Bringing the American Dream within Reach
America’s wealth gap is one of the most challenging issues facing our country today. This issue has many causes, but one substantial factor is a lack of access to banking, credit and other modern financial services. As a result, far too many people are held back from accumulating wealth, buying a home or even sending a child to college. But it doesn’t have to be this way. With the right tools and education, the American Dream can be within reach.
According to the Consumer Financial Protection Bureau, 26 million Americans are considered “credit invisible,” meaning they do not have a credit history with a nationwide consumer reporting agency. Further, the Federal Deposit Insurance Corporation found that nearly 28% of U.S. households are considered “financially underserved” with no or only a limited relationship with a traditional banking institution.
The challenges that these families face are well documented. Consumers without ready access to modern financial tools – like a bank account, and credit and debit cards – are often forced to rely on alternative financial services like payday loans, car title loans and check-cashing services. And these services are costly. The U.S. Postal Service’s Office of Inspector General found that members of the average financially underserved household spend nearly 10% of their income on fees and interest associated with these alternative financial services.
We need to help financially underserved and credit invisible families overcome these challenges. Tools and education programs already exist to accomplish that goal and help these families better access the financial mainstream. But we need to get them into the hands of those who need them.
One example is the Credit Builders Alliance’s efforts to encourage the adoption of credit builder loan programs. Credit builder loans are small loans made to borrowers who do not qualify for loans from traditional lending sources such as financial institutions. They are designed to help consumers establish a credit history and credit score or counteract bad credit.
There are also new technologies, like prepaid payroll cards, available that are helping the financially underserved better access their money. With prepaid payroll cards, employers pay their employees by depositing their salaries onto these cards, instead of issuing paper checks. This helps employers save the money they would otherwise spend managing issuance and distribution of checks, and serves as an entry point for unbanked employees to experience the benefits of electronic payments.
The challenge lies in getting these tools in the hands of those who need them and educating them on how to use those tools to their advantage. That’s why Master Your Card, a community empowerment program sponsored by MasterCard, is working with lower-income and minority communities to educate consumers about the financial tools available and how to use them. For instance, with the input of community groups and labor unions, Master Your Card developed Six Standards for Prepaid Payroll Cards to make sure payroll card programs are a benefit and not a burden for unbanked employees.
The challenges facing the financially underserved and credit invisible can be solved, but much work remains to be done. We need to keep working to get these tools and education to those who need them most. Efforts like these are steps in the right direction to close the wealth gap and to ensure that everyone has an equal opportunity to achieve the American Dream.