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Regions’ Analyst on Closing the Racial Wealth Disparity Gap

By Laura Anderson

Creating inclusive prosperity should be a critical concentration for financial institutions. And that starts with bankers, who are the backbone to strengthening relationships between their institutions and underserved consumers.

As the world has moved forward with fast-developing technology, discrimination, bias and poverty continue to affect minorities in the country, particularly those in low-income areas.

In many of these struggling communities, payday lenders, pawnshops, vehicle title lenders, or check-cashing companies exist on nearly every corner. While some of these businesses can serve a purpose, their products and services can also be dangerous for low-income workers or those who are unemployed, credit-challenged, or less educated.

There are numerous instances where a company has essentially trapped someone in a cycle of debt, charging excessive fees on transactions or high interest rates on loans or engaging in asset-based lending or equity stripping that may meet an immediate need – but is unhealthy for someone trying to build sustainable wealth.

People within banks can lead the way in creating solutions for minorities to establish an enduring financial legacy. Bankers can develop and promote free, high-quality financial education programs and advocate for low-cost checking and savings accounts that are backed by easy-to-understand consumer protections. And the mainstream banking system is a prime place to develop more products and services aimed at the financial wellbeing of minorities because banks already comply with more consumer protections. So, bankers should have a better understanding of what protected classes need.

Volunteering to teach financial education, working with nonprofits and government agencies, and engaging young students are investments made by people in the banking system that benefit consumers and financial institutions.

And it is important to remember that low-income does not equal uneducated. There are populations in underserved communities who have degrees or certificates from colleges, universities, and trade or vocational schools. They are all striving to mold their income into wealth while competing in the job market. In turn, banks must be intentional with their hiring goals, offering a wide range of job opportunities, competitive salaries, healthcare options, retirement savings plans and employee financial education programs to attract a diverse workforce.

Recruiters, interviewers and hiring managers must also agree and understand that: Biases and hurdles exist for diverse candidates; bank associates must be educated about discrimination, prejudices and racism; and consistent and strategic initiatives are necessary to eliminate barriers to employment.

As a Black girl who grew up in a low-income area, I saw families around me struggle. No matter the amount of income they acquired, translating their income into wealth was challenging.

My mother retired from a financial institution after 22 years and never owned a home. That is changing. Proudly, each of her three daughters is a homeowner.

But for many who come from similar backgrounds, that is not always the case. That’s where an intentional strategy from people within the nation’s banks can make a clear difference. If bankers make inclusive prosperity their goal, they’ll empower more minorities to financially thrive.

Throughout American history, there have been policies, practices and events that made financial inclusion and wealth especially challenging for Blacks and other minorities. The Social Security Act of 1935 provided unemployment insurance, old-age insurance and means-tested welfare programs, but excluded agricultural and domestic workers who were mostly minorities.

The Federal Housing Administration established policies that caused wealth disparities that still exist today. And redlining — refusing a loan to someone because they live in an area deemed financially risky — excluded many aspiring Black homeowners from mortgage lending. These practices and policies further suppressed the underserved, making it harder to lift themselves out of poverty.

This is where bankers themselves have a role to play by helping bridge the gap between economic opportunity and more equal outcomes for all. Inclusion involves communication between bank leaders and those being served — listening, valuing input and providing action. Wealth must be a part of these conversations because it is essential for long-term security. It provides funds to create businesses, save for retirement, invest in education and own homes.

That’s why institutions need to begin with the people within a bank to create mass inclusion and wealth for the underserved. People are the dynamic that can cultivate inclusive prosperity, which makes racial wealth gaps smaller and stimulates generational wealth in minority communities.

 Laura Anderson, a Birmingham-based model validation analyst for Regions. This article originally appeared in American Banker magazine.