As America edges closer to majority-minority status, new research indicates that communities of color face considerable challenges in meeting their needs in today’s financial services marketplace. Despite most reporting that they own a bank account, use smartphones, and put away monthly savings, large barriers to financial access still exist in the Black, Asian American and Pacific Islander (AAPI), and Latino communities.
Banking in Color: New Findings on Financial Access for Low- to Moderate-Income Communities, a new report by NCLR, the National Urban League, and the National Coalition for Asian Pacific American Community Development, offers a unique look at the financial lives of our nation’s low- to moderate-income population. It takes a deep dive into financial access data in places with large communities of color: Chicago, Houston, and southern Florida.
The organizations behind this report are a part of a coalition known as the Alliance for Stabilizing Our Communities. The coalition tapped its large network of community-based organizations in the target locations to learn how underserved communities interact with banks and save money, as well as whether the financial services industry is working for communities of color.
Many of the key findings showed commonalities across all communities surveyed. For example, despite 81% of respondents reporting that they had either a basic checking or savings account, 42% said they had no idea how they would raise the money to cover a major financial emergency. This suggests that many respondents were severely short of savings needed to weather major financial emergencies.
Additionally, nearly 20% of respondents remained unbanked and are living outside the financial mainstream. These unbanked individuals often relied on alternative financial services, including payday loans and pawnshops, putting them at risk for even greater financial insecurity.
The individuals surveyed also greatly preferred to bank in person rather than use online services. Though many respondents owned smartphones, privacy and safety of information concerns regarding mobile banking prevented many from using this technology to perform financial transactions. Respondents instead preferred a positive consumer service experience at physical branches.
While respondents were interested in receiving financial advice, the largest group they turned to for this advice was friends and family. Only 13% had used professional financial advice.
Taken together, these findings suggest that today’s financial services industry is out of step with communities of color and concrete actions should be taken to remedy issues of access.
For the financial security of the growing minority community, financial institutions should work to increase the “banked” and financially engaged population in communities of color. Banks can leverage technology while maintaining a physical presence in the neighborhoods where people of color live. Small-dollar lending should be increased by financial institutions to offer an alternative to the predatory practices of payday loan lenders. Finally, policymakers should take steps to expand programs with a proven track record of success, such as Social Security. Programs like the Earned Income Tax Credit should be restructured to maximize income and encourage saving.
As communities of color begin to constitute an increasingly large share of all Americans, we must ensure they are not left out of the financial mainstream. By taking the steps recommended in this report, financial institutions and policymakers can make significant inroads in reducing issues of financial access that disproportionately affect our communities.