The Federal Deposit Insurance Corporation (FDIC) reports that as many as 10 million American households – or 1 in 12 – lack a bank account. Moreover, as many as a quarter of U.S. households rely on non-bank financial service providers, such as check cashers, payday lenders or title loan companies, for all or part of their banking needs. These services can be expensive – check cashing typically costs up to 4 percent of the value of the check – and offer no options for consumers to save.
St. Louis City Treasurer Tishaura Jones has launched a series of promising initiatives to connect more of her city’s residents to mainstream financial institutions and to promote greater financial savvy. Jones is also a member of NewDEAL, a national network of “pro-growth progressive” state and local elected officials. We talked to Jones about her efforts.
R3.0: As the treasurer, it makes sense for financial empowerment and literacy to be priorities for you, but is there a particular need in St. Louis you are trying to address?
Jones: St. Louis is near the top of the nation in the number of “unbanked” minority households. We are third in the nation right now, and just a few years ago, we were number one.
This means that more than a third of our minority residents don’t use a traditional bank or credit union for financial services. Instead, they’re using payday loans or check cashing services or title loans.
The city has done what it can in terms of zoning laws to curb where they can open, but as I drive through the city, I seem them everywhere. A lot of people are also using rent-to-own, which many people don’t realize is a very predatory product as well.
R3.0: Why aren’t people relying on the traditional banking industry?
Jones: One reason is lack of trust in traditional banks or credit unions. We also find that people have had a bad experience – [they’ve] bounced several checks and as a result have an outstanding balance with the check system that they have to pay off before getting access to another account.
Another reason is that banks and credit unions just aren’t located in their neighborhoods, whereas payday lenders are. The same relationship you may have with a banker or a financial institution, they may have with a payday lender.
The consequences of being unbanked are that the average family could save over $40,000 over a lifetime or over $1,200 a year by using a traditional bank or credit union.
R3.0: You’ve started to tackle this problem with some simple changes in your own office.
Jones: Shortly after I was sworn in in 2013, I found that we could take our city employees to mandatory direct deposit. Out of 7,000 employees we manage payroll for in the treasurers’ office, 1,600 of them weren’t on direct deposit.
We held three banking fairs for people to choose a traditional bank or credit union, and if they didn’t choose one, they were assigned their benefits on a [pre-paid] card. Eight hundred people chose that option, although another 800 people chose a traditional bank or credit union. Going to direct deposit not only saves the employees money, we saved over $100,000 for the city each year [in fees] by going to direct deposit.
Our next step is encouraging savings, and what we do now is send out reminders with simple tips such as, “Did you know that if you save $83 a month, you’ll have $1,000 by this time next year?” We also have employee lunch and learn sessions where we bring in a bank or a credit union to have lunch with our employees as well as do some financial education over the lunch hour. We’ve received some very positive feedback from the employees on that.
R3.0: What community-wide initiatives have you also begun to encourage financial capability?
Jones: First, we’re putting financial empowerment and financial education as a top mission of this office. We haven’t seen a city-wide elected official actually championing this issue in the past. Second, we’re working with financial institutions, non-profits and national organizations to make our efforts more strategic and intentional.
We’re launching a financial empowerment fair, which is the first of its kind in St. Louis. We’re bringing in banks and credit unions and federal agencies to not only get people information about how they can get a checking account or a savings account but also how to save towards college, guard themselves against identity theft, check their credit, and receive free credit counseling.
Financial literacy isn’t just understanding how money works; it’s also planning for the future. We find that 50 percent of people are suffering from “asset poverty” – meaning that they don’t have at least three months of living expenses saved, and they have no slack in their budget if there’s an emergency.
We’re also integrating financial education into the summer youth employment program.
We have about 500 kids who are slated to come through that program, and we are working with the St. Louis Agency on Training and Education. The program is paid through my office, so we’re trying to identify one or two financial institutions that will deliver financial education to the kids and also give them a savings account and a checking account.
We’re going to get the kids during their orientation period but also try to reach them where they are. Every kid has a cellphone or smart phone and we’re going to utilize that as much as we can, [for example] with follow-up messages via text. We’re bringing all those things together to hopefully change the mindset of these 16-18 year old kids.
R3.0: Looking a few years down the line, how will you know if you’re efforts are succeeding?
Jones: Our number one goal is that the percentage of households who are unbanked starts to decrease and that we see a more concerted effort and more cooperation among all the stakeholders in this space.
We’re also trying to address this problem region-wide. Financial information doesn’t stop at the city limits.
Our vision is that people will be able to find what they need related to financial empowerment at any time of the month, at any time of the week and wherever they are.