How Exclusion Affects Consumers Across the Financial Lifecycle
By: SOPHIA MOWLANDEJAD | April 6, 2021
Part One of a series about Inclusive Financial Services

Financial exclusion is a reality for millions of Americans who don’t have access to useful and affordable financial products and services delivered in a responsible and sustainable way. The FDIC noted that the surge in joblessness caused by COVID exacerbated financial exclusion – there’s a direct correlation, for example, between being unemployed and being unbanked. But financial exclusion is about more than just being unbanked. It cuts across people’s entire financial lives, with millions facing barriers when they:
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Save. Five percent of U.S. households don’t have a checking or savings account,1 and another 17% are underbanked, relying on financial products sold outside of conventional financial services.2 FDIC data shows that the unbanked are disproportionately less educated, working-age disabled, Black, Latinx, American Indian, and those with lower or volatile incomes.3 For example, 16% of households headed by a working-age person with a disability don’t have a bank account, and Blacks and Latinx are unbanked at four to five times the rates of whites.4 Savings gaps are significant too: The typical Black family has $1,500 of liquid savings versus $8,100 for the typical white family.5 That savings gap helps explain why Blacks are more likely to be unbanked—without enough money to meet minimums and avoid fees, traditional bank accounts are too costly. And being unbanked is expensive.6 Payday loan interest rates average 400%7 and repayments consume 36% of a borrower’s gross paycheck, leading to extended indebtedness. Seventy-five percent of payday borrowers take out 11 or more loans a year.8

Borrow. One-in-five Americans don’t have access to mainstream credit like credit cards or auto loans, and about the same percent have little or no credit history.9 While there are many groups that have a hard time getting credit, more than one-third of Blacks, foreign-born noncitizens, and the disabled have no mainstream credit.10 In 2019, Blacks were denied mortgages at a rate of 16% and Latinx were denied at 11.6%, compared with just 7% for white Americans.11 Same-sex couples are 73% more likely to be denied a mortgage than heterosexual couples with the same socio-economic background.12 Women also face more challenges accessing credit, a trend that might worsen in the next few years as COVID led to a dramatic increase in women dropping out of the workforce.13 And the cost of credit exclusion can be very high: The higher mortgage rates and mortgage insurance premiums that Black homeowners pay add up to $67,000 in lost retirement savings.14

Invest. Only 55% of Americans own stock, either directly or in retirement accounts—that’s down from 67% in 2002.15 And since the 10% of wealthiest Americans own 87% of all stock, ownership is not equal across different demographic groups16—39% of whites don’t own stock, versus 69% of Blacks and 72% of Latinx.17 There are also vast differences in wealth accumulation across racial groups, where white households have eight times the wealth of Black households, and 26% of white families will leave inheritances to their children, compared with 8% of Black families.18 Single women have less wealth too—just 32 cents to every dollar owned by single men19—and the gap yawns further for minorities, with single Black and Latina women owning less than a penny for every dollar owned by single white men.20 It’s also harder for some to find advisors to work with to build wealth. Blacks, Latinx, and women are underrepresented in the financial advisor community. For example, just 9% of advisors are Latinx.21And that’s a problem because "there are few advisors who look like them,” says Renee Nourse, CEO of Urban Wealth Management, whose clients are mostly minorities. "Most people like to work with people who understand their lifestyles."22

Insure. Almost half of working-age Americans are underinsured when it comes to healthcare, meaning they are either uninsured, have a gap in coverage, or have high out-of-pocket costs or deductibles relative to their income.23 Again certain segments of the population are disproportionately affected. High rates of being uninsured are prevalent among Latinx, Blacks, young adults, workers at small businesses, and people with low incomes to name a few.24 Not having health insurance is expensive, and makes it harder to save and invest. People without adequate coverage often delay care leading to deteriorating and likely more expensive health conditions.25 And exclusion isn’t just happening with health insurance: 67% of women have life insurance compared to 79% of men, and women have an average coverage amount of $231k, almost $200k less than men.26

Exclusion runs across the financial lifecycle—impacting many different demographics. People excluded from mainstream financial services are more vulnerable to poverty, eviction, and food insecurity because it’s harder for them to build wealth, achieve financial stability, and generate better outcomes.

Stay tuned for the next part in this series on Inclusive Financial Services where we’ll dive into how technology can help promote financial inclusion.

Sophia Mowlanejad is Director, Research and Analysis, in FCAT
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1 https://www.fdic.gov/analysis/household-survey/
2 https://www.federalreserve.gov/publications/files/consumer-community-context-20200810.pdf
3 https://www.fdic.gov/analysis/household-survey/2019report.pdf
5 https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm
6 https://www.fdic.gov/householdsurvey/2017/2017report.pdf
7 https://www.pewtrusts.org/en/about/news-room/press-releases-and-statements/2020/07/07/pew-consumer-financial-protection-bureau-abandons-payday-loan-safeguards
8 https://www.pewtrusts.org/-/media/assets/2016/06/payday_loan_facts_and_the_cfpbs_impact.pdf
9 https://www.fdic.gov/householdsurvey/2017/2017report.pdf
10 https://www.fdic.gov/householdsurvey/2017/2017report.pdf
11 https://www.nytimes.com/2020/09/18/business/digital-mortgages.html
12 https://www.washingtonpost.com/business/2019/04/17/same-sex-couples-applying-mortgage-face-higher-rejection-worse-rates-study-finds/
13 http://fidelitycentral.fmr.com/article/FA_6556
14 https://www.reuters.com/article/us-usa-property-blackhomeowership-cost/blacks-still-pay-more-than-others-for-home-ownership-mit-study-idUSKBN26S3F6
15 https://www.wsj.com/articles/when-the-stock-market-and-economy-seem-disconnected-11598002220
16 https://www.wsj.com/articles/when-the-stock-market-and-economy-seem-disconnected-11598002220
17 https://www.pewresearch.org/fact-tank/2020/03/25/more-than-half-of-u-s-households-have-some-investment-in-the-stock-market/
18 https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-case-for-accelerating-financial-inclusion-in-black-communities
19 https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm
21 https://www.financial-planning.com/news/cfp-board-discloses-1-355-black-financial-planners
22 https://www.riaintel.com/article/b1m6px645b4g6z/talk-is-cheap-heres-how-advisors-can-meaningfully-cater-to-minority-investors(Institutional Investor)
23 https://www.healthcaredive.com/news/a-quarter-of-adults-in-employer-plans-are-underinsured-commonwealth-fund-s/584918/
24 https://www.healthcaredive.com/news/a-quarter-of-adults-in-employer-plans-are-underinsured-commonwealth-fund-s/584918/
25 https://www.healthcaredive.com/news/a-quarter-of-adults-in-employer-plans-are-underinsured-commonwealth-fund-s/584918/
26 https://www.cnbc.com/2019/09/19/women-make-this-big-mistake-when-it-comes-to-life-insurance.html
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