Beinstein column: Banking for the poor
Often neglected in discussions concerning poverty is the role of banking.
Not out of any degree of irrationality, but many lower-income individuals eschew mainstream banking institutions.
Many poor people, for example, cannot wait four days for a check to clear; hence they will pay a 2 percent fee to get that check cashed. Others cannot afford a minimum balance, making a typical checking account at a bank cost prohibitive.
And still others cannot wait for their paycheck to pay an emergency medical or car bill and will thus use the services of a payday lender, paying up to 400 percent annualized interest.
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But none of this is as hopeless as it might seem.
Walmart, and other employers, have started to lend their employees money on a short-term basis for a much lower rate than a payday lender would. But paying any fee at all can be troublesome.
There is a growing movement to add, let’s say, four two-week interest-free loans as part of an employee’s compensation. In many ways, this is as important as somebody’s health care, safety, time off, etc. And the employer can easily afford it and is covered by the paycheck itself. Added to this is the need for privacy; if an employee feels as if the reason for the loan must be known, he or she might hesitate to ask for it in the first place.
Creating the proper incentives for banks to bank lower income individuals is absolutely necessary. The reason why banks engage in so much home lending is the federal government guarantees many of those mortgages, otherwise significantly fewer people would have access to home loans. The same must be done here.
Whether that’s done through subsidies, tax credits or income deferrals would require much more study. But banks should waive minimum account balances. They should charge, because of their size, significantly less for check-cashing services than a typical check-cashing store would.
And a bank has a right to charge more in interest for personal loans with no collateral from borrowers with spotty credit scores. But getting more money flowing to poor people, at less than the 400% rate that payday lenders charge, would be a marvelous accomplishment.
We as a society would benefit enormously from integrating more low-income people into the financial mainstream. The less lower income people pay in interest, the more money they’ll have to buy other goods and services. The greater financial stability that poor people have, the less likely they are to engage in destructive behavior, which can be quite costly to society.
And the more we boost the confidence of lower income people, the more productive they’ll become. America can be doing so much better than our current muddled 2 percent growth.
Loosen up the overreaches of Dodd Frank, lower the cost of housing in urban areas to make labor more mobile, integrate more people into the economy, modernize the safety net so more Americans, not just rich ones, can grow their wealth at a much greater rate than Treasury bills.
Or, at the very least, use that same money to buy a house or pay for a medical bill the way working people in Singapore do, and America will finally hum the way we know she can.
America is still a place to dream, not to settle. The scriptures teach us, “Whoever is kind to the poor lends to the Lord, and he will reward them for what they have done.” Let us then be worthy of his rewards.
Alex Beinstein is a millennial who grew up in Aspen, lived in Carbondale for a while and now writes from Washington, D.C. His column appears monthly in the Post Independent.
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