The Underrated Role of Financial Services in Reducing Poverty
Ethan Geiling and Genevieve Melford, Corporation for Enterprise Development - Posted July 11, 2011
Something as simple as a checking account can be the first step in saving, planning for the future, building credit, and climbing the economic ladder. Unfortunately, basic financial services like checking accounts are out of reach for many low-income American families.
If we’re going to help connect these people to genuine opportunity, now is the time to take some simple but important steps to provide better financial products for low-income Americans.
According to the Federal Deposit Insurance Corporation (FDIC), approximately 8 percent of all American households are unbanked, with neither a checking nor a savings account. Another 18 percent are underbanked, meaning they may have an account but they also rely on non-bank financial services like check cashing and high-interest payday loans.
This financially underserved population of over 30 million households is disproportionally low-income and minority. Forty-three percent of households with a yearly income below $30,000 are either unbanked or underbanked. Nationally, 54 percent of black households and 43 percent of Hispanic households are unbanked or underbanked, compared to only 18 percent of white households.
These households spend an enormous amount of money on financial services for which most Americans pay little to nothing. The average full-time worker without a bank account spends $40,000 over the course of his or her lifetime to turn income into cash.
To read this entire, very challenging report click here.
Ethan Geiling is a policy and research associate at the Corporation for Enterprise Development. Genevieve Melford is director of research at the Corporation for Enterprise Development.
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