Not long ago, the Center for Financial Services Innovation organized a group of people from the financial industry and took them on a field trip of sorts. The objective was to determine just how expensive and difficult it can be to be poor and living outside of the traditional banking system as a financial nomad. What they discovered was shocking.
The following are interesting things that were realized as they explored the world of the 70 million financial nomads in America:
- It’s time-consuming to be poor. Instead of spending their time being productive, many financial nomads spend a considerable amount of time searching for the best rates for check cashing or the lowest fees from payday lenders.
- Fees add up quickly if you’re not a bank customer. Underserved in the US spent $89 billion on fees and interest last year — an 8% increase from 2012. Americans with $20,000 in income spend around $1,200 a year on check cashing and money orders, and most of the families spend as much on money services as they do on food.
- It involves a lot of paperwork. Filling out the forms for payday and title loans is very time-consuming, which takes precious time away from work and family. This impacts 25% of all children in America who are living in homes underserved by banking.
As addressed in the movie, “Spent: Looking for Change,” none of these services act as a ladder towards financial stability. Not one of them helps the financial nomad build a credit score, repair damaged credit, or establish a long-term relationship that fosters economic security and stability.
Furthermore, some of these services are downright predatory. The costs, fees, and hassles involved with being a financial nomad and relying on these services add up quickly. As these expenses grow, it makes it even more difficult for people to climb out of debt, save, and build financial foundations to stand upon.
It’s a vicious cycle that’s difficult to break — and it’s a cycle that the financial industry should be keen to solve. There are 70 million potential clients just waiting to be served their slice of the American dream.
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