At the American Savings Education Council’s Virtual Spring Partners Meeting, we tackled the topic of Savings and Diverse Communities. We called on experts in academia, the financial industry, and policy circles to highlight research and findings that identify barriers to savings opportunities and trust in financial institutions within minority communities. In this second installment of our reprise of the panel sessions, we focus on comments by Reilly White, Associate Professor of Finance, Endowed Bank of America Lecturer and Daniels Fund Ethics Fellow at the University of New Mexico. Reilly focused on the unique challenges faced by immigrants and refugees, Hispanic communities, and Native American populations.
Reilly started by emphasized the heterogeneity of minority communities, and the importance of understanding their differences.
White: I was a banker before I was an academic, and now my focus is on are immigrants and refugees within Hispanic communities, as well as native American populations. These communities are often overlooked in discussions about financial wellbeing. In fact, there is a tendency within financial institutions in general to paint engagement with underserved communities with too broad of a brush. There is a tendency to fail to understand intrinsically or to listen to what these people are saying regarding the problems they face.
For example, within the immigrant refugee community you have people from Latin America, Afghan, Iraq, and Syria. These individuals have experienced incredible challenges to reach the United States, and they have an incredibly low trust in the concept of banks and financial systems based on the experiences from their home countries. We learned for this community, the thing that really carries weight is FDIC insurance—the assurance that people’s money is safe and being and accounted for.
Then we have also Hispanic community. Only one sixth of the Hispanic population has used a check cashing service in the past three months: there is still a profound lack of trust in the financial institutions in the community. At the same time, there is over 4 million Hispanic-owned businesses in the United States. Often their questions revolve around entrepreneurship and access to credit and mobile banking. These are things that a lot of bankers and financial institutions don’t properly address.
And then there are native American American populations. There are sovereign nations that are separate, and–in many case—located in profoundly rural areas. The average distance from the center of a tribal reservation to the nearest bank is about 12 miles. And the nearest ATM is about seven miles. So you’re dealing with people who often have to travel more than 69 minutes to access capital, a bank or an ATM. That’s a significant hurdle.
Further, research shows that proximity to financial institutions helps build not just financial literacy, but one’s comfort with the idea of owning and operating bank accounts. Yet, four years ago, the FDIC identified 44 counties that have been adversely affected by the closure of bank branches. Many of them served native American communities that were close by or within proximity to them.
So these communities all have one common denominator, which is that they’re underserved. But within them, there are different reasons and methodologies for serving these communities. That’s why it is so important to listen to the populations regarding how to engage and how to move forward with building a culture of trust.
Reilly further emphasized how much more important financial education has become with more and more reliance on individual savings:
White: Think about how the relationship between individual responsibility and financial literacy has changed over the past 40 years. Going back to when Congress passed the Revenue Act in 1978—which created 401(k) plans—we’ve have gone from one-third of Americans having a pension in the 1970s to fewer than 3% of Americans have pensions. Instead, people have 401(k)s at work. That shifts the responsibility of retirement saving to the individual. In fact, essentially, what’s happening is that by the time people graduate high school and enter the workplace, they must know everything about retirement savings in order to effectively use their workplace retirement savings plan. That’s a lot more individual responsibility. My dream, of course, if I were to wave a wand, would be to have financial literacy education started in kindergarten across the country and be accessible to all communities in the United States.
Barring financial literacy courses starting in kindergarten, Reilly emphasizes the need for meeting individuals in their comfort zone when it comes to financial communication:
White: Historically financial services firms have frankly done a terrible job at communicating—relying on jargon, for example. Instead, there needs to be a culture of listening and valuing trust with someone who is hesitant about joining a banking or savings institution. We also need to engage communities and make sure we are even asking the right questions. And, how do you ask those right questions? How aware are you culturally of these things? How do you actually ask these questions in an inappropriate manner? All of this relies on the importance of building a culture of communication within financial services companies.
Finally, Reilly emphasized the importance of commonality, which was a theme in other sessions during the day:
White: One of the things that we hear over and over again is that individuals want people with experience with their community. They want people who resemble them; who look like them. A lot of banks don’t do that: they don’t do a fantastic job at hiring people from a diverse spectrum. Let me give you the example of a former student of mine, who is a bank vice president and also a native American. He pointed out that what generated trust for him within the banking industry was having a direct, consistent mentoring relationship between him and the person that hired him.
In our final installment in this series, Jen Auerbach-Rodriguez, Managing Director, Head of Strategic Growth Markets, Merrill Lynch Wealth Management will discuss the “untold story” of affluent minorities’ financial needs.