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Financial Inclusion in a US Immigrant Community

The US Financial Diaries, which have been collected and analyzed over the past year or so by the Center for Financial Services Innovation in tandem with NYU Wagner’s Financial Access Initiative (FAI), provide some helpful insights into financial behavior, preferences and issues particularly for lower-middle class and poorer households in the US. The survey is based on a randomized sample of 200 households across the US over the course of a year. How does this translate to a particular local immigrant community?

The Monument Community in Concord, CA is probably not untypical of low income immigrant communities throughout America. Residents face financial challenges that are in fact not that different from poorer communities in most of the world. I have just spent some time with Mike Van Hofwegen and Nati Flores, who are respectively Executive Director and Program Manager for Monument Impact, a multi-faceted community development organization serving this community. One of the services they have started to offer is financial enablement (education and follow-up counseling and referrals). A recent survey of 33 Latino/a participants arrived at results largely consistent with national trends. Here are a few quick overall conclusions.

  • Poorer people are more likely to have unpredictable income – this is borne out in the US Financial Diaries too, and is a bigger issue than for average income-levels. This may be the primary driver for the need for simple savings and credit options.
  • Poorer people save – some more than others, but on the whole they save surprisingly consistently, often saving large proportions of their income. (A recent survey of immigrants in New York by Northwest Queens Financial Education Network (NQFEN) found that 90% set aside a certain amount weekly for savings). Management of unpredictable income and expense streams is a critical driver for this need. For single immigrants, the saving is often also for money to take back home, or to send home to families. But for many it is simply to manage against future shocks, or to save for future projects (purchases, businesses, cost of bringing a child to the US, etc). One interesting trend is that as immigrants become more embedded in the US culture, levels of savings tend to decrease (perhaps as consumption increases).
  • Poorer people are more likely to use informal credit sources. In the Monument Community, only 39% have a credit card (as against 71% of the US population as a whole), and 27% maintain a balance (compared to 34% of the US population). 20% have outstanding informal loans (friends and family, which is typically first resort for smaller short-term needs) or participate in lending circles), and 18% have taken (very expensive) payday loans. See also the US Financial Diaries brief “An Invisible Finance Sector”.
  • Financial enablement has many components – including education (in saving habits, sources and pitfalls of credit, budgeting, and general financial management); help with making changes to financial habits (e.g. formal savings, establishing credit); and access to the financial services they need. Community development organizations like Monument Impact often act as facilitators and coordinators of a variety of providers. This need to coordinate multiple parties for financial enablement is found throughout the world, and is often a complex and difficult role. The NQFEN study reached the same conclusion and its first recommendation is fo increased investment in Community-Based
  • Formal banking services are too complicated and too expensive – when the needs are simple, so should be the products. The NQFEN study found that almost half of those who had or used to have a bank account, have stopped using it or closed it, with excessive fees being the most common reason.  Unfortunately, because of high fixed product costs, the poor are not profitable business for the big banks. There is a need in the US as much as anywhere else for suites of banking services which are simple, accessible and inexpensive. This means regulatory change, technology innovation, and purpose-built financial services.
  • Availability of services does not equal adoption – trust can be hard to build up, particularly for people who have been burned by predatory lending practices, or who struggle with literacy, or who distrust technology. Financial products must be accompanied by financial education, and tight-knit immigrant communities particularly depend on early adopters to drive adoption.
  • Smart-phone ownership tends to be higher among immigrant populations – not least because of the need to be in contact with potential casual work hirers (since many of the participants in the Monument survey use the Monument Impact Day Labor Center services). For example, according to a 2014 Federal Reserve survey, 73% of the Latino/a population own smart-phones as against 58% of the population as a whole. This does not automatically mean they will use mobile financial services – trust in technology and in banks takes time to build. In the Monument sample, there was a clear reluctance to use mobile apps, although in the population as a whole Latino/a use of mobile banking is relatively high.  

What does this all add up to? Provision of financial services for poorer, and particularly immigrant, communities does not look the same as provision for the US population as a whole. In addition to the need for targeted services and delivery channels, the role of community development organizations is critical. These conclusions are, I suspect, pretty universally transferable to other poorer markets around the world. 



Comments: (1)

A Finextra member
A Finextra member 17 May, 2015, 08:40Be the first to give this comment the thumbs up 0 likes

Yes, I see similar trends in immigrant populations across both developed and developing countries from my experience of launching new remittance services around the world.

Regarding lending it is interesting to see how MFI has over the years given way to mobile based lending and governments around the world are now looking to Fintech as a faster way to lend money to small businesses.

In China where online P2P Lending first took off and became rampant, our recent study shows that regulations are now being considered: People took to the services so fast that incumbents have seen huge disruption.

Graham Seel
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Graham Seel

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BankTech Consulting

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17 Apr 2015



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