Promoting Financial Stability: Creating Opportunity for the Underserved While Growing Your Customer Base

While individuals of all ages, incomes, and educational levels often lack the basic financial knowledge and skills to ensure long-term stability for themselves and their families, this is particularly true for low- to moderate-income populations. In fact, it sometimes seems as if the market is divided into two groups: wealthier consumers who rely on financial institutions for virtually cost-free, basic services and those with lower and moderate incomes who pay considerably higher amounts for the same service levels.

Consumer education can play a critical role in leveling the playing field—and offers a win-win opportunity for consumers and financial institutions. A meaningful financial education program should include an asset-building strategy that provides individuals with access to available banking services and allows them to build account relationships. By taking a leadership role in promoting financial education in their communities, financial institutions not only equip consumers with the means to strengthen their personal financial situations, but can also grow their own businesses and fulfill their Community Reinvestment Act (CRA) requirements as they do.

Community financial institutions are constantly seeking innovative strategies to expand into new markets and to expand product usage with their current customer base. By providing your current and prospective customers with the knowledge they need to become more savvy financial consumers, you can make them aware of the value of the products and services you offer and build the types of relationships that can grow your business over the long term. After all, the more people know about credit and banking services, the more likely they are to increase savings, buy homes, and grow their banking relationships.

The challenge, of course, is in defining the strategies and finding the resources required to efficiently and effectively educate consumers and to help them successfully navigate the financial marketplace. Fortunately, as awareness of this issue grows, so does the supply of readily available educational materials and partnership opportunities with community groups that are focused in this area.

The FDIC’s award-winning Money Smart financial education program has become a cornerstone of these efforts. In fact, Money Smart has brought scores of the unbanked and underbanked into the financial mainstream, with more than 95,000 people establishing new banking relationships since it was launched in 2001. The Money Smart training program is designed to help adults outside the financial mainstream enhance their financial skills and create positive banking relationships. The program is free to interested parties and may be used by financial institutions and other organizations interested in sponsoring financial education workshops.

Money Smart is available to interested parties free of charge in two versions:

  • An instructor-led program for those who plan to teach financial education to others in English, Spanish, Chinese, Korean, Vietnamese, or Russian. A version for the visually impaired is also available.
  • Computer-based instruction (CBI) that enables individuals to complete the program at their own pace on a computer in English or Spanish. The CBI is available online or can be ordered on CD-ROM.

Money Smart demonstrates the FDIC’s commitment to financial literacy, but we recognize that there is more we can do. One way that the FDIC is undertaking to make the mainstream financial system available to more consumers and to promote economic inclusion is through the newly expanded Alliance for Economic Inclusion. This network of banks, community organizations, foundations, educators, and state, local, and federal agencies is engaged in a grass-roots effort to expand banking services in low- and moderate-income neighborhoods, minority communities, and rural areas.

Another issue we are working to address is the shortage of affordable, small-dollar loan products available around the country. The FDIC recently hosted a conference for military banks to discuss small-denomination loan products and short-term lending products with associated savings vehicles. The conference highlighted progress in this area among several banks and credit unions. We hope to share some of their products and marketing strategies for use with a broader base of consumers in the coming months.

We are optimistic that these efforts will further foster financial stability for individuals, families, and entire communities. Our collective effort to develop financially literate consumers and affordable small-dollar loan products is an effective—and mutually beneficial—solution we can implement today.

Sheila C. Bair was sworn in as the 19th Chairman of the Federal Deposit Insurance Corporation (FDIC) on June 26, 2006. She was appointed Chairman for a five-year term, and as a member of the FDIC Board of Directors through July 2013.

SAVE THE DATE! Chairman Bair has graciously agreed to participate as a keynote speaker at the Seattle Bank’s 2007 Management Conference, to be held on May 23 and 24 in Seattle. We hope you'll plan to attend.

The Federal Home Loan Bank of Seattle has compiled a list of Financial Literacy Resources for its members, including resources for both adult and youth financial education programs.