An important—yet often overlooked—dimension of economic inequality in America centers not on how much money families have, but on the tools available to them to manage it. While many people use credit and debit cards and other electronic payment technologies, millions of households across the United States remain locked in an expensive cash-only society. Financial exclusion is a decades-old problem, but new technologies are helping to address it like never before.
A biannual report from the Fede
ral Deposit Insurance Corporation found that more than 53 percent of African American households in the United States are financially under-served, meaning they have only a limited relationship with a traditional banking institution, or no relationship at all. As a result, these families often turn to alternative financial services like check cashiers, payday lenders and money orders.
The cost of this financial exclusion is enormous and falls squarely on the backs of those who can least afford it. For instance, the average financially underserved family earns about $25,000 a year and pays roughly 10 percent of that on fees and interest for alternative financial services—approximately the same percentage the average American family spends on food, according to the U.S. Postal Service’s Office of Inspector General. These families lose valuable time every month waiting in lines to pay bills that could easily be paid online or by phone, and carrying cash also increases the risk of theft.
During Financial Literacy Month throughout April, we have an opportunity to bring attention to the growing opportunities for financially under-served families to avoid the high cost of alternative financial services and take advantage of the latest technology. For instance, prepaid debit cards, which offer consumers the security of electronic payments without a bank, are going mobile. Card issuers are offering apps that allow users to make online purchases, create budgets, track spending in real time and even deposit checks. Un-banked smartphone owners now have access to tools that even the most affluent could only dream of in decades past.
I’ve spent years studying the intricate relationship between democratic engagement and citizen financial investment behavior. Technologies that facilitate broader economic participation and help financially under-served communities present the potential for significant civic reinvestment and growth. That is why I have been working with Master Your Card, a community empowerment program developed to deliver education and resources to financially underserved communities. By partnering with leaders in the African American community in particular, we have been able to help families understand how to build a path to greater financial empowerment.
Recent advancements in technology and accessibility are important, but much work remains to be done. We must reach out to families still relying solely on cash and costly alternative financial services – during this Financial Literacy Month and throughout the year. The right tools for financial empowerment are out there. The challenge is to get that technology into the hands of those who need it most.
Dr. J. Phillip Thompson is associate professor of urban affairs at the Massachusetts Institute of Technology; co-author of the study, The Technology to Advance Equal Financial Opportunity: How Emerging Electronic Payment Technology Can Provide Financial Services to Underserved Communities; and a member of the Master Your Card African American Advisory Board.
