For years, a key mission across the financial industry has been to create more equitable access to credit and reduce the number of credit invisibles and thin-file consumers. Two elements are necessary to achieve this mission: data and education.
Far too many people are making timely payments that aren’t acknowledged across the mainstream financial system. Opening the door for expanded FCRA-regulated data sources to be included in lending decisions is the surest way to broaden access to fair and affordable credit.
That said, we can’t overlook the impact that financial education and literacy can have on financial inclusion. The lessons we learn, beginning in classrooms as children, help guide our life decisions. Financial concepts should be core components of school curricula, but they are not. Lack of knowledge about our financial system and how to access it creates the first barrier to financial inclusion and greater financial well-being.
Helping adults gain the knowledge they need to get on the road to financial inclusion requires meeting them where they are, with information they need, when they need it and are open to receiving it. The last bit is perhaps the most important.
That’s not to say that those in underserved communities don’t understand or exhibit positive payment behaviors. They do, just not in ways that have been recognized in the traditional system. The fact is that there has been a lack of data available to recognize that positive behavior. The result is that many have been historically excluded from the mainstream credit economy. Our focus should be on how we help those in underserved communities break down the barriers through innovations that make the mainstream system benefit them.
Partnering to build trust
We have to remember that those who have been left out of the mainstream financial system often have an inherent lack of trust in that system. Before we can successfully engage low- and moderate-income communities, we need to earn that trust. That means acknowledging the historical inequities that have contributed to financial disparities and listening to the needs of each community.
We need to work with organizations that understand the day-to-day struggles faced by those who have been excluded from the financial system. Partners enable us to connect with members of the community to engage young people early and to share financial concepts at teachable moments for adults when they are most receptive.
As an industry, financial institutions and other organizations need to consider how they can work more closely with Community Development Financial Institutions to bring more financial literacy resources to disadvantaged communities. These organizations have close connections to underserved communities and relate to vulnerable consumers on a human level.
The good news is there is an appetite to learn more about the financial system. A 2019 Financial Literacy Survey conducted on behalf of the National Foundation for Credit Counseling found 76% of respondents agreed they could benefit from advice and answers to everyday financial questions.
Financial education is essential, but it’s foolish to suggest that offering “Credit 101” classes is enough. Overcoming barriers to financial inclusion is an incredibly complex problem. With so many consumers still struggling financially despite exhibiting responsible financial behavior, it’s not surprising to see skepticism.
Education will become even more critical as the credit system evolves. How to secure a bank account and the importance of paying your bills on time will always be fundamental financial literacy concepts. However, we need to extend beyond those fundamentals to teach people how expanded data sources can improve their financial well-being and how they can make the system work for them, no matter where they are in the credit lifecycle.
We need to lean into data and financial education to turn the tide and create more equitable access to financial resources. There’s a strong distrust among underserved communities, but if we can repair that bond and help them make the financial system work for them, we can improve. Our approach can’t be “one-and-done.” There must be continuous effort.
As an industry, we need to come together and create education programs that resonate with young children and adults during life’s teachable moments. Financial education is the foundation on which we build, grow and innovate to help more people overcome barriers to financial inclusion and achieve financial success.
Rod Griffin is senior director of consumer education and advocacy at Experian.
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