Loading...

To achieve financial wellness, we need financial inclusion for all

June 2, 2022 by admin

What does financial wellness mean to you? Is it being able to afford the lifestyle you want, without worrying about money? For many people, that’s what financial wellness is all about. But for most, achieving and maintaining financial wellness requires access to quality financial products and services. Unfortunately, millions of Americans don’t have access to the products they need to achieve their financial goals. That’s why we need to focus on financial inclusion for all.

As policymakers and development practitioners are increasingly committed to achieving financial inclusion at scale, it is critical that they consider how their efforts will impact diverse populations. How can organizations in the private and public sector leverage diversity and equity to promote effective financial inclusion initiatives?

Financial inclusion is the process of ensuring that all people have access to financial services, regardless of their gender, age, disability status or other factors.

As International Monetary Fund Deputy Managing Director Mitsuhiro Furusawa stated, “Financial inclusion is the bridge between economic opportunity and outcomes.”[1] Researchers are finding that greater access to financial services could be central in building that bridge.

A 2019 survey from the Federal Reserve found that the average net worth of Black families is $142,500 and Hispanic families is $165,500 – which is considerably less than the $983,400 wealth accumulated by White families.[2]

This gap in access has resulted in exponential repercussions. For example, nearly half of black households are unbanked or underbanked, a disparity that, over the course of a financial lifetime, can cost nearly $40,000 in fees.[1] Additionally, the lack of financial institution support in these communities leads to compounded consequences, one being that black Americans are twice as likely to be denied credit compared with white Americans.

Underbanking is not entirely due to lack of resources. It is also an unfortunate result of generations of mistrust with banking institutions due to poor treatment and broken promises.

So what can financial institutions do now to get back this trust?

There is no immediate cure that will magically right the wrongs of the past, but there are some actions companies can take right now that will lead in the right direction.

Get Closer

In majority-white counties, there are 41 banks per 100,000 people, compared with just 27 in the majority of black neighborhoods.[2] Increasing convenience could be the key to increasing access.

New technologies have the potential to make financial services more accessible and affordable for all. For example, digital banks like N26 and Chime offer customers flexible access with low fees that do not require face-to-face contact in order to complete transactions or sign up for accounts. They also offer early access to paychecks making it even easier to manage their money. These services effectively provide an alternative form of banking outside traditional brick-and-mortar institutions.

Be Open

It is imperative that we open the conversation and have a diverse range of perspectives at the table when decisions are being made about financial products and services. We must aim to create a more diverse and equitable work environment to help bring more diverse perspectives to develop products that reach diverse communities.

See Differently

Finding new perspectives on old ideas could be the key to inciting the change needed. As we continue to refine data collection processes, AI technology has the potential to execute those new perspectives. Financial institutions can use AI to break existing biases of traditional credit scoring to expand access for black customers.  For example, start-ups such as RevolutionCredit combine big data with behavioral economics to predict a loan applicant’s creditworthiness going forward instead of focusing on past behaviors. We must be willing to look with new lenses at traditional processes.

According to McKinsey’s research, financial institutions could realize approximately $2 billion in additional annual revenue if black Americans had the same access to financial products as white Americans. If black Americans reached full

parity in terms of wealth with white Americans, financial services companies

could realize up to $60 billion in additional revenue from black customers each year.[3]

With new technology and a shift in banking culture to make credit more accessible, there is hope that change is possible. If you’re interested in learning more about how Experian Partner Solutions can help your organization increase access to underbanked customers or would like some free insights on how we might approach reaching out to younger consumers who are less likely to be aware of traditional lending products, contact us today. www.experianpartnersolutions.com

[1] McKinsey & Company. 2020. The case for accelerating financial inclusion in black communities. https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-case-for-accelerating-financial-inclusion-in-black-communities

[1] Federal Reserve. 2020. Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances. https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm

[3] McKinsey & Company. 2020. The case for accelerating financial inclusion in black communities. https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-case-for-accelerating-financial-inclusion-in-black-communities

[4] McKinsey & Company. 2020. The case for accelerating financial inclusion in black communities. https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-case-for-accelerating-financial-inclusion-in-black-communities

Additional Helpful Resources:

Federal Reserve. 2020. Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances. https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm

McKinsey & Company. 2020. The case for accelerating financial inclusion in black communities. https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-case-for-accelerating-financial-inclusion-in-black-communities

Chicago Booth Review. 2020. How Powerful Is Financial Inclusion? https://www.chicagobooth.edu/review/how-powerful-is-financial-inclusion