If you think the average American has a financial safety net to fall on, be that an emergency fund, a funded retirement account, or even cash in a safe at home, think again. According to The Fed’s 2020 Survey of Household Economics and Decisionmaking:
1 in 3 Americans surveyed would be unable to cover a $400 emergency expense completely using cash and its equivalent. With people of color, that number rises to over 1 in 2.
Combine this with the reality that your ALICE-classified employees face when they run into a small dollar emergency: they have no other choice but to turn to a check cashing storefront, a pawn shop, or an online predatory payday lender.
Even if your employees are aware of the unethical and unaffordable nature of predatory payday loans (with interest rates well in excess of 200%), the 1 in 3 Americans classified as subprime borrowers typically have no other choice.
While financial literacy needs improving in this country, systemic lack of access due to 160 years of discrimination since Emancipation is the culprit for the existence of predatory payday lenders. Redlining is just one example of practices that kept non-white American communities from accessing the same wealth-building tools as white Americans for the majority of the 20th century. In solving this systemic problem of a segregated credit system, we need to start from the recognition that America is not, and has never been, an equitable utopia where every citizen has equal access to resources. By taking accountability for 160 years of discrimination, we can put our heads together and build technology-driven solutions to sticky, systemic issues.
When it comes to access to affordable credit, the private sector does not need to wait on policy. Business leaders can begin helping their employees in need today with Employer-Sponsored Small Dollar Loan (ESSDL) programs.
To see the data on improving employee retention and satisfaction, check out The Urban Insitute’s 2020 report on ESSDL programs, or the most recent data from Filene.
To see the program in action, check out The Community Loan Centers of America for local solutions, or national Fintechs like Kashable.
Be the change. Help your employees and heal your community, today, with Employer-Sponsored Small Dollar Loans.
Buoy Holdings is an Ithaca-based benefits consultant on a mission to end predatory lending in America. Schedule a meeting to learn more.
