Access to services that promote wealth creation is one of five important characteristics of financial inclusion that were recently highlighted in a research by McKinsey & Co. Although the report’s main focus was on African American households, anyone looking to improve their financial status can utilize these guidelines.
Proficiency in Daily Transactions:
Many Americans do not have access to basic checking and savings accounts. This emphasizes how crucial it is to be able to execute secure and economical transactions, like depositing paychecks the old-fashioned way, as highlighted by the McKinsey report. Along with money orders and high-interest payday loans, many households in economically challenged areas turn to check-cashing services, which charge fees of roughly 3%. Low-balance and ATM fees can also harm people who have checking accounts.
According to McKinsey, a portion of the banking difficulty is brought on by the dearth of branches in communities of color. Though Americans are visiting banks less frequently in person and traditional branches are rapidly disappearing, digital money presents chances to increase accessibility. Traditional financial services continue to be important, though.
Access to Credit:
In some ways, financial development depends on one’s ability to borrow money. This is especially true for homeownership, which the majority of people find difficult to pay without a mortgage. The importance of loan access was stressed in the McKinsey research, which also noted that low-income households frequently had greater car ownership costs. Inequalities in auto loans provided to Black car buyers were shown in the survey, including higher rates and more loan rejections than to White customers, which was partly attributable to worse credit ratings. Without access to auto loans, people could find it difficult to afford a car that could boost their work prospects.
Other marginalized groups, including as Latinos, rural dwellers, members of the LGBTQ+ community, and recent immigrants, all have challenges, despite McKinsey’s predominant focus on African Americans. According to recent Census Bureau data, Asian American households have slightly higher median earnings than White households, whereas Latino homes are closely comparable to Black households in terms of wealth. In general, homeowners typically have substantially more wealth than renters.
Maintaining Essential Insurances:
Insurance is crucial in the process of improving one’s financial situation since it not only protects against large losses and expenses but also makes it possible for people to be eligible for certain assets. A noteworthy example is homeownership, where getting a mortgage frequently requires having property insurance.
The importance of health insurance, which is more common in wealthy homes, was emphasized in the report. For instance, according to the same census report, households with full or partial health coverage had a median wealth of $156,600 in 2019, which was more than seven times more than the $21,550 for households without full or partial coverage. Additionally, having no insurance is associated with greater issues with medical debt.
Life, disability, and other types of insurance are also essential. If payroll deductions are an option at one’s place of employment, many of these protections can be simply obtained through them.
Ability to Save: The McKinsey research emphasized the importance of creating a financial cushion for purposes ranging from unplanned expenses to retirement savings. Nevertheless, such a safety net is absent for millions of Americans. Only 48% of Americans questioned by Bankrate.com recently said they had enough emergency funds to cover at least three months’ worth of costs. With average credit card interest rates above 20% and total credit card debt reaching $1 trillion, it is clear that many people find it difficult to save money in liquid form.