An Inclusive, Progressive National Savings and Financial Services Policy

BY MICHAEL S. BARR

How many of us walk by the signs for “Checks Cashed Here,” “Money  Orders for Sale,” and “Payday Loans: Get Cash Quick” without thinking about the implications of those signs for the daily lives of lower-income households? Most of us can take for granted getting our paychecks directly deposited into our bank accounts, writing a check, or storing our money in an account. We often struggle to save for longer-term goals, such as our children’s education, or retirement, but most of us, most of the time, do not worry whether our savings or insurance will be enough to get us through an illness, or even the loss of a job.

For most low- and moderate-income households, the picture is quite different. High-cost financial services, barriers to saving, the lack of insurance, and credit constraints may contribute to poverty and other socioeconomic problems. Low-income individuals often lack access to financial services from banks and thrifts, and turn to much more expensive alternative financial service providers such as check cashers, payday lenders, and money transmitters. Lack of access to credit and insurance means that many low-income individuals must live paycheck to paycheck, leaving them vulnerable to emergencies that may endanger their financial stability. The lack of longer-term savings may undermine their ability to invest in human capital, purchase a home, and build assets. More generally, heavy reliance on alternative financial service providers reduces the value of both take home pay and government assistance programs such as the Earned Income Tax Credit. Taken together, these barriers to access contribute to poverty and make it much more difficult for low-income households to make the investments necessary to join the middle class.

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