If there’s one thing that the coronavirus pandemic has made clear, it’s the importance of “essential workers.” While this moniker is fairly broad and accounts for employees in many sectors, the definition is narrow: Essential workers are those who are integral to the health, safety, and very functioning of society.
From physicians and pharmacists to grocery store and delivery workers, these workers have arguably put their health at risk during the pandemic. What’s more, many of these essential workers with lower incomes have long been overlooked and underappreciated. They’re also underbanked, meaning that they don’t have access to basic financial products like bank accounts, personal loans, and credit cards.
It’s time to take better care of those who are taking care of us.
It’s time to take better care of those who are taking care of us. Here are three vital ways we can help lower-income workers attain greater financial security:
1. Bank accounts for everyone: About 55 million Americans, or 22% of households, do not have a bank account. Most of these are minorities including Hispanics and African Americans. The $2 trillion stimulus CARES Act was implemented to help Americans during these turbulent times. And while the Internal Revenue Service has distributed about half of the allotted money to Americans via direct deposit, it hasn’t yet sent funds to the millions of Americans who don’t have a bank account.
Instead, the IRS will mail checks to these individuals, who may have to use a cash checking service that charges high fees. In other words, the Americans who are most in need (many of whom are essential workers) will have to wait the longest for their payments. Governments and bank must work together to provide FDIC-insured bank accounts to the underbanked population and waive overdrafts and other fees for maintaining a low balance.
2. Access to cash: The death of cash has been portended for more than 20 years, but cash is still the fastest way to get much-needed funds to the underbanked. Employers can now allow employees to choose from a broad array of payment types — including cash (as well other methods such as prepaid cards, ACH, etc.). In order to do this, companies will need to partner with fintech firms that provide many of these payment options. For example, payments-platform company KyckGlobal offers companies various payroll options that in turn allow employees to choose how they want to be paid. Said CEO Ashish Bahl: “Employees can also request an advance on earned wages, which helps them cover the unanticipated expenses of everyday life.”
One industry leading the way in providing quick access to cash is car-title lending. In many cases, an underbanked individual’s most valuable asset is their car, and they’re able to borrow against it. The fees charged are both nominal and regulated, so the borrower can receive almost the full value of the loan. More businesses should explore whether they can leverage digital solutions to make fast cash payments to their employees and customers so they can obtain much-needed liquidity during these difficult times.
3. Support for financial literacy: Now is the time for the federal government to allocate more resources to community development financial institutions (CDFIs). There are more than 1,000 CDFIs in communities across the U.S. For example, Hope Credit Union is a CDFI that provides financial products to the underbanked in the Southeast.
The government could establish a working group between Trump administration officials and executives at CDFIs to develop ways to get capital to people in need. In 2019, the Treasury Department’s CDFI program originated $21.5 million in loans and investments. This should be a lot more, given the need for capital in underbanked communities.
In addition, the government could provide grants to CDFIs to start workshops in which essential workers can ask questions of financial counselors. Some of the funds could be used to advertise the programs so that essential workers know about these opportunities to learn. Just as every community needs a hospital to deal with patients affected by this pandemic, there must also be a well resourced CDFI and financial center in all areas to help low-income workers get back on their feet.
[This article was previously published in MarketWatch]
Kabir Sehgal is the CEO of Tiger Turn. He is a multiple Grammy award-winning producer. He is also the author of 15 books including the newly published biography of his father Raghbir Sehgal: Close the Loop: The Life of an American Dream CEO & His Lessons for Success. (Hachette Originals, 2020), and Coined: The Rich Life of Money And How Its History Has Shaped Us (Hachette, 2015)