Provide financial support to underserved groups

Accountants and other financial professionals who wish to better serve low-income and underserved communities can begin by understanding the access barriers these groups face in order to provide them with advice tailored to their needs.

The impact of COVID-19

The COVID-19 pandemic has affected families from all walks of life, and low-income and minority communities have been hit particularly hard compared to their predominantly high-income and white counterparts. This is due to a myriad of complex underlying issues, such as the prevalence of high-risk health factors as well as economic factors in underserved communities.

In the article “COVID exacerbates financial planning problems in underserved communities”, Sophia Duffy, assistant professor of business planning at the Center for Economic Empowerment and Equality at the American College of Financial Services, discusses some of the low-cost planning strategies that counselors can implement to help clients with ailing clients. served.

“Financial advisers need to be aware of the impact of the effects of the pandemic, especially in coming up with strategies to protect low-income families from financial ruin. Advisors, who are well aware of the risks of not planning, should be aware that those risks are more pronounced now, ”said Duffy.

One area where counselors can be particularly helpful to underserved clients and those affected by COVID-19 is health care planning, which is more than just helping your clients obtain insurance coverage. appropriate disease.

“The long-term impacts of COVID-19 on health put long-term care planning at the forefront. Long term care insurance adds another layer of protection to protect against crushing debt due to the costs of prolonged illness. Such insurance covers costs that might not be covered by health insurance, such as nursing home costs, custody and assistive care for daily activities such as bathing and dressing ”, Duffy said.

Clients should also plan for their disability by preparing a living will and creating other documents that will formalize a client’s wishes for their medical care if they are unable to do so, Duffy said. Other areas where counselors can offer advice include disability insurance, life insurance, and income protection if a family’s sole breadwinner becomes ill or dies. Finally, advisors can help underserved clients plan their estates. While many low-income families may not have significant assets, estate planning for the property is still crucial.

“The principal residence is usually the most important asset that individuals own, and in fact, 54% of the wealth held by black households is made up of home equity, so planning for the transfer of the home is crucial. house, ”Duffy said.

Partnering with community organizations that offer free services and resources related to financial planning is one way for counselors to build trust among underserved populations, Duffy said. Consultants should also consider whether clients in these communities will require translation services.

Racial inequalities in banking

Counselors should be aware of the barriers to access that underserved communities face, particularly in construction finance, banking and credit services.

“Representing barely 32% of the American population, black and Latino households represent 64% of the country’s unbanked households and 47% of its under-banked households,” according to “Racial Equity in the Banking Industry Starts by Shattering Myths”, a report released by the Boston Consulting Group (BCG) in February 2021.

An “unbanked” household does not have a bank account, while an “unbanked” household has a bank account but has used nonbank credit or transaction products in the past year. While a common assumption regarding unbanked and underbanked people is that these groups are unfamiliar with banking products, an analysis of data by BCG found that nearly half of unbanked households previously had an account.

“Insufficient funds are a much bigger obstacle, with 29% of unbanked households citing minimum balance requirements as the main reason for not accessing traditional financial services,” reported BCG.

In addition, structural barriers to opening a bank account are prevalent in underserved communities, such as few or no bank branches in the neighborhood, inconvenient opening hours, or language barriers.

“In many black and Latin communities, check tellers and payday lenders are more common than bank branches,” according to the report. “Without a bank account, families cannot generate the data that helps establish creditworthiness. ”

While innovations in mobile banking and fintech can help alleviate some of the challenges these communities face, traditional bank branches are still relevant for building credit, according to “Life in a banking desert”, an article by Terri Friedline and Mathieu Despard published by The Atlantic.

A 2016 New York Fed survey of increasing “banking deserts” found that “residents lose access to small business loans and mortgages when bank branches close, hampering investment and entrepreneurship necessary to stimulate local economic growth, “according to the article. This research will help experts better understand what regulatory reforms are needed.

“With these understandings, investments can be made in existing innovations such as the Micro-Agency Division of Self-Help Federal Credit Union, CT Prospera, and Community Development Financial Institutions (CDFIs) that provide financial products and services. safe, affordable and wealth-generating. to low-income communities and communities of color across the country, ”the article reads.

Support micro-enterprises

“Small business ownership offers a path to economic self-sufficiency for black Americans, especially in predominantly black cities,” says July 2020 report by Pamela D. Lewis, Senior Non-Resident Researcher at the Brookings Institution and Director of the New Economy Initiative (NEI) for Southeast Michigan. Lewis’s report focused on small businesses in Detroit, where the number of businesses owned by black residents is above the national average.

“Microenterprises owned by people of color are less likely to have an existing relationship with a commercial bank,” the report says. A microenterprise is a business that operates on a small scale, with fewer than 10 employees.

“Of the $ 20.8 billion loaned under the Small Business Administration’s Program 7 (a) in 2019, 32% went to minority-owned businesses, but only 6% went to minority-owned businesses. to Latinos or Hispanics and 3% to black-owned businesses. According to the report, which analyzed data from the US Small Business Association (SBA).

The NEI interviewed small business owners in Detroit to learn more about the challenges they face with “equipment, capital and technical assistance”. NEI has found that the impact of capital relief is maximized when beneficiaries have ‘access to real-world advice, coaching, tools and experts in the following areas: accounting, finance, cash flow management , marketing, business digitization, HR strategies, legal and day-to-day operations. ”

Accountants and other finance professionals need to understand the barriers these businesses face and how to support them. These barriers include inability to access SBA loans, higher insurance costs, labor issues and more, according to “How to Include Microenterprises in Economic Growth Strategies”, a Lewis’s blog post posted on the Brookings website in July.

While Lewis’ research focuses on ways in which communities can support these types of businesses, the strategies suggested by Lewis can also be implemented by individuals: providing expertise in the real estate field, accounting and other areas of business activity and provide coaching and mentoring.

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