Left Out Again: How Credit Unions Can Stop the Widening of the Wealth Gap

“Again, blacks were left out of a significant abundance of money and stand a significant chance of losing businesses, homes and other assets. This would be a travesty and continue to widen the wealth gap we are so desperately trying to close.” Renée Sattiewhite and I had a passionate conversation, filled with both confusion and rage, that started with this comment.

When we tell credit union colleagues that the co-authors of this article are good friends, we’re often faced with puzzled looks. Take a look at us on the surface. Renée is a black female, born in Lockhart, Texas (near Austin), and a powerful CEO of the African American Credit Union Coalition (AACUC), a leading advocacy and support organization for credit union organizations that are looking to be diverse and inclusive. I am a white male, born in Oshkosh, Wis., and help credit unions grow by testing innovative concepts as the incubator director for Filene Research Institute. But if you listen into one of our conversations, you will quickly discover what makes us more similar than different. We are both passionate about ensuring credit unions have equal access to products and services to assist their membership, and that they are equipped to serve the most financially vulnerable in their community.

During our recent conversation, we talked at length about how the most visible difference between us – the color of our skin – is one of the most shocking predictive indicators of how we are likely faring under the COVID-19 pandemic. While Renée and I are both fortunate to be managing under current conditions, those who reflect the color of our skin nationally do not share this common outcome, neither before nor after the start of the COVID-19 pandemic.

Racial Disparities Before and After COVID-19

Before COVID-19 swept across the world, the seed of disparate outcomes had already been planted in the U.S. A combination of systematic racism and lack of urgency by public and private entities to address the issue have contributed to these disparities since the nation’s founding. Both the AACUC and Filene have highlighted the huge gap in economic outcomes for households of color that have persisted for decades. For example, 49% of black and 34% of Latino/a Americans are underbanked or unbanked compared to 15% for white Americans. Between 1983 and 2016, median wealth for black households decreased from $7,323 to $3,557, while for white households it has increased from $110,160 to $146,984. Unfortunately, these differences extend beyond financial health into physical health. Black Americans were twice as likely as their white peers to die from diabetes, hypertension and asthma before COVID-19 (which coincidently are all risk factors that exacerbate COVID-19 symptoms).

These realities are not new; the pandemic has only exacerbated the financial and health challenges for households of color, especially for black and Latino/a households. Examining employment impacted by COVID-19, 60% of non-whites indicated someone in their household has lost hours or a job compared to 43% of whites. Wages overall tend to be lower with households of color, which causes a financial struggle daily; add a cut in pay or no pay at all and the result is even greater financial hardship.

Black and other minority-owned businesses struggled to get access to equitable financial services before the pandemic but are now struggling more than ever. With limited pre-existing banking relationships, blacks and other underserved populations were left out of the $349 billion Paycheck Protection Program (PPP) because many financial institutions accepted applications from their existing customers first. The propensity of the large financial institutions was to serve larger businesses and large loans while black businesses and loans tend to be smaller. Minority-owned businesses are facing greater headwinds to survive as 40% of revenues of black-owned businesses are now located in the most vulnerable business sectors (leisure, hospitality and retail) compared to 25% of revenues for all U.S. businesses. Already poor health outcomes for households of color have been exacerbated by the pandemic. For example, in my home state of Wisconsin, blacks represent 6% of the population and nearly 40% of COVID-19 fatalities.

A “Pathway” Forward for Credit Unions

A Filene analysis discovered that 31% of $1 billion-plus credit unions offered some special finance program for members and 27% made proactive efforts to invite members to contact the credit union within weeks of the crisis. More can be done, especially for households of color.

Filene’s “Pathways to Financial Well-being” report tracked the outcomes of three lending programs through the lives of 20 households of color that participated in the RMH Incubator. A key lesson from this research: Programs were most valuable and impactful when they were embedded in credit union relationships, rather than being strictly transactional. This lesson, which holds especially true for financially vulnerable households, must translate to the present moment.

The Pathways report shows us that while credit unions acted fast to provide “Access to Financial Services” – one of the four main elements of financial well-being – they must now begin planning to address the remaining elements that are essential for COVID-19 recovery: “Stability + Security,” “Planning + Decision-Making” and “Knowledge + Confidence.” These elements are equally as important as, say, access to a loan deferment. Credit unions can use the model to:

• First, understand what financial well-being means to each member. This is critical and at the center of the model.
• Second, identify capabilities and barriers to financial well-being in each element of the model. Understand where the consumer is on their journey.
• Third, set up routine touchpoints with the consumer to avoid a “dead zone” of interaction and enable them to advance along each element of the model in pursuit of individual goals.

The Pathways study provides credit unions with a framework to operationalize this financial well-being model by reimaging their role as a service provider, coach and advocate. This model is also a solution for credit unions to address many of the racial disparity root causes discussed in this article.

By equipping all consumers with a foundation to build wealth, have the space to make complex decisions and a plan for the future, and be instilled with the confidence to pursue their goals, we will see improvements. For example, having the knowledge and confidence to navigate the complex financial system is vital to access government programs like the PPP. Over time, if credit unions become a community focal point and leading advocate for addressing racial discrimination in all forms (including within financial services), we may begin to realize the disparities we’ve seen before, during and after the crisis diminish, or idealistically, be eliminated.

United by a Common Purpose

Despite obvious differences, Renée and I are not that different. We are united under a common purpose to empower the most vulnerable among us. By purposefully focusing on the needs of households of color and other vulnerable populations, credit unions will inevitably identify better ways to help members navigate a long-term sustainable pathway to financial well-being. We both agree, the real travesty would be to allow the COVID-19 pandemic to expand the wealth gap that many credit unions and support organizations like Filene and the AACUC have worked for decades to close. After all, the credit union motto is “people helping people.”

Adam Lee is Incubator Director for Filene Research Institute in Madison, Wis.

Renée Sattiewhite is CEO of the AACUC in Snellville, Ga.