A Federal Reserve Bank survey shed some light on a not so dirty secret about how Americans manage their finances, for the most part we are terrible. There are some things that banks and credit unions should be doing more of to perhaps bridge the gap to the underserved banking segment.
Let's look at some of the statistics released by the Fed.
- Survey was conducted in October 2014 by email, and was sent to 5,896 people over the age of 18, and can be read in full here.
- 47% of the respondents said that they could not cover a $400 expense without borrowing money or selling something
- 21% of the respondents said that their spending last year EXCEEDED their income
- 31% of respondents said that they have no retirement savings or pension
- 14% of homeowners believe that they are still underwater on their mortgage
- The reason renters do not purchase a home is perceived inability for a down payment (50%), and the perceived inability to qualify for a mortgage (31%).
So, let's provide some additional feedback on these points, one by one.
- Seems like a good sample size, curious though what the percentage of these individuals currently do not have a banking relationship. From our research, the number of underserved is about 20% of the population over the age of 18 - but some estimates are even higher than that.
- This one is jaw dropping. I wonder how many of those who can not afford a $400 emergency expense have a $600 smart-phone? Is this just a matter of priorities? Can banks assist individuals with proper budgeting tools and methods?
- This actually seems to be a promising statistic - I would assume that more people are actually spending more than they make - reducing debt appears to be still in play as average credit card balances are still lower than they were prior to 2008.
- Perhaps these individuals are fully anticipating that they will need to work until they die or that social security will be able to provide them a comfortable retirement. Either way, they need some education to realize that most will not be able to live off social security - and some of them may not understand even how social security works, that you need to be part of the workforce and contribute. This is a job of not just the banks, but also our government and society as a whole.
- & 6. These stats are surprising to me. I constantly get banner ads that President Obama wants me to refinance and has developed specialized programs to assist underwater mortgage holders. There are so many good programs available to assist first time home buyers that clearly the message is not getting out.
So do bankers feel that they have an obligation to serve this market? I was recently talking to some executives for a large FinTech company who are developing analytical tools to assist banks in identifying underbanked individuals in their communities. I asked the question if banks and credit unions were asking for this - and the answer was no, but that this organization felt it was their duty to provide these types of services and the hope that more institutions recognize the value of reaching out to this large demographic. I guess if you build it, you hope people will come.
As we focus on the bottom line, it can be difficult to justify any program that will appeal to a population that is currently either low profit or a possible loss. Perhaps the conversations need to start earlier, to build trust between consumers and bankers, and to really use the branch network to educate individuals about finances. Stories about multi-billion dollar fines being paid by the big banks for manipulating the foreign- exchange market for their own profit does not help our industries image. Some consumer wonder if the banks can pay those types of fines, why can't they take a risk with a first time home buyer to get them into a house that they can afford? The key here - a house that they can afford. We can do better.