Across rural America and in urban centers throughout the country, there is a little-known roadblock to economic growth and personal prosperity that is keeping millions of people from achieving financial independence and building personal prosperity.
Many people are “unbanked” and lack a bank account, while others are “underbanked” and need to use alternative financial services such as money orders, check-cashing services and payday loans rather than traditional loans and credit cards to manage their finances and fund purchases. Both situations block millions of people across the nation from personal financial stability and hurt our overall economic growth.
Despite significant progress in the last decade toward reducing the number of underbanked and unbanked people in the United States, there is a growing bipartisan consensus that now is the time to redouble our efforts toward true financial inclusion. Financial inclusion must go beyond banking to have a tangible impact on the financial lives of people in America. Financial inclusion means that individuals and businesses have equitable access to affordable financial products and services to meet their payments, savings, credit and insurance needs.
That is why over 110 companies, trade groups, and consumer groups have joined with the Aspen Institute Financial Security Program, calling for establishing a National Financial Inclusion Strategy to deliver better financial outcomes for all people, whatever their zip code. This unprecedented coalition brings together a large number of diverse entities advocating for a national financial inclusion strategy. It represents the comprehensive array of sectors and policies that must be addressed in a cohesive approach.
For too long, the U.S. has taken a fragmented approach to financial inclusion. Federal agencies, financial institutions, community organizations and advocacy groups have led important individual initiatives to address the lack of inclusive financial systems in the United States, but there has been no cohesive, strategic effort to address this very complex problem.
The Biden administration’s executive order making support for racial equity within underserved communities a top priority for federal agencies was a good first step, but the data show that more action is needed.
For example, more than 7 million households across the U.S. remain unbanked and are disproportionately Black, Hispanic, American Indian, or Alaska Native. Nearly 10 percent of rural Americans lived in “banking deserts” compared to 1.7 percent of urban Americans.
It’s not just rural Americans who are left behind. In a 2020 report conducted by McKinsey, data reveals that exclusionary policies and strategies — from limited access to federal mortgage lending to geographic barriers to physical bank branches — have hindered Black economic wellbeing.
In fact, recent research finds Black and Latino households account for over half of interest and fees on payday loans (22 and 29 percent, respectively), despite comprising less than a third of the population. A report from New America found that financial institutions charge Latino consumers $262 more to open a checking account than their white counterparts.
Research from the International Monetary Fund shows a 2-3 percentage point GDP growth difference over the long term between financially inclusive countries and their peers. The United States trails other countries because it lacks a comprehensive financial inclusion strategy, but a Presidential Commission can set joint goals for federal agencies and the private sector to expand financial inclusion policies, develop ongoing means of coordinating action between leading agencies and organizations, and track progress toward building an inclusive financial system in the U.S.
Organizations across the political and philosophical spectrum have realized that our national failure to create a coordinated strategy to promote financial inclusion hurts the individuals impacted and limits our financial growth. 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.
Solving this intractable program requires bold leadership across all sectors to establish a shared vision for how policies, products and business models can create the inclusive financial systems required to generate an equitable and sustainable economy.
This recommendation is the culmination of several years of research and dialogue with the leading voices in the financial services industry and those who have been systematically excluded. It’s time to put all people in America on the path toward better outcomes and create greater financial security for all.
Ida Rademacher is vice president of the Aspen Institute and executive director of its Financial Security Program.