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Locations of banks, credit unions important to lower-income families’ financial health, professors say

Tuesday, February 07, 2017

LAWRENCE — Having banks and credit unions available in one’s community can make a difference in a family’s financial health, according to new studies from University of Kansas and Michigan researchers. The influence is greatest on lower-income households.

Terri Friedline, assistant professor of social welfare and director of financial inclusion in the Center on Assets, Education and Inclusion in the School of Social Welfare, has published several reports on the center's website as part of the Mapping Financial Opportunity project. The project is building an interactive map using GIS software to show the availability of a range of financial services by ZIP code. Among the early findings, Friedline and project co-director Mathieu Despard of the University of Michigan report that every additional bank or credit union branch per 1,000 population is associated with a 5 percent higher probability that lower-income households will be able to pay their monthly bills and a 2 percent lower probability for every alternative financial services provider such as a payday lender.

“Some would say that brick-and-mortar financial services aren’t necessary since people can use the internet and smartphones to do their banking. Indeed, the potential for technology to improve access to financial services has been demonstrated in many countries around the world,” Friedline said. “In the US, going to branch tellers and ATMs are still the most common ways that people make transactions with their bank accounts. So, we wanted to understand whether brick-and-mortar financial services in the communities were still important to households and in what ways.”

Friedline and Despard analyzed data from a number of sources for the project, including the Federal Deposit Insurance Corporation, Federal Financial Institutions Examination Council, Credit Union National Association, National Credit Union Administration and U.S. Department of the Treasury’s Community Development Financial Institutions. The locations of financial services are linked to data on households’ financial health using the Center for Financial Services Innovation’s Consumer Financial Health Study and the FINRA Investor Education Foundation’s National Financial Capability Study. The project is funded by a $240,000 grant from MetLife Foundation and conducted with KU’s Institute for Policy & Social Research.

The authors examined households’ financial health in the short term by their ability to regularly pay bills, afford day-to-day expenses and save for emergencies. Long-term health is measured by having manageable debt and accumulating assets in the forms of stocks and retirement accounts. The data indicate that the locations of financial service institutions such as banks and credit unions are associated with households’ financial health. Among the findings:

  • The probability of saving for emergencies increases by 4 percent when moderate-income households are located in communities with at least equal densities of bank and credit union branches to alternative service providers, when compared with communities where alternative providers outnumber banks and credit unions
  • For lower-income households, living in communities with densities of bank and credit union branches that equal and outnumber alternative financial service providers is associated with approximately a 30 percent rise in the rate of accumulating financial assets.

The findings indicate that the locations of banks and credit unions are important to household financial health.

“These findings are a great step forward for understanding the relationships between the financial services in communities and households’ financial health. And, there’s a lot of nuance that isn’t captured in these findings,” Friedline said. “For lower-income households, brick-and-mortar financial services are related to their financial health. So, we don’t want to underestimate the importance of these traditional access points for lower-income households.”

Understanding the nuance is among the next steps in the Mapping Financial Opportunity project. Friedline and Despard will continue to analyze why the physical locations of banks and credit unions have such a pronounced connection to household financial health, households’ access to internet and smartphones, as well as whether and how they use technology to connect to financial services. They also hope to study why access to physical financial institutions is important to lower-income households and whether factors such as trust or discomfort with online banking play a role.

The findings are especially valuable for city and community planners, as well as policy makers concerned about financial services in their districts; consumer advocacy groups who want to increase access to financial services; and regulatory groups such as the FDIC, Federal Reserve and financial oversight bodies, Friedline said. The connection between community access and financial health is growing.

“The financial health of the household is important for the financial health of the community,” Friedline said. “A family that is financially healthy can feed their kids and pay for day care. They can deal with an emergency without falling behind on their rent or bills.”

The reports are available here:


To learn more about MetLife Foundation, visit www.metlife.org.

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