Today, households are experiencing unprecedented inequality and limited economic mobility. These experiences are made worse in part by differences in the resources and opportunitiesavailable within their communities. Undeniably, these differences and their consequences are felt most poignantly by households in lower-income communities and communities of color, where there is disproportionately less access to financial services. For example, metropolitan areas with higher percentages of Black, Latino, and lower-income households also have fewer banks and credit unions relative to AFS. Without bank or credit union branches in their communities, these households have limited access to products such as a savings account that could be used to pay for unexpected expenses or to invest in the future. Households in these communities also lack access to affordable mortgages and small business loans, hindering the investment and entrepreneurship needed to drive local economic growth.
Of course, the quality of financial services also needs to be improved alongside efforts to expand access in communities and promote financial inclusion. A household is not necessarily better off financially just because they live in a community with a bank or credit union instead of a payday lender. Costly fees charged by banks and credit unions, such as maintenance and overdraft fees, can undermine a household’s financial health. In fact, the vast majority of banks do not meet guidelines for safety and affordability. Only nine percent of banks have entry-level checking accounts with features that meet the core set of safety and affordability guidelines, such as point-of-sale capability, low or no minimum opening deposit, and low or no monthly maintenance fees.
Multiple and complementary strategies will likely be needed in order to promote financial inclusion in the 21st century. For instance, some have called for reinstituting postal banking, and there is evidence that post offices are located in rural, lower-income, and minority communities with fewer banks and credit unions. Nonprofit and government efforts are operating in cities around the country and providing an impressive array of safe and affordable financial services in communities, such as Individual Development Accounts (IDAs), tax-time savings and Volunteer Income Tax Assistance (VITA) programs, Community Development Financial Institutions (CDFIs), Bank On coalitions, and financial opportunity centers. And, while their potential has not yet been realized, technology like mobile banking and financial technology (or fintech) innovations are poised to offer new and complementary ways to access financial services.