Just as food deserts unfortunately exist in abundance, so do bank deserts. The reality today is that so many Americans who live and work in financially underserved communities don’t have the time to go to the bank outside of their community because of their irregular work schedule. This issue cannot be ignored, as FDIC research has recently found that 67 million adults are unbanked, and this disadvantaged population has spent $141 billion in fees and interest rates in non-bank alternatives (Connecting Communities webinar).

In a recent webinar about helping financially underserved communities, Anne Leland Clark, Financial Capability and Learning Director of Prepare + Prosper, explained that salaried employees take bank services such as direct deposit for granted. She detailed how some people who have no choice but to seek non-bank alternatives have to wait in long lines to deposit money, as well as pay additional fees and interest rates since they don’t have an account at a mainstream banking institution. As one of her clients, Megan, said, “It’s expensive to be poor.”

Joanna Smith-Ramani, Associate Director of Expanding Prosperity Impact Collaborative (EPIC), highlighted the following: “40.4% of the US workforce is now made up of contingent workers–with the biggest growth in part-time jobs. This has unfortunately resulted in higher poverty rates, lower pay, greater job instability, less access to workplace benefits, and increased reliance on public benefits (Connecting Communities webinar)." She suggested the real need for innovation so individuals who have little to no access to regular banks can join the mainstream banking system. The issue at hand is that not many banks are willing to explore the option of considering taking on individuals with volatile income because they don’t want to risk the chance of losing money in the process [Editor's note: Thanks to Brian Page for recommending Financial Diaries which uses case studies to demonstrate this issue of income fragility]. While this makes sense from a banking perspective—it’s lower risk—these underserved individuals have no choice but to turn to the more expensive option of non-bank alternatives, such as payday lenders.

Many American families with volatile income find it next to impossible to open up a bank account because of the stigma mainstream banks have against non-salaried employees, whose financial struggles may manifest in poor credit history and scores. In addition, inconsistent family financial flow “can endanger a household’s ability to access safety net programs (Connecting Communities webinar)."

Lauren Leimbach, Executive Director of Community Financial Resources, said that her nonprofit focuses on economic justice and promoting access to fair financial products to underserved communities. Her nonprofit is “looking for products that meet the needs for low to medium income households, connect constituents with these products, and helps establishes these practices and make the market fair and inclusive” (Connecting Communities webinar).

One of the most important takeaways of the webinar was how each of the presenters stressed the need to combine these financial products with some sort of financial education. It’s important that this financial education is enhanced to meet the needs of adults, not just students. In addition, it’s vital to reinforce financial management so these contingent workers can ensure that their financial future will be in good standing.

The opportunity for hybrid financial products is expanding just as the amount of contingent workers is ever increasing. One suggestion from Anne Leland Clark was to look into “expanding access for bank hours because people are working irregular hours. This would better serve today’s [contingent] worker in today’s society (Connecting Communities webinar)." If there were ever a time for mainstream banks to look into serving more of the population—who struggles enough as it is living month-to-month, that time is now. [Editor's note: As banking has moved online (my bank branch is typically empty), I wonder if the digital divide explains why a certain percentage of the population still needs to visit a bank branch to conduct business.]

There is some innovation taking place to serve this market of the unbanked. Stash, a mobile app that allows individuals to micro-invest, is looking to "launch free bank accounts aimed at low-income U.S. consumers (Reuters)." Hear about a credit card company, FS Card, Inc., seeking to help sub-prime borrowers develop a positive credit history in this NGPF podcast. We need to come together as advocates and supporters of financial education and and advocate on behalf of financially underserved communities for inclusion in the mainstream banking. If you’d like to step up to the plate and learn more, check out what Prepare + Prosper, Connecting Communities, and EPIC are doing to help.

Questions:

• Before reading this article, were you previously aware of the problems that individuals and families in bank deserts face? What was your reaction to learning this?
• If you were the head of a mainstream banking institution, what kind of outreach program would you hope to implement to help underserved communities avoid paying additional fees and interest rates with non-bank alternatives?
• Apart from financial aspect, what does the phrase “it’s expensive to be poor” mean to you?

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If you liked this article, be sure to check out our #FinHero Advocacy Page, which stresses a call for action to ensure financial education is available to all! In addition, check out the movie, Spent, which shows the day-to-day reality of many financially underserved American families and the struggles they face on a daily basis.

picture credit: http://www.spentmovie.com/

About the Author

Danielle Bautista

Danielle is a native of Southern California and a recent graduate from the University of Maine, where she braved the frigid winters—a feat in and of itself—and earned her Bachelor's degree in International Affairs. She has a passion for working with non-profit organizations and serving populations in underprivileged communities. When Danielle isn't writing NGPF blog posts, spearheading various outreach projects, or managing contests and flash surveys, you can find her doing some sort of outdoor activity, learning a new hobby, or cracking what she thinks are witty puns!