Basic banking is an example of why the prosperity gap keeps widening

Good news: A House committee on economic growth discussed meaningful ways to better support unbanked people and families. Plus: The perfect gift for the ever-growing list of plant parents in my life.

Photo by Stephen Phillips on Unsplash

If you’ve ever lived in poverty, then you know that it’s expensive to be poor. People with economic privilege have historically told those without it to pull themselves up by the bootstraps and accept personal responsibility for a country that dehumanizes entire communities based on factors outside of their control.

Basic banking is an example.

As Aaron Klein, senior fellow of economic studies at the Brookings Institute said during a congressional roundtable this morning on how to support America’s unbanked population, the less money you have, the more you spend to access your own money. The result is lower-income Americans pay billions for services that middle- and upper-income Americans receive for free.

“I see bank account ownership as the foundation to a good financial well-being,” Luisa Blanco, a professor at Pepperdine University’s School of Public Policy, said to me over Zoom this afternoon. “That’s why not being able to participate in the formal financial sector really puts minorities at a disadvantage because there is no way they can grow. For example, a bank account is usually a prerequisite to start saving on a regular basis in a secure way, for buying a home, building credit or applying for a loan.

Rep. Jim Himes, a Democrat from Connecticut and the chairman of the House Select Committee on Economic Disparity and Fairness and Growth that hosted the roundtable, opened by sharing his personal connection to the issue. He described the year he spent as a fellow in The Bronx looking at why lower-income families tended not to use the banking system even in a place like New York where were statutes that tried to create products that were good for them.

And as I watched the dialogue between the guests and committee members, I couldn’t ignore the personal connection so many creators feel to this issue too. As Jason Hogg wrote for Entrepreneur magazine in May, there’s an untapped customer base roughly the size of Generation X who are locked out of the digital transactions that undergird online businesses like this newsletter and perhaps your creative work.

Investopedia defines “unbanked” as adults who don’t use or don’t have access to any traditional financial services including savings accounts, credit cards or personal checks. (The Federal Deposit Insurance Corporation (FDIC), a body that underwrites most private bank deposits, found in a 2019 survey that 5.4 percent of US households — or approximately 7.1 million — were unbanked.) There’s also a population of “underbanked” people who prefer to manage their finances through cash transactions, and although they may have checking and savings accounts, often access short-term payday loans and check-cashing services, which are infamous for their predatory fees and policies.

There are several reasons why people are unbanked. Investopedia notes that criminals avoid using financial institutions to prevent law enforcement from tracking their actions. Poor people opt out because minimum balances, account fees or transportation to and from bank branches during banking hours are expenses too steep to incur.

Blanco said her research discovered misperceptions and mistrust as root causes. She told me about participants from a focus group who closed their accounts after claiming their bank was stealing their money. There were those who found the fee structures confusing and didn’t want to deal with it anymore. And some didn’t want to risk opening a bank account in neighborhoods where other branches were closing.

And it’s not just individuals and families who experience the challenges of being unbanked. Countless small businesses — many owned by women and Black, brown or LGBTQ+ people, of course — were closed due to or threatened by limited access to capital due to implicit and explicit biases from the decision-makers at financial institutions.

At the conclusion of this morning’s roundtable, Chairman Himes indicated his staff would catalog the solutions suggested by the guests so the committee could start to explore opportunities for Democrats and Republicans can work together.

But in the meantime, I asked Blanco if she had any recommendations.

“I think we should move into the direction of free online banking. That can really help reduce costs,” she said. “So if we can give access to financial institutions to minorities through online banking — like using your mobile phone — I think that’s a good way.”

The bottom line, she added, is that we need to find a way to provide a bank account to everyone and mobile technologies and innovations from less-traditional institutions provide us with as many opportunities as ever.

As for those politicians and corporate executives who say that’s not banking Americans isn’t the government’s job?

“The private sector is not doing it. We’ve been waiting for so long,” Blanco said. “Because they don’t see the profit there. And we’re going to continue that way until the government says we’re going to find a way to provide a bank account to everyone who doesn’t have one. I’ve been working on this a long time and I feel like nothing is happening.”

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Today in Politics

— The president delivered opening remarks at the virtual Summit for Democracy, which brought together over 100 participants, representing governments, civil society and private sector leaders before hosting a leaders’ session. Then he and First Lady Jill Biden, Vice President Kamala Harris and Second Gentleman Doug Emhoff attended a tribute ceremony for former Sen. Bob Dole as he lies in state at the US Capitol. Later, Biden held a call with President Volodymyr Zelenskyy of Ukraine to discuss Russia’s military build-up on Ukraine’s borders followed by a call with nine European allies to hear their perspectives on the situation. Finally, the president met with his COVID-19 Response Team to get the latest on the Omicron variant.

— In addition to joining the president at the Bob Dole tribute, Vice President Harris also delivered the closing remarks at the Summit for Democracy and joined Biden for his COVID-19 briefing.

— The First Lady also traveled to Connecticut to visit the families of a submarine crew at a holiday gathering. Secretary of the Navy Carlos Del Toro joined her. And tonight, the Second Gentleman will deliver remarks at a DNC event in Washington D.C.

— The House is in session. Members passed legislation to prevent abuses of presidential power and protect against foreign interference in elections. The Transportation Committee heard testimony from the president of Amtrak and leaders of other transit systems on the future of passenger rail service. The Energy and Commerce Committee held a hearing on big tech transparency and internet safety. The Oversight Committee held a hearing to examine prescription drug pricing reform.

— The Senate is in session. A procedural vote passed 64-36 this afternoon, clearing the way for a final vote in the coming days to give the federal government more money to pay the debt they’ve already borrowed with a simple majority. 14 Republicans joined all 50 Democrats to advance the legislation. The Commerce Committee also held a hearing on algorithms and the harms of persuasive technology.