Published in partnership with the USC Price Center for Social Innovation in support of Neighborhood data platform for social change (NDSC): The platform is a free, publicly available online data resource that provides reliable aggregate data at the city, district and census tract level. The mission of the USC Price Center for Social Innovation is to develop ideas and inform strategies to improve the quality of life for people in low-income urban communities.
In Los Angeles County, more than half a million people do not have access to a single bank or credit union in their neighborhood. For those Angelenos living in a banking desert – an area that doesn’t have enough access to financial institutions – that means they can’t easily deposit a paycheck, take out a loan for a new car, or even take out a check to pay daily household expenses.
A Federal Deposit Insurance Corporation (FDIC) investigation of unbanked households found that 57 percent of unbanked households cited “not having enough money to keep in an account” as a reason for not banking. Almost 11% cited “don’t trust banks” and almost 10% cited “bank charges are too high” as the main reasons for not doing banking transactions.
The costs of unbanking
Traditional banking services have historically provided the basic financial building blocks for individuals and families to gain economic stability. Residents who do not have access to banking services often do not have a savings account to save for their future. They can’t access affordable credit to buy a house, pay for college, or replace an older vehicle.
Additionally, when residents do not have access to banking services, they often turn to payday loans, check cashing services, auto title loans, and other non-traditional forms of credit that charge fees. high interest rates and high fees, trapping consumers in a dangerous cycle of debt. According to a report from the Consumer Financial Protection Bureau, more than 80% of payday loans are renewed or followed by a new loan within 14 days.
A study of Brooking Institute calculated that a full-time worker’s dependence on check cashing could cost more than $ 40,000 over their lifetime. Hard-working residents could save thousands of dollars over the course of their careers if they had access to low-cost chequing and savings accounts provided by traditional financial institutions. The same study also found that if workers had access to financial advisors and investment tools, they could generate $ 360,000 over a forty-year career.
For low-income Los Angeles County residents, the costs of unbanking only exacerbate an already precarious financial reality. Take, for example, a 24-year-old resident of Green Meadows who earns the median annual household income of $ 33,626, or an average of $ 27,000 after tax. The median rent in Green Meadows is $ 1,080 per month, which leaves little discretionary income after paying for food, health care, transportation, education, or employment-related expenses.
Because Green Meadows doesn’t even have a bank or credit union in the neighborhood, this resident will spend around $ 750 a year cashing a paycheck every two weeks at a local check-cashing location with fees. 2.75%. To go further, if he invested the amount spent on check cashing in a retirement account with an annual return of 7%, this resident would earn almost $ 200,000 by the time he retires at 67 years old.
Which neighborhoods are affected and why?
Almost one in five neighborhoods in Los Angeles County does not have a single financial institution such as a bank or credit union.
Almost 600,000 residents of 46 LA County neighborhoods do not have access to a single bank or credit union. Click below to find out how many banks and credit unions are in your neighborhood:
Very poor neighborhoods are disproportionately affected by the lack of financial institutions. Of the five most populous neighborhoods without a single financial institution – Central-Alameda, Green Meadows, Westmont, and Willowbrook – four are located in South Los Angeles and report median household incomes significantly lower than the county median of 56,196. $. These neighborhoods have an aggregate median family income of $ 32,295 and are predominantly black and Latino.
Various low-income communities have historically been excluded from financial services through a practice of financial exclusion known as redlining, which describes the practice of ranking neighborhoods based on their credit risk by Home Owners. Loan Corporation (HOLC). To support the issuance of new home loans, HOLC has created a series of maps that rank neighborhoods by risk. Rich, predominantly white neighborhoods were outlined in green, reflecting low-risk neighborhoods. Low-income, ethnically diverse neighborhoods such as Boyle Heights and Central-Alameda in eastern and southern Los Angeles have been outlined in red, reflecting high-risk neighborhoods. Redlining quickly later became known as de facto segregation and prevented these communities from accessing credit and formal financial institutions. While redlining was banned in 1968 by the Fair Housing Act, the effects of this discriminatory practice have spanned generations and continue to impact the financial stability of many low-income communities across the country.
The future of community investing
More neighborhood data stories
Despite the alarming number of LA County communities that do not have access to banks and credit unions, important steps are being taken to attract investment to low-income communities. Private philanthropic funds such as the California Endowment’s Building Healthy Communities program and innovative federal programs such as the Promise Zone initiative are helping to attract new investment in traditionally underfunded communities. Additionally, banks are incentivized to invest in low and moderate income communities through the Community Reinvestment Act (CRA), which annually brings more than $ 100 billion in capital to communities across the country.
“The impact of the ARC on low and moderate income people has resulted in more affordable housing, economic development, neighborhood revitalization, increased support for community development organizations and increased lending to segments. underserved economies and local populations, ”said Tom Lillig, Vice President President of Community Reinvestment for Bank of the West.
While these activities provide economic opportunities for underserved populations, more is needed to ensure that all Communities in LA County, regardless of their income levels or location, have access to traditional banking practices. By identifying which neighborhoods are most in need of financial institutions, neighborhood data can help us better advocate for better financial opportunities for all Angelenos.
“2015 FDIC National Survey of Unbanked and Underbanked Households. ” EconomicInclusion.gov, Federal Deposit Insurance Corporation, www.economieinclusion.gov/.
“Community Reinvestment Act”. Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, 2017, www.frbsf.org/community-development/initiatives/community-reinvestment-act/.
Fellowes, Matt and Mia Mabanta. “Banking on Wealth: The New Retail Banking Infrastructure in the United States and Its Potential for Wealth Creation. ” Brooking, Brookings, July 28, 2016, www.brookings.edu/research/banking-on-wealth-americas-new-retail-banking-infrastructure-and-its-wealth-building-potential/.
Reft, Ryan. “Segregation in the City of Angels: A 1939 Map of Housing Inequalities in LA” KCET, KCET, Sep 14, 2017, www.kcet.org/shows/lost-la/segregation-in-the-city-of-angels-a-1939-map-of-housing-inequality-in-la#_ftnref14.
Burhouse, Susan et al. “Federal Deposit Insurance Corporation.”Federal Deposit Insurance Corporation, Federal Deposit Insurance Corporation, Oct 2016. www.fdic.gov/householdsurvey/2015/2015execsumm.pdf.
Yun, Alyssa. “Financial exclusion: Why it costs more to be poor”. Penn Wharton Public Policy Initiative, Penn Wharton Public Policy Initiative, June 2, 2017, publicpolicy.wharton.upenn.edu/live/news/1895-financial-exclusion-why-it-is-more-expensive-to-be/for-students/blog/news.php#_edn1.
Burke, Kathleen et al. “Consumer Financial Protection Bureau”.Consumer Financial Protection Bureau, Consumer Financial Protection Bureau, March 2014. files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf.