on our way up.
MARY CAPLAN: All of their credit scores improved dramatically.
EMANUEL: Mary Caplan is a professor at the University of Georgia. She studies this program and says there's solid research to suggest it's working.
CAPLAN: When young people are exposed to the opportunity to build credit, they will build credit.
EMANUEL: Same with savings. Researchers at the Federal Reserve Bank of San Francisco studied MyPath savings accounts and found that young adults were saving about 34 percent of their paycheck. Just a few years ago, Joshua Ontiveros would have watched that 34 percent or more disappear into the pockets of payday lenders. But now he's saving it. Gabrielle Emanuel, NPR News. Transcript provided by NPR, Copyright NPR.