Empowering the Unbanked with Financial Literacy

"Millions of Americans spend as much as $8 billion per year at check cashing outlets, payday lenders and pawnshops on basic financial services that most Americans receive for free - or for very little cost - at their local bank or credit union. Over a lifetime, the average full-time, un-banked worker will spend more than $40,000 just to turn his or her salary into cash."

This according to a recent opinion piece in The Wall Street Journal by Bill Clinton and Arnold Schwarzenegger.

Nationwide, as many as 22.2 million U.S. households comprising about 56 million adults are un-banked. This staggering figure points to a crisis in the bifurcated financial services world where some consumers do not have access to mainstream financial institutions. These households are disportionately lower-income and minority. A 2003 report from the Woodstock Institute describes some of the best practices in the banking industry to reach low-income, unbanked consumers.

Messrs. Clinton and Schwarzenegger are proposing an initiative to help the un-banked in California "enter the financial mainstream by opening checking and savings accounts, and working collaboratively with financial institutions and community groups to develop and market products that work for this untapped market." They propose to help the nearly 11% of California households that do not have checking accounts and 50% who do not have savings accounts obtain starter accounts. The William J. Clinton Foundation's Economic Opportunity Initiative will support and connect this effort with those in other cities such as Boston, Los Angeles, Miami and others.

Financial literacy is the poster child of the cross sectoral issues in philanthropy. It requires significant coordination between financial institutions offering appropriately priced services and nonprofits helping connect people in need with these new services, as well as a potential regulatory role of governments, like that being proposed in California.

It is also one of the hottest topics in philanthropy with a growing list of investment being made by the likes of the Annie E. Casey Foundation and the Gates Foundation. The National Poverty Center of the University of Michigan is accepting applications for grants to fund research that will broaden and/or deepen the understanding of the ways in which access to financial services, debt, asset holding, savings, and insurance shapes the lives of low-income persons.

ShoreBank has been doing this work as long as anyone. I desperately wanted a job there in the early days after business school to work on community development and financial literacy (okay, that's at least 20 years ago give or take a few years). Since then, its Center for Financial Services Innovation has become a leader in its work to transform industry practice and the lives of underbanked consumers across the economic, geographic and cultural spectrum.

This work should be scaleable -- we need some more banks in the game. Are there any new approaches out there that our discerning donors should know about?

Carla E. Dearing

Posted at 1:00 AM, Feb 18, 2008 in Cross-Sectoral Strategies | Economic Development | Education | Permalink | Comments (1)


Developing scale requires a business model that is financially viable. To achieve such business model funders could consider a nonprofit financial institution as product development.

Once the nonprofit model is well documented and achieves reliable results, then explore additional market segments that can improve sustainability. For example a rent bank that helps people avoid homelessness could also serve higher income segments, for example, students, which could afford to pay higher fees. For inspiration visit some actual check cashing places and try to cash a check. Consider it checking out the competition.

As well, it is possible to consider a business model that would marketed as employees financial services benefits program. Such program would target employers with a significant number of modest or hourly wage employees. This approach could increase market coverage and permit beneficial private, public, nonprofit partnerships.

Households with limited income are looking for convenience, price and variety in financial services. If you earn five dollars an hour you don't want to spend $5 to go to a nonprofit location to get services.

Bank of America has pay day card for employees without bank accounts. However, it also charges a dollar for each transaction, which is exorbitant for most low income households.

Carlos Gasca

Posted by: Carlos Gasca