How to End Tennessee’s Silent Financial Exclusion Epidemic

One’s capacity to engage in the current financial system is crucial to one’s success in life. The fundamental pillars of our economic life are our bank and credit union accounts.

Paychecks are usually deposited into bank or credit union accounts. We also write checks or use bill pay from such statements to pay our bills. We monitor our funds regularly utilizing smartphone applications linked to such charges.

Our credit and debit cards are connected to various banks, allowing us to easily engage in the digital economy while keeping transaction costs low.

Tennessee homes situation

Households without a bank or credit union checking or savings account use services such as payday loans from Payday Champion. Hundreds of thousands of Tennessee homes are in that situation daily. According to the FDIC Survey of Home Use of Banking and Financial Services, around 8.1 percent of Tennessee homes are “access to banking,” which means that no family has a checking or savings account with a bank or credit union.

In Tennessee, over 220,000 families comprising over half a million people are unbanked, assuming an average household size of 2.5. Unbanked households account for around 5.4 percent of all households in the United States. Tennessee has a financial exclusion rate of 50 percent higher than the national average.

Furthermore, the financial exclusion in Tennessee is significantly more significant and more widespread than in our surrounding states: Alabama (7.6%), Arkansas (7.1%), Georgia (7.4%), Kentucky (6.5%), North Carolina (3.4%), South Carolina (5.2%), and Virginia (5.2%). (4.4 percent ). The cost of such extensive financial exclusion on Tennessee’s populace is high. We would have had around 126,000 fewer unbanked families in Tennessee if we had the same financial exclusion as North Carolina.

The unbanked individual

According to Nerdwallet’s estimate, every unbanked individual would incur $198.83 when utilizing check cashing and money order services. In other words, an unbanked family with two income earners is likely to lose enough money in check cashing and money order services to pay roughly two months’ worth of electricity bills.

Indirect expenditures aren’t helping matters either. According to the Nerdwallet investigation, implicit interest rates on predatory payday loans for modest sums might be as high as 300 percent. According to simple back-of-the-envelope estimates, 220,000 unbanked families will each lose $350 in yearly fees and interests, resulting in $77 million in unnecessary expenditures.

The actual financial effect of the economic exclusion pandemic might be much more than that absurdly high figure. To put it another way, a $100 million avoided loss is enough money to fund $2,500 in tuition and fees for 40,000 college students.

Unbanked families also suffer significant difficulties establishing credit, obtaining a mortgage, or obtaining a car loan. Inability to develop a strong credit history also impacts their ability to accumulate money throughout their lives, continuing the poverty cycle and increasing their need for various social programs. Integration into the financial mainstream may be one of the essential factors in accumulating wealth and reducing long-term reliance on assistance services.

What Tennessee needs to do?

To combat the pandemic of financial exclusion, Tennessee urgently needs a private-public solid collaboration. Various governments and banking executives are stable to exploit current technology to entice hundreds of thousands of people to create FDIC-insured low-cost checking accounts at banks and credit unions.

These profiles may be connected to debit cards and secured credit cards to facilitate low-cost digital transactions, allowing these families to save money while participating in a growing digital economy without worrying about enormous transaction costs.

The real financial burden of the financial exclusion pandemic may be far larger. To put it another way, a $100 million avoided loss might pay for 40,000 college students’ tuition and fees.

Unbanked families also struggle to develop credit, secure a mortgage, or receive a car loan. They are unable to create wealth over time, continuing the cycle of poverty and increasing their reliance on various social programs. Assimilation into the financial mainstream may help generate wealth and minimize chronic need on handouts.

Tennessee badly needs a powerful public-private cooperation to combat financial exclusion. Various governments and banking executives may utilize current technology to encourage hundreds of thousands of consumers to create low-cost FDIC guaranteed checking accounts at banks and credit unions.

These accounts may be linked to debit cards and protected credit cards, allowing for low-cost digital transactions that allow these families to save money while participating in a developing digital economy.