Financial Empowerment for All
November 8, 2022
Let’s face it, money plays a big role in our lives. But for many people around the world, access to basic financial services is a luxury they don’t have. That’s where the importance of financial inclusion comes in – it’s all about making sure everyone has a fair shot at managing their money and reaching their financial goals
Nearly 20% of all U.S. adults lack a bank account. As if this statistic weren’t troubling enough, most of the people represented in that percentage are from marginalized communities. It’s time a spotlight is put on financial literacy – and finding a way to empower unbanked households.
According to the most recent data, unbanked rates are shown to be higher among lower-income households, less-educated households, Black households, Hispanic households, working-age households with a disability, and single-mother households.
In reality, though these statistics are frustrating, it’s not hard to see how this dynamic has been shaped. Marginalized people are the ones most likely to face higher barriers to accessing mainstream banking and financial planning. Inaccessible hours of operation, language barriers, and racial discrimination in access to lines of credit are all major contributors to ongoing banking inequality in the United States.
Here at Raiz, however, we believe that the cycle can be broken, and that’s why we make financial literacy a prime focus.
What Is Financial Inclusion?
It’s difficult to overstate the importance of financial inclusion. But before we can establish why it matters and how to achieve it, we must understand all facets of what it includes.
Financial inclusion involves:
Access to safe, affordable, and sustainable insured transaction and savings accounts, along with quality financial education, improves consumers’ ability to safely save, build assets, and create wealth. Safe and affordable savings and credit solutions from insured depository institutions can improve household financial stability and resilience. (FDIC)
Universal financial access is important—perhaps more important than many people may realize. Being unbanked or underbanked is costly. People without traditional bank accounts or access to a full range of financial services may rely on expensive workarounds.
- Money orders – Fees to purchase a money order can range as high as $2.00 per purchase. Over time, all of these fees can add up, particularly if a household is paying its utilities this way.
- Check-cashing services – Though the amount a check-cashing service can charge varies from state to state, some check-cashing services charge up to 12%.
- Payday loans – Payday loans are accompanied by exorbitant fees, anywhere from $10–$30 per $100 borrowed.
These and other services, with their accompanying interest rates and fees, can further drain resources from marginalized people.
However, those without easy access to traditional banking services have no choice but to rely on them. Thus, creating setbacks and larger economic gaps.
3 Barriers to Financial Inclusion
A substantial percentage of our population is financially marginalized. To make matters worse, there are added barriers to financial inclusion.
Barrier 1: Minimum Balance Requirements
It’s common for banks and credit unions to require that you deposit and maintain a minimum amount of money in your account. If you fail to maintain this minimum amount, you could face penalties, such as being charged a fee.
These mandatory minimums may not seem high to everyone (sometimes starting as low as $25). For those living in financially underserved communities, losing chunks of their income to check cashing services, money orders, and payday loans can make a mandatory minimum challenging. By keeping mandatory balances low, a $100 could mean a family of four having their own personal savings account. From there, each member could then add as often as their finances allow.
The size of minimum balance requirements vary between financial institutions, but one thing that holds steady across the board is the need for a spotlight on financial inclusion. Tight budgets mean prioritizing your personal finances and obligations. One bad month can easily mean not being able to maintain another institution’s minimum balance; this then often leads to penalties (fees). It is a scenario that affects many – and makes prioritizing savings so challenging. At Raiz, we saw the need for our community to have options to improve financial health.
Barrier 2: No Credit History
The easiest way to build a good credit score is to use the credit you already have with care. This is difficult to do when you’re starting from scratch. Perhaps it’s even impossible. Yet, this is the reality people in marginalized communities face every day.
About 45% of adults in low-income neighborhoods are credit invisible or have unscored credit records… (Time)
It’s hard to build credit when you’re starting from zero. This problem disproportionately affects immigrants, who are not only faced with the task of learning an entirely new financial and banking system, but are also facing the challenge of building credit from nothing while facing language and cultural barriers.
Barrier 3: Banking Deserts
Financial inclusion for everyone is also hindered by the persistence of banking deserts. Any region or neighborhood that does not have a bank located within ten square miles is considered a banking desert.
Banking deserts are commonly found:
- In rural locations. Whether a farming community or a far-flung town in a literal desert in the Southwest, rural locations rarely have large enough populations to sustain a local bank branch.
- In economically depressed regions. Low-income communities are rarely enticing options for opening new branches of commercial banks. As a result, depressed areas continue their downward spirals.
- In underprivileged and marginalized neighborhoods. As we have already discussed above, minorities (particularly African Americans and Hispanics) are increasingly likely to be underbanked, due in part to living in banking deserts.
Without a local branch to visit, unbanked and underbanked people have even less opportunity to address their financial disadvantages. Which just leaves them at a further disadvantage. Fortunately, change is on the horizon.
Recent Strides to Overcome Financial Inequity
The good news is that the importance of greater financial inclusion has been recognized by many as a problem worth fixing. Due to attention and concerted effort, financial inequalities are finally being addressed. In recent years, the financial technology industry, in particular, has made great strides in helping people seek financial equity. By helping financial service companies integrate the latest advancements in technologies, fintech has helped bring about several game changers.
In recent years, fintech has made strides toward:
- Making banking more accessible – Digital banking and mobile banking solutions provide digital financial inclusion to those who live in banking deserts. Any smartphone user can now open a bank account and avoid paying interest and fees to payday loans, check-cashing services, and so forth.
- Lowering barriers to banking – In addition to making it possible for more people than ever to open bank accounts, neobanks, or online-only banks, often offer accounts with no fees and minimum balances required to get started. That provides ways for even those in financially depressed and marginalized communities to get started saving money and building a credit score.
- Expanding services to the underbanked – Thanks to advancements in fintech, users can have access to an expanded range of digital financial products and services, such as low-interest loans, money transfers, digital payments, investments, and savings accounts.
These products and services underscore the importance of financial inclusion for all and provide tangible steps toward making a difference.
Raiz Seeks Financial Empowerment for All
Here at Raiz, we understand that the journey of achieving financial success can look different for everyone. In fact, your goals are what motivate us, and we are here to help you take the next steps toward financial freedom.
The Raiz Approach
We are aware that financial exclusion only leads to negative results:
- Decreased ability to earn and save
- Inability to protect oneself or one’s family in times of crisis
- Fewer pathways to long-term financial health and resilience.
On the other hand, we’ve seen first-hand how financial inclusion and free personal financial education can make all the difference. In fact, financial inclusion has a ripple effect. When individuals and families achieve greater financial health, it leads to good economic growth for the entire community. The more financially free and economically empowered communities there are, the better the entire world will be.
This isn’t just a theory. The data backs this up:
A recent analysis of multiple sources by McKinsey & Company estimates that promoting financial inclusion could translate into 4 to 6 percent higher growth in real GDP by 2028. (The Hill)
This is the future we’re working toward here at Raiz, and when we succeed, everyone wins. By weaving the values of Diversity, Equity, Inclusion, Belonging, and Accessibility (DEIBA) into our organization, we focus on empowering our community by breaking boundaries and realizing what’s possible for all we serve.
Our Proven Track Record at Raiz
Since 2019, Raiz, formerly TFCU, made it a point to incorporate DEBIA into its five-year strategic plan. This has helped us provide convenient, low-cost services to the surrounding communities, furthering their financial empowerment.
In accordance with these principles, we’ve partnered with organizations who share their DEIBA values, working closely with Ronaldo Hardy, CU Strategic Planning Chief People Officer and Owner. CU Strategic Planning has brought training, education, and certifications, to the Board of Directors, Senior Management, and employees.
Raiz has also been honored to have their DEIBA efforts recognized by Inclusiv—a network of community development credit unions that holds a mission of financial inclusion—as a credit union in the El Paso area with a Juntos Avanzamos designation. This award cited Raiz as a leader in serving and empowering Hispanic communities by providing safe, affordable, and relevant financial services.
Recently, Raiz FCU CEO and President Max Villaronga had the opportunity to speak with Experian about our credit union’s dedication to DEIBA. You can also learn more about our efforts in their article: How Credit Unions Can Improve Financial Inclusion.
Here at Raiz, we believe a credit union can help provide financial education and assistance in financial health to everyone within a community. Feel free to check out our various financial education courses—there is helpful information for every stage of your life.
The importance of financial inclusion is a principle behind all we do, and we look forward to serving you. Come learn more about who we are and consider becoming a member today.