ACCI Conference 2024

National Endowment for Financial Education (NEFE) Paper Award Winner

Inclusion in the financial system is unequal across race and class, with many Black, Latinx and low-income families unable to access banking services due to discrimination and increasing costs of maintaining accounts. Instead, they turn to costly alternative financial services (AFS) like check cashers and payday lenders that can exacerbate financial difficulties. We consider how enhanced social policy may improve financial access by asking 1) does increasing the minimum wage improve the availability of neighborhood financial services? and 2) does it reduce racial inequities in access to services? We evaluate changes in the availability of financial services in local communities as a function of state minimum wage policies between 2003 and 2015. For the average community, increasing minimum wage generosity results in a reduced presence of payday lending services, but little change in banking services. However, results stratified by neighborhood racial composition reveal that declines in the share of high-cost services following minimum wage increases only occur in predominately white neighborhoods and that predominately non-white neighborhoods see little change in the composition of services. This has implications for the development of policies to improve financial access.

Author(s): Megan Bea, Lauri Luosta