Over the past few decades, across demographics and regions, the proportion of people in the United States with bank accounts has increased steadily, a new report from the White House details. More specifically, the report found that between 1989 and 2013: the percentage of U.S. households with bank accounts increased from 86 percent to 93 percent; the percentage of households in the bottom income quintile with bank accounts increased from 56 percent to 79 percent; among racial minorities, the percentage of households with bank accounts increased from 65 percent to 87 percent; and regional disparities have diminished, with financial inclusion increasing across all geographies. All of this progress in financial services access warrants acknowledging, of course, yet there remain sizeable gaps toward financial inclusion that call for immediate action.
For example, like most countries that enjoy high access rates, many banked Americans remain underserved. Twenty percent of households in the U.S. with bank accounts also rely on alternative/informal financial services. In 2013, roughly 5 percent of unbanked or underbanked households turned to payday loans, the White House report found. Indeed a few weeks ago we spotlighted new proposed regulation from the Consumer Financial Protection Bureau (CFPB) to rein in the growing high interest rate/fee-laden payday loan and short-term credit markets.
The United States also ranks dismally when it comes to financial literacy. In the S&P Global FinLit Survey, it was determined that 57 percent of the American population is financially literate, which puts the country at 14th globally, according to the S&P.
To address these gaps, the current Administration and the U.S. Department of the Treasury are involved in a number of initiatives. The establishment of the CFPB, as a result of the Dodd-Frank Act, created a focal point for consumer empowerment and attention to the underserved. In December 2015 the Treasury Department, in conjunction with USAID and other agencies, hosted a Financial Inclusion Forum which brought together service providers, policy makers, regulators, NGOs, consumer groups, and other stakeholders to address the challenges posed by financial exclusion. Forum participants announced 10 initiatives spanning key areas including fintech for the base of the pyramid, financial access for the particularly-excluded Mississippi Delta region, financial capability of young people and women, and retirement savings. What was perhaps most notable about the Forum was that it included both global and domestic actors, dispensing with the boundaries between them. This was moderately successful, as the challenges are somewhat different, but it is clear that there is increasing convergence.
The Department of the Treasury also established the Financial Empowerment Innovation Fund, which awarded contracts for 11 research projects focusing on areas including financial capability surrounding higher education decision-making, payments and savings innovation, and integrating financial education into more classrooms.
Most recently, last Friday the White House convened stakeholders from across the fintech ecosystem to discuss how fintech can help advance critical economic policy priorities. The number of fintech startups in the country increased from 800 to over 2,000 from April 2015 to February 2016, with venture capital funding in this area reaching unseen highs in 2015. A survey conducted by the Federal Reserve Board of Governors found that 40 percent of the unbanked had a smartphone, as did 70 percent of the underbanked.
One of the important features of financial inclusion work in the U.S. is that it is not only a federal matter, but is also taken up by states, and especially, by cities. Our Innovations in Financial Capability-Building project identifies a number of standout initiatives in the United States. Financial Empowerment Centers in New York City incorporate targeted financial counseling alongside the delivery of social supports such as housing services, homelessness prevention, and workforce development. This is an example of delivering financial capability messages at the teachable moments when people are making important life decisions. The model is being rolled out in a growing number of cities in the United States through the Cities for Financial Empowerment initiative.
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