For many hardworking Americans, the journey to economic security is littered with excessive fees, high-interest loans and predatory traps. This fact sheet aims to help low-income households navigate such danger zones while building brighter financial futures (assets and savings included!). It is one installment in a 10-part series that shares how Foundation is helping to economically empower families across the country.
The financial deck is stacked against America’s neediest families
Findings & Stats
Barriers to a Brighter Financial Future
Affordable financial services can be a family’s ticket to improved economic health. Yet, many working families cannot capitalize on this option because banks and credit unions are scarce in their hometowns, the right mix of services are unavailable or they have a poor credit rating or credit history.
When a Crisis Hits
Low-income families are already paying more for home loans, auto loans and consumer needs. Throw an emergency into the mix, and these households must rely on high-cost lenders—not the mainstream lending market—to get by. The end result? Not relief, but a debilitating debt spiral.
Do the Research; Reach the Consumer
One idea for expanding access to low-cost financial services? Promote market research on the financial needs of low-income families with an end goal of creating products that can compete with slickly packaged offers from fringe financial outlets.
Rewrite the Rules
Public sector leaders and community coalitions can play a vital role in helping low-income families keep more of their paychecks. One option: Push for policy changes that support low-cost financial services while curtailing the deceptive dealings of high-cost lenders.
Going Mainstream Matters
One in five American families do not have a checking or savings account and instead utilize fringe financial services that eat up a substantial share of their budgets. Not surprisingly, these families are far less likely to own homes and acquire savings relative to households with bank accounts.
One clear winner in the low-income financial market? Payday lenders. There are now more than 20,000 such outlets across the country, and they collect a combined $6 billion in fees and interest annually.
Statements & Quotations
For working families, accessing affordable financial services can help save income that can be used to reduce debt, pay for basic necessities or save for a child’s education.
Credit card debt among very low-income families grew by 184% between 1989 and 2001.