Will credit unions become an oasis to North America's banking deserts?
Photo by Pixabay
In recent years, the phenomenon of banking deserts—areas without access to physical bank branches—has grown significantly in both the United States and Canada. This trend, driven by several factors, has profound negative effects on personal financial health and literacy. Addressing this issue requires innovative thinking, with credit unions uniquely positioned to fill the void.
The rise and causes
Approximately 12.3 million people in the U.S. live in banking deserts, according to the Atlanta Fed. North of the border, the Bank of Canada reports a similar trend, particularly in rural and remote regions. Many banks have closed branches to cut costs and adapt to digital banking, resulting in the number of bank branch closures in the U.S. doubling since 2020. While digital banking offers convenience, it has reduced foot traffic in physical branches, prompting banks to close less profitable locations. Economic downturns and population shifts have also led banks to consolidate branches in both urban and rural areas, creating banking deserts like Atikokan in Northern Ontario.
Digital-only may not be the answer
The move to digital banking is not a solution for everyone. Many individuals cannot afford a computer or a secure internet connection, and public computers are not secure for handling sensitive transactions. Additionally, not everyone can afford a smartphone, and those who can may face privacy and security issues. Digital literacy is also a barrier, especially for older adults and low-income communities. Internet access disparities and cybersecurity concerns further elevate these challenges.
In 2023, 4% of census tracts in the United States were banking deserts and 4% could become a desert if a branch closes. The banking deserts are 14% rural, 66% suburban and 20% urban. And 39% also have limited access to broadband. Residents are majority Black, majority Latinx or majority Indigenous in 15% of banking deserts and 17% of potential banking deserts.
What is the effect on financial health and literacy?
Poor credit: Without traditional banking services, individuals struggle to build or maintain good credit, crucial for loans and other financial products.
Predatory lending: Banking deserts lead to the rise of payday lenders and other predatory financial services, trapping people in cycles of debt.
Lack of financial preparedness: Financially illiterate individuals find it difficult to save effectively or manage expenses.
Inability to budget: Without adequate financial education, people struggle to create and stick to budgets, leading to poor financial outcomes.
The role of financial literacy and who should provide it
Financial literacy programs are one way to mitigate the negative effects of banking deserts. Educating individuals about managing money, understanding credit and making informed financial decisions is crucial. And credit unions are uniquely positioned to help. They were established to serve communities neglected by traditional banks, a legacy that traces back to Alphonse Desjardins, who founded the first credit union in North America to help disenfranchised individuals. This mandate continues to guide credit unions today.
We recommend the following
Initiating outreach programs focused on financial education: These can be delivered online, in local schools, community centers or through partnerships with local organizations. Credit unions can access the professional financial literacy program It's a Money Thing. The program is designed with entertainment in mind, and is popular with kids, teens, young adults and seniors, providing education both online and in-class, in English and in Spanish.
Engaging with the community: This can be through workshops, seminars and personalized financial counseling to help build trust and loyalty, opening the door to new memberships and stronger community ties. It’s a Money Thing is built to integrate into school curricula and we’d be happy to show you how it works.
The rise of banking deserts in the U.S. and Canada has implications for personal financial health and literacy. It may be left to credit unions to step in and serve these underserved populations. By leveraging their community-based model and focusing on financial education, credit unions can provide much-needed financial services and education to those thirsting for both.
Tim McAlpine is the Founder & CEO of Currency Marketing. He is best known for developing the It's a Money Thing Financial Education Program that credit unions from around North America are using to connect with new young adult members. He is also a driving force behind CUES Emerge, an emerging leader program that combines online learning, peer collaboration and an exciting competition component.
