#FinHealthMatters: Center for Financial Inclusion
By: Jeffrey Riecke, Communications Specialist, CFI
This morning I had the luxury of splitting an Uber with my girlfriend for our to-work transportation. Neither she nor I are affluent by United States standards, but I would say we’re relatively financially healthy. Most months, our expenses like rent, food, medical bills, and student loans are low enough compared to our incomes that we have money left over for things like Uber rides, dinners out, and the occasional vacation. We have formal financial products and understand them well. Financial health for us means the combination of our financial flows and our financial products positions us for financial stability in the immediate and long-term, even as we grow older and our financial demands dramatically change.
Building financial health, for me, requires attention to my day-to-day financial activities that help build my resilience and allow me to take advantage of opportunities. It’s having savings quietly accumulating for a rainy day or for that bicycle purchase. It’s having access to loans that help if I want to go back to school, buy a house, or start a business. It’s the ability to pay up when an emergency visit to the hospital is necessary, and it’s the confidence that if my house is broken into I can replace my possessions.
My own financial health is very much related to the unique day-to-day financial needs, opportunities, and emergencies that exist in my life. Someone who is unemployed, or older, or supporting a child, or enrolled in school would have a much different assessment of their own health. Similarly, someone in a low or middle income country — where the Center for Financial Inclusion focuses most of its attention — would have different financial needs and therefore different financial health. Despite these differences, however, the thing I’ve noticed is that many of the big financial issues around the world are the same. As part of the Center for Financial Service Innovation’s (CFSI)financial health blog contest, I wanted to offer some observations along these lines.
Whether you’re in the United States or elsewhere, being financially healthy means having credit options that don’t carry scarily big strings attached. This is something I see in my own neighborhood. In the United States, most households have a bank account, but roughly 20 percent of these households are underbanked, meaning they have to resort to informal financial services for some of their needs. The payday loan industry in the United States, for example, has grown robustly in recent years, and is known for high interest rates and fees that trap borrowers into cycles of debt.
As an American, I’m constantly exposed to a barrage of advertisements for financial service providers including payday lenders and alternative financers. In that Uber ride this morning my girlfriend and I heard an ad on the radio for a rapidly-issued loan product. This spurred a conversation between she and I on the prominent U.S. mortgage lending company Quicken Loans. If their name isn’t enough to give you pause, I’m sure their Super Bowl spot this past January is. In the words of Accion Venture Lab’s Amee Patel and Paul Breloff, “this ad basically turned the biggest household financial decision — i.e., whether to get a mortgage or home equity line of credit — into a Pavlovian-style autonomic response: ‘Push Button. Get Mortgage.’”
One might posit that this is an ill-conceived though not problematic advertisement as the country has surely wised up since the 2008 global financial crisis, but as only 57 percent of Americans are able to pass a basic financial literacy test, and the U.S. sub-prime auto loan market is looking dangerously familiar to the pre-’08 mortgage market, it’s hard to feel comfortable with the fact that Quicken Loans is the name of the arena where the recently crowned Cleveland Cavaliers NBA team plays, if not for Quiken Loans practices then for the flippancy in which they discuss mortgages.
On the whole, the average American household has over $15,000 in credit card debt.
In the United States and around the world, financial health means being able to make informed decisions to effectively navigate the financial services landscape and maintain an appropriate level of debt.
But I’d love to hear — what does financial health mean to you? Let us know in the comments.
This blog post originally appeared June 29, 2016 on The Center for Financial Inclusion Blog. It was one of 10 winners of a national #FinHealthMatters Day essay contest created by CFSI. MetLife Foundation is a major sponsor of CFSI’s ongoing consumer financial health work. To learn more about FinHealthMatters from CFSI, sign up here.