LendIt USA: $400 from disaster
LendIt USA: financial exclusion is increasingly a middle-class problem
A startling 46% of American adults would be unable to come up with $400 to meet an unexpected expense without borrowing or selling something. We are so used to thinking about financial exclusion in terms of the un- or under-served that we are overlooking the financial vulnerability of nearly half the US adult population.
During a number of sessions focusing on financial inclusion at the LendIt USA conference in New York, a range of speakers addressed what is increasingly a very middle class problem. One key theme that emerged is that the issue of being poorly served by financials services isn’t just a problem for those on low incomes but is rather down to greater income volatility across a range of income groups.
The “1099 economy”, referring to the 1099-MISC form that US companies have to complete when they pay an individual over £600 a year in non-employee wages, has undoubtedly delivered flexibility and independence to a number of individuals but it has also resulted in greater uncertainly and volatility in income.
That volatility in income is matched by increased volatility in expenditures; unexpected changes in co-payments for healthcare, for example, that make financial planning more challenging and financial health more tenuous. Key factors in that increased volatility are declining real wages, except for the highest earners, since the 1970s and a shift from salaried work to hourly wages typically without benefit packages. Home-owning college graduates, who across a year may earn middle class salaries, are increasingly financially vulnerable; not the profile we have in mind when thinking about the financially excluded.
What is needed are products that help with income smoothing across the year. They may range from fairly simple solutions, such as having a choice when bills are paid to innovative insurance policies that cover unexpected events. Innovations in payroll (perhaps paying people daily) and real-time ACH payments in the US would also go some way in helping adapt to more volatility.
Mark Greene, Director of SafetyNet, a division of the Credit Union National Association Financial Group, outlined the need to create financial products that reflect the changing needs of the working population. As described by Lisa Servon, Professor of City Planning at the University of Pennsylvania and author of “The Unbanking of America: How the New Middle Class Survives”, in the absence of effective financial services products, one-off events (such as a fine or a weeklong furlough from work) can snowball and create serious financial distress and vulnerability.
So while fintech companies cannot solve the problem of declining wages and income insecurity, they can more readily create products and services that meet those evolving needs.
By Lisa Moyle, director of strategy, fintech, FinTech Futures Series (Banking Technology’s sister company)
