MADISON, Wis.—Minority households comprise 30% of all U.S. households, but account for just 23% of household income and 10% of household wealth. Now new research from the Filene Research Institute has found minority households are significant customers for nonminority-owned financial providers and offers ways financial institutions can help close the gap.
The research was sponsored by Visa.
Among the findings in the new report, titled “Reaching Minority Households: Learning from Minority Credit Unions,” are:
- Diverse Assets. According to Filene, minorities represent a huge opportunity in financial services: including $259 billion in deposits, $874 billion in non-deposit investments in retirement accounts, $428 billion in non-deposit investments outside retirement accounts, and $1.7 trillion in home mortgages.
- Greater Challenges. Black and Hispanic households are far more likely to face large financial gaps than white and Asian households, Filene said.
- Small Account Barriers. “Oftentimes banks, insurers, and investment managers do not find smaller accounts attractive and thus impose higher per-unit costs, which dissuades low-wealth households from participating in conventional financial markets.”
- Power of Affinity. When minorities face financial gaps and traditional banks are not focused on serving their needs, they often turn to minority credit unions (MCUs), which make up 13% of all credit unions and hold $53 billion in assets
- Growing Segment. Despite charging higher interest rates to offset elevated delinquency levels, small MCUs have returns on assets similar to other institutions and grow faster than all small credit unions, Filene said.
- Emotional Connection. Minorities report joining and utilizing minority financial institutions for emotional or affinity reasons independent of the interest rates charged and paid, terms offered, and their loan approval rates.
- Effective Approaches. Credit unions report the following as most effective: creating targeted products, offering attractive pricing for higher-risk households, and financial counseling and education, according to Filene.
“This research is the first output in the larger Incubator project to understand the scope and size of the underserved market within minority households,” said Andrew Downin, director of Innovation at Filene. “The next step is to take meaningful action to solve this problem by making promising programs available to more consumers.”
Filene reported that an Advisory Panel made up of representatives from academia, public policy and the credit union community are currently working to identify five products to be tested in-market through Filene’s proven Incubator process. The products will focus on serving African-American and Hispanic populations in areas such as small dollar loans, non-citizen lending, and micro-enterprise (or micro-finance).
“The Incubator should provide compelling examples for non-minority credit unions and other financial institutions looking to launch programs that address financial gaps among minority households,” said Robert Meloche, senior director of financial inclusion at Visa Inc. and an advisory panel member. “Products under consideration were submitted by credit unions and other organizations in the financial sector.”
Those interested in learning more about testing the selected products are encouraged to attend one of several free webinars scheduled in February. Registration information is available at filene.org