According to the FDIC, almost 95% of American households are “banked.” These households have at least one person living in them with either savings or checking accounts.
The good news is that this number is as high as it is. But the bad news is that it suggests that about 7 million Americans are “unbanked.” These people don’t have any access to bank accounts and aren’t able to take advantage of the benefits of having them.
A lot of these people live in the country’s underserved communities. They could benefit from having financial institutions making investments in them.
Today, we’re going to talk a little bit about the roles that financial institutions should play in underserved communities. If these institutions do even a couple of the following things, they could help to make this country a much better place.
Learn about the ways in which financial institutions should assist underserved communities below.
Make It Easy for Those in Underserved Communities to Open Accounts
As we just alluded to, there are a lot of people in underserved communities who don’t have access to savings and checking accounts. This can make it very difficult for them to do something as simple as cash a paycheck.
There are more than 4,000 check cashing and payday loan establishments in this country. Many of them are, unfortunately, located in underserved communities. So people often have no choice but to patronize them.
Financial institutions should lend a hand to those in underserved communities. They should help those who have struggled to secure savings and checking accounts in the past.
This alone could really work wonders for those who are forced to rely on check cashing and payday loan businesses right now.
Extend Credit Opportunities to Those in Underserved Communities
If the only thing that financial institutions did was provide more savings and checking accounts to the underserved communities in this country, it would make a world of a difference. But why stop there?
Banks and credit unions should also do what they can to extend credit to underserved communities. Otherwise, many of the people in underserved communities might not have the option to build up their credit over time.
Financial institutions should get into the habit of assessing underserved community credit needs. It’ll allow them to meet their needs. It will also help to reverse the credit crisis that tends to affect those in many underserved communities throughout the U.S.
Provide Those in Underserved Communities With Loans
When those in underserved communities don’t have the best credit in the world, it can make it almost impossible for them to get their hands on loans. They have a tough time convincing lenders to take a chance on them when they haven’t established good credit history.
Financial institutions should see to it that those in underserved communities have an opportunity to qualify for loans when they can. This might put them into a position where they can:
- Purchase homes
- Start small businesses
- Buy vehicles
- Take college classes
- And more!
At this time, those in underserved communities aren’t always able to get loans to do these types of things. But if there are financial institutions operating in them, the Community Reinvestment Act that was introduced back in the 1970s is supposed to help with that. It calls for these institutions to invest in the communities in which they operate.
You should learn more about the Community Reinvestment Act and CRA funds to see how they work.
Teach Those in Underserved Communities About Responsible Borrowing
If financial institutions in underserved communities simply start handing out money to anyone who asks for it, that could be a recipe for disaster. These institutions may end up going out of business if they aren’t able to collect the money that is later owed to them.
With this in mind, it’s not enough for financial institutions to just lend money to people in underserved communities. They also have to establish programs that will enable them to teach people in underserved communities about how to borrow money responsibly.
By doing this, they can:
- Encourage more people to save money
- Show people how saving money can help them earn more money
- Motivate people to open up savings accounts for the younger generation
In some cases, this might mean setting up classes that people in underserved communities can take. In others, it might mean lending people small amounts of money and teaching them how to pay it back.
Whatever the case, it’s up to financial institutions to show people in underserved communities that they can borrow money responsibly. It’s also up to them to show them how to repay loans. It’ll help both those in these communities and those financial institutions doing business in them.
Preach the Importance of Saving to Those in Underserved Communities
Those in underserved communities often have trouble doing more than just qualifying for loans. They also have trouble saving up money in savings accounts.
In fact, you could actually argue that Americans as a whole have trouble with this particular issue. In recent years, surveys have suggested that about 60% of Americans don’t have $500 saved up in a savings account.
Financial institutions can do their part to help with this problem. They can:
- Help those in underserved communities open savings accounts
- Talk to these people about the importance of setting money aside in a savings account
- Provide these people with favorable interest rates on savings accounts
America’s savings problem isn’t going to go away overnight. It’s a problem that is going to take years to fix.
But financial institutions can make a big difference in underserved communities. Setting up savings programs for people will be a start.
Show a Genuine Interest in Helping Underserved Communities
When financial institutions set up shop in low-income neighborhoods, they do it for a reason. They see an opportunity to build up their businesses over time.
There is nothing wrong with these financial institutions doing this. They have every right to put brick-and-mortar locations wherever they would like.
But if a financial institution is going to open up a bank or a credit union in an underserved community, they should always try to show a strong commitment to this community. They should agree to make an investment in the community to uplift it from the very start.
Financial institutions shouldn’t just pay lip service to underserved communities, though. They’ll be doing a huge disservice to them if they take this approach to investing in these communities.
Instead, financial institutions must do serious soul-searching before moving into a low-income neighborhood. They should be 100% ready to serve those in this neighborhood rather than making them even more underserved than they already are.
Maintain a Constant Presence in Underserved Communities
It would be very easy for many financial institutions to turn their backs on underserved communities. These communities aren’t always as profitable as other communities for them. So it would be hard to blame them for staying away from these communities.
But it’s imperative that financial institutions maintain a presence in underserved communities at all times. Even if it impacts their bottom line just a little bit, it’ll be great for business in the long run.
The truth is that there is so much potential that can be found in underserved communities. These communities have lots of people living in them who could benefit from having a stable financial presence around.
So financial institutions need to make it their mission to tap into their potential. Their presence alone can help to uplift underserved communities in so many ways.
When underserved communities don’t have financial institutions, it makes them dependent on cash checking services. This further affects their financial situation and keeps those in these communities down.
It’s why these underserved communities need to have financial institutions in them. They might not turn the tide in these communities immediately. But they will inject some life into them and give people more hope for the future.
Financial Institutions Can Help Underserved Communities in Big Ways
Financial institutions can’t be the be-all and end-all in underserved communities. They need help when it comes to making these communities better.
But financial institutions can help to get things moving in the right direction in underserved communities. They can tend to community credit needs and show those in underserved communities the power of saving.
All that financial institutions need to do is put in a little bit of effort in underserved communities. It can go a long way and help these communities to take the leap to the next level.
Read more informative financial articles by browsing through the rest of our blog.
Also published on Medium.
