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Lack of Access to Financial Services Exacerbates Racial Wealth Disparities, Researchers Find

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WASHINGTON – Why do financial inclusion efforts matter?

That’s one of the central questions for researchers at the Brookings Institution, who for the past three years have been scoring progress on improving financial inclusion for some 2 billion people around the world who lack access to basic, modern banking services.

Camille Busette, a senior fellow at Brookings and former regulator at the Consumer Financial Protection Bureau, offered some statistics in the U.S., where about 10 million people do not have access to bank accounts. Another 25 million, according to Busette, are “under-banked,” meaning they don’t have full access to modern banking options. Marginalized individuals and families are traditionally found in minority communities, she added.

“Not having access to financial services makes it very difficult to save money and be prepared for emergencies, but also makes it very difficult to start investing and creating a foundation for wealth creation,” Busette said at Brookings on Thursday. “So when we don’t have that, particularly in the United States, where leverage is really important to building wealth and particularly to transferring intergenerational wealth, then not having these services and not being included in the formal financial system makes it very difficult to make strides.”

Busette said that median accumulated wealth for white households in America is about $111,000, while African-American households have accumulated about $7,000. According to numbers released this year by the Economic Policy Institute, the gap is even wider, with median wealth for white households recorded at $134,230 and black households $11,030. Average wealth, according to EPI, is $678,737 versus $95,261.

EPI also broke down the wealth gap by distribution of college and graduate degrees. White college degree holders reported about $180,500 in median wealth accumulation versus $23,400 for African-Americans. For graduate degrees, the difference is $293,100 to $84,000.

“That gives you an idea of the disparity and why it’s so important to have folks included in the formal financial system,” Busette said.

Brookings held the discussion after releasing its third international financial inclusion scorecard, titled the Financial and Digital Inclusion Project. The study analyzed 26 countries in scoring progress outside of the United States.

Researchers weighed “mobile money” and digital financial services, including agent banking, mobile financial services for payment access, e-money regulations, account access and usage and cash-in and cash-out at agent locations.

The list of countries included: Afghanistan, Turkey, Egypt, Pakistan, Mexico, Brazil, Chile, Colombia, India, Bangladesh, Uganda, Ethiopia, South Africa, Vietnam and the Philippines, among others.

Kenya took the top score for the third year in a row, for efforts that included “innovative card-based services” and non-traditional access points, such as banking correspondences. Mexico joined the top five scorers after releasing a national financial inclusion plan, and Robin Lewis, associate fellow of governance studies at Brookings, noted El Salvador’s progress on distribution of smart phones. Rounding out the top five were Brazil, Colombia and South Africa. Egypt, Ethiopia, Haiti, Afghanistan and Malawi represented the bottom five.

Diego Molano Vega, an international consultant, studies digital financial access in Latin America. He noted that infrastructure is a major hurdle in improving financial access around the world, saying that “digital is the answer” for countries in places like Africa.

In Latin America, about 50 percent of people are internet users, he said, although more than 80 percent live in areas covered by networks. According to Vega, many residents in lower-income communities within Latin America regard the internet as useless because “it doesn’t change my life in any way.”

On why financial inclusion progress matters, Lewis said that it provides pathways for people to improve financial health, which contributes to overall well-being and reduces poverty and gender inequality.