BROWN The Use of Financial Products and Services in Low Income ear
SCHOOL
sie African-American Communities aes
Timothy Hower, MS; Krista Chalise, MSW; Peter Hovmand; PhD; Social System Design Lab, Washington University in St. Louis
Yvonne S. Sparks, MPA; Daniel Davis, MSW; Federal Reserve Bank of St. Louis
a a The FDIC’s report on the nation’s unbanked and under banked households exposed that African Americans in
ee ee St. Louis are 4.4 times more likely to be unbanked than in the rest of the country. Nationally 60 million —
tent adults do not have a financial provider or rely on alternative financial providers. The cost of credit is higher in ell
__ —— poor communities, which further exacerbates the gap between wealthy and poor. Developing a better
—— e e e e e e e
, : understanding of the causal factors underlying household economic security is crucial to effectively help low
income and minority populations achieve long-term economic security.
Alternative Financing Trap "Credit Constrained" Households in US
Source: Christian Weller, Review of Social Economy, Vol LXVII, No.1, March 2010
wa ii Banking Competition
a
yr Performance N and Revenue
_s goals ~~ Competitio
y qe between banks.
y Number of
branches
i
——White ——African American ——~-Gap y
¢ Increased competition
leads to more branches,
less profitability of
- ~ ~ - _ _ y : 7 Number of branches and more
/ Profitability of (yf region acquisition of banks
branches / that reduces
\\ competition (B1)
Revenue nerrcencnee * Meanwhile, acquisition
——— a Goals of banks reduces loyalty
brn) to banks which reduces
revenue and leads to
| — TY even more acquisitions
ey Revenue Products or items (R1)
SCO vith institution ““F-—~Creating sticky
relationships
oN
Family history
~ of bankin
Disputes over
fees
Access to Credit Products
* Declining opportunity to
qualify for credit card or
loan from bank makes it
increasingly difficult to
make ends meet (R5)
Put out for bad
checks
Fees
Bank credit History of
products bounced
¢ Need for cash leads to use
of payday loans, which
increases in the short term
the ability to make ends
meet (B5)
Understanding of
procedures, policies,
and fees
Opportunity to
qualify for credit
card or loan from
bank
/ Bank - Customer
/ Relationships
Financial
literacy
Banking & Employment
8 ploy / ¢ Banks’ desire to create sticky
¢ Becoming a customer of bank or credit unit Employment + \ / relationships through more
may improve transaction history, which leads Customer service and / products and services leads to
to improved credit score and qualifications to aa resolution / less understanding, more
open accounts (R2, R3) y, disputes, fewer customers and
decreased revenue from bank
¢ But as customers open accounts, there are
more bounced checks, which hurts their | "
y _ I come | \
Employer required Checking | ;
direct deposit account | =
SUA SPE) . : | / <i credit products (B2 Red
babs “Lp Quality of Arrows)
483) “relationship with
transaction history and credit score (B4)
\ Non eal * Likewise, a decrease in
* Some customers may become unbanked, but q A customers |« 4 — pera customers also leads to a
employers increasingly require direct deposits N A r2) unbanked credit unions =a _~ decrease in revenue from fees
and use credit scores in hiring decisions, \ SS ZA from bounced checks (B3)
creating a downward spiral (R4) \ SS
= a
Social System Design Lab Transaction —_ p on University in St.Louis
