Across rural America and in the nation’s urban centers, there is a little-known barrier to economic growth and personal prosperity that is preventing millions of people from achieving financial independence and building personal prosperity.
Many people are “unbanked” and don’t have a bank account, while others are “underbankedand need to use alternative financial services such as money orders, check cashing services and payday loans rather than traditional loans and credit cards to manage their finances and finance their purchases. Both situations prevent millions of people across the country from having personal financial stability and harm our overall economic growth.
Despite significant progress over the past decade toward reducing the number of underbanked and unbanked people in the United States, there is a growing bipartisan consensus that now is the time to redouble efforts toward a true financial inclusion. Financial inclusion must go beyond the banking sector to have a tangible impact on the financial lives of Americans. Financial inclusion means that individuals and businesses have equitable access to affordable financial products and services to meet their payment, savings, credit and insurance needs.
That’s why more than 110 companies, trade groups and consumer groups have joined the Aspen Institute’s Financial Security Program, calling for the creation of a National Financial Inclusion Strategy to deliver better financial results for everyone, regardless of zip code. This unprecedented coalition brings together a large number of diverse entities advocating for a national financial inclusion strategy. It represents the full range of sectors and policies that need to be addressed as part of a coherent approach.
For too long, the United States has taken a piecemeal approach to financial inclusion. Federal agencies, financial institutions, community organizations, and advocacy groups have led significant individual initiatives to address the lack of inclusive financial systems in the United States, but there has been no cohesive strategic effort to address this. very complex problem.
The Biden Administration Executive Decree Making support for racial equity in underserved communities a top priority for federal agencies was a good first step, but the data shows more action is needed.
For instance, more than 7 million households in the United States are unbanked and are disproportionately black, Hispanic, Native American or Alaska Native. Almost 10 percent of rural Americans lived in “banking deserts” compared to 1.7% of urban Americans.
It’s not just rural Americans who are being left behind. In a 2020 report conducted by McKinsey, the data reveals that exclusionary policies and strategies — from limited access to federal mortgages to geographic barriers to physical bank branches — have hindered black economic well-being.
In reality, recent search finds that black and Latino households account for more than half of the interest and fees on payday loans (22 and 29 percent, respectively), despite making up less than a third of the population. A report from New America found that financial institutions charge Latino consumers $262 more to open a checking account than their white counterparts.
To research from the International Monetary Fund shows a difference in GDP growth of 2 to 3 percentage points over the long term between financially inclusive countries and their peers. The U.S. lags other countries because it lacks a comprehensive financial inclusion strategy, but a presidential commission can set common goals for federal agencies and the private sector to expand financial inclusion policies. financial inclusion, developing ongoing means of coordinating action among key agencies and organizations, and tracking progress toward building an inclusive financial system in the United States
Organizations from all political and philosophical persuasions have realized that our national failure to create a coordinated strategy to promote financial inclusion is hurting those involved and limiting our financial growth. A recent analysis of several sources by McKinsey & Company estimates that promoting financial inclusion could result in 4 to 6 percent higher real GDP growth by 2028.
Solving this unsolvable agenda requires bold leadership across sectors to establish a shared vision of how policies, products and business models can create the inclusive financial systems needed to generate an equitable and sustainable economy.
This recommendation is the culmination of years of research and dialogue with key voices in the financial services industry and those who have been systematically excluded. It’s time to put all Americans on a path to better outcomes and create greater financial security for all.
Ida Rademacher is Vice President of the Aspen Institute and Executive Director of its Financial Security Program.