College savings programs less effective in neighborhoods without traditional banks, professor says – ScienceDaily
Children’s Savings Accounts (CSAs), offered by elementary schools in San Francisco and schools nationwide, were introduced to increase college attendance rates, limit student debt, and promote equality of opportunity for low-income children. However, San Francisco State University assistant professor of management Ian Dunham finds that geography – especially in neighborhoods that lack physical banks and credit unions – can play a key role in the amount. that families with CSA are actually saving for college.
Dunham, who teaches at the Lam Family College of Business in the State of San Francisco, and two collaborators are the first to study the link between economic inequality, a neighborhood’s financial services environment and CSA savings rates. in nearby schools, according to their recent study published in the Consumption diary.
They looked at San Francisco’s Kindergarten to College (K2C) program, one of the oldest and largest CSA programs in the country. As of 2012, the San Francisco Unified School District (SFUSD) opens savings accounts and deposits $ 50 for each new student from Kindergarten to Grade 6. Family and friends are encouraged to contribute to a student’s savings account throughout their studies and they are offered various incentives such as cash back.
Working with the San Francisco Office of Financial Empowerment, Dunham and his coauthors analyzed data from over 21,000 CSAs across SFUSD’s 74 elementary schools and mapped all banks, credit unions, elementary schools, and service institutions. alternative financiers, such as payday lenders. , in the city. What struck them was the relationship between schools with the lowest savings rates, the demographics of the neighborhood, and the number of check-cashing establishments.
“Our study finds that schools in low-income neighborhoods that have few physical banks and credit unions, and more payday lenders, check-cashing outlets, and pawn shops, have lower savings rates. weaker, “said Dunham. He calls these neighborhoods “financial deserts” because of their lack of traditional banking options.
“Fringe” financial service providers seek to attract unbanked and underbanked consumers by presenting themselves as cheap, easy to use and culturally sensitive, Dunham says. However, these providers are not always transparent about fees and their long-term dependence is not necessarily beneficial for the asset-building strategies of low- and moderate-income households, he adds. Traditional banks and credit unions offer protections to consumers, including things like FDIC insurance and transparency. Participation in the financial public makes it easier for people to save for the future and build up a credit history.
While her research does not explain why people living in financial deserts have lower CSA savings rates, Dunham says it highlights the need to improve and promote school-based financial inclusion and literacy programs. financial. “We want to shine a light on historically marginalized neighborhoods – whether through redlining, subprime mortgages, or other predatory financial practices – and spark a debate on how best to move forward. in a way that reinforces and complements the nuanced needs of the residents of these communities.
Dunham said he hoped this research would also encourage the private sector and entrepreneurs to develop new technologies, whether it be an app or a low-fee online banking program aimed at consumers. Low and moderate income Americans. “Let’s embrace technology and develop new financial services and products that reduce reliance on fringe financial services and make it easier to save and achieve personal financial goals,” he said.
SF State could be at the forefront of this kind of technology, Dunham says. The Lam Family College of Business recently received a $ 25 million gift from former student and digital currency entrepreneur Chris Larsen, his wife Lyna Lam and nonprofit Rippleworks that will launch a FinTech initiative at within the college. FinTech innovations aim to make everyday financial transactions, such as money transfers and banking, cheaper and more accessible.
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