America has for too long tolerated financial exclusion. It sounds terrible and it is. Financial exclusion is a hardship on 68 million Americans and an unnecessary burden on the economy.
Financial exclusion is the lack of access to common financial services such as a checking or savings account. It can stem from problems with access, prices, marketing or financial literacy, or from self-exclusion in response to negative experiences or perceptions. Financial exclusion is a reality for 28 percent of American households. For the most part, these families have no savings and access only to high cost credit.
Financial exclusion significantly increases the risk of poverty. Consequently, the economy -- and we as taxpayers -- shoulder a burden for the fact that such a large number of households are either unbanked or underbanked and are driven to high-cost alternative financial services that consumes a disproportionate amount of their resources. There is no other way to say it -- government support for low- and moderate-income consumers is greater than it otherwise needs to be because so much of their income is consumed in such a wasteful manner.
There is a saying about how expensive it is to be poor. Ironically, the less money you have, the more it costs you to manage and move it. Unbanked and underbanked families rely heavily on alternative financial services such as check cashers, payday loans, tax refund anticipation loans, pawn shop loans and auto title loans.
There are over 48,000 alternative financial service establishments that retail these high cost financial products, collecting about $89 billion annually in fees and interest. The average full-time worker without a bank account can spend $40,000 over the course of his or her lifetime just to cash paychecks.
Imagine what it would mean if those costs could be avoided. What if the unbanked and underbanked used the same basic bank financial services that most Americans take for granted and pay little to nothing for?
Each of those 68 million Americans could have an extra $108 every month for food or gasoline or clothing. A family of four would see an extra $432 every month.
By comparison, the entire government budget in 2014 for food stamps for low-income Americans was $74 billion. It would be entirely logical and possible to eliminate the entire food stamp program and low income Americans still come out ahead by $15 billion. All it would take is to open a bank account for every household.
There is the beginning of a thought process that might accomplish such a goal. In an op-ed in the Huffington Post, Elizabeth Warren has suggested that the U.S. Postal Service should use its infrastructure and resources to offer basic banking services -- nothing too complicated -- just check cashing, small international money transfers, small loans, reloadable prepaid cards, and bill paying.
While the idea is wildly unpopular with the check cashers and payday loan stores, the USPS network -- with 32,000 existing facilities -- would be an imaginative expansion of plain vanilla banking services for more than a quarter of the nation. Additionally, the USPS could complement what banks already do and serve rural areas not well served by banks today.
We may never achieve full financial inclusion -- but we can and should reduce the number of unbanked and underbanked families far below the current 28 percent. The outcome just might be the foundation for the beginning of wealth creation for low- and moderate-income families.
That is a goal of which we could all be proud and one that is worth working toward.
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