credit unions financial inclusion banking deserts

Thirsty for credit; how growing up in a banking desert can hurt members’ scores for life

As recently as two years ago, the practice of financial inclusion in the Southbridge neighborhood of Wilmington, Delaware, and the neighboring Route 9 Corridor was, in a word, lacking.

An area so lacking in financial institutions and access to sources of financial health that local residents Monique and Tarik Wheeler had to resort to the neighborhood liquor store to cash a check in the middle of a wet and rainy Friday night. 

“Four dollars to cash a check,” said Monique. “[Out of] fifty dollars. They took four dollars out of it. That’s a lot.” They understand the predicament their residence in a banking desert has on their financial lifestyle, and wish there was a local financial institution they could join. Tarik says community residents along Route 9 Corridor depend on liquor stores to cash their paychecks because banks are so far out of reach.

“The bank’s not really near our way anyway, and most people are on bikes or walking, so it’s out of range. So we just work with the liquor stores, and that’s how they make their money off of us.” With an established financial institution like a credit union, Tarik says “They’re not taxing us for the money to come back. We could just get all of our money back and not (just) a little of it.” 

The Route 9 Corridor was an early predominantly Black suburb. The corridor presently includes Black, Latinx, and white residents, but most neighborhoods have become ethnically segregated, according to a 2017 plan for the corridor by the Wilmington Area Planning Council (WILMAPCO).

It’s expensive to be poor, but it doesn’t have to be this way, says Mehrsa Baradaran, law professor at the University of Georgia, in an interview with PBS NewsHour in 2016.

Banking deserts, defined

A number of studies, including one by the Federal Reserve Bank of New York, have defined banking deserts as a census tract including no financial institutions within 10 miles of its core. Banking deserts are more common in rural areas due to the fact that larger financial institutions like banks remain hesitant to operate in regions that aren’t as profitable as others.

 Dr. Russell Kashian, professor of economics and director of Fiscal and Economic Research Center at the University of Wisconsin-Whitewater, uses another definition of “banking desert” for his research. He categorizes them as the five percent of census tracts with bank branches furthest from their centers. “Banking desert is a relative term,” claims Kashian. “It’s what services do I get, as opposed to the other person.” 

Kashian notes an interesting link between banking deserts across the country and demographics: “Your population in your neighborhood as the African-American percentage increases, so does the distance to the bank branch.” Same goes for the proportion of the population living below the poverty line. The direct correlation between poverty and banking deserts presents a problem. “People who don’t have access to banks tend to be poorer, and they don’t have the discretionary income to pay these extra fees to begin with.”

Kashian says the higher fees attributed to cashing checks at liquor stores and payday lenders are directly connected to the fact that when we’re talking about banking deserts, such outlets are kings. “You don’t have the money to pay them back, but you can pay a percentage of what you owe to roll it over, and really just take the loan out again. What started out as $500, you’re now at almost $3,000. You never catch up that way.”

Due to federal deregulation in the 1990s, banks withdrew from local communities, closing their less-profitable branches that were often in lower-income communities and communities of color, damaging financial literacy rates for generations.
Photo: Wayne Lee Sing | Unsplash

Ghosts of credit histories past, present, and future

It’s one thing to find yourself in moments of financial instability as an adult, but what effects do banking deserts have on those actually born and raised in areas devoid of any semblance of financial inclusion? Tony Cookson, Associate Professor of Finance at the University of Colorado (Boulder), wrote a research brief in The Conversation that, together with two colleagues, found people who grow up in a banking desert on Native American reservations are at a financial disadvantage for the rest of their adult lives. These individuals are less prone to access or use traditional credit like credit cards or mortgages. When they are, their payments are considerably higher than average and they’re more likely to fall behind. Unfortunately, such financial instability and lack of healthy financial habits persist, even for those who move to areas with improved financial services and traditional institutions. 

This is representative of why it’s so important for children to be exposed to financial literacy, positive personal finance habits, and financial inclusion early in life. Young adults who had been exposed to financial services and institutions at an early age — perhaps witnessing a parent opening a savings account or simply making regular stops at their local credit union — are more likely to be financially literate. This concept is crucial because financial illiteracy can lead to expensive mistakes or oversights when members are trying to maneuver through various financial products they don’t understand or know how to manage. Those results highlight the importance of learning from our experiences and interactions with our credit unions by establishing a credit history at a young age. 


The (Cookson research) group learned that Native Americans growing up in banking deserts had worse financial literacy and were less trusting of those who worked in financial institutions.

In Cookson’s brief, they looked at banking deserts in a region with notably scarce access to financial services or institutions: Native American reservations. A recent analysis showed that an individual living on a reservation has to travel an average of 12 miles to reach their nearest financial branch. For the study, Cookson’s group used Equifax credit data to examine credit outcomes for those consumers who grew up in Native American banking deserts while comparing them to those who were raised on reservations with a branch nearby. 

The study found that while merely living on reservations was directly linked to poverty, financial instability, lack of financial education, and negative consequences in the future, it was found that when it came to credit-building, it was their inaccessibility to financial services and proper financial literacy influences that really mattered. 

The research group also surveyed almost 1,000 Native American residents to understand how banking deserts influenced their attitudes about finance. Their answers were impactful, telling, and distressful. The group learned that Native Americans who grew up in banking deserts had worse financial literacy and were less trusting of those who worked in financial institutions. Such beliefs lead young people to develop worse credit histories, potentially exposing them to disadvantages in financial education that can last a lifetime. 

Financial inclusion will take a team effort in America

No single product, service, or initiative can fully reconcile the growing concern of banking deserts across the United States on their own, even the incredible power of fintech. Digital banking has provided consumers vast, previously inconceivable access to virtually all-manner of financial products and services, including the ability to get a loan anywhere, anytime in six clicks and 60 seconds through the QCash life event lending platform. In theory, such features and financial assets are able to assist those in banking deserts, assuming they have a checking or savings account. 

Cookson’s research group, however, found that banking deserts have multi-dimensional challenges to overcome despite growth in digital banking technology. Those findings include having an area financial institution available, ideally a member-oriented CDFI focused on community financial wellness initiatives. In the past 10 years, for example, the number of branch locations has declined in the U.S. due to multiple factors including bank consolidation and, as stated above, the rise in digital banking products and services. This development has left some communities without any nearby financial institutions to join, particularly in low-income and rural areas, with a significant number of unbanked and underbanked individuals and their families paying the price

As for Monique and Tarik Wheeler and their fellow residents in the Route 9 Corridor and Southbridge? Well, turns out they are beginning to see results, at long last. Thanks to the grass-roots effort Banking Desert Initiative that brought financial services to the area underserved by financial institutions, Del-One Federal Credit Union opened a new interactive teller machine, or ITM, along Route 9, with a credit union branch in Southbridge, just north of the corridor.

“When you don’t have financial services for years and generations of people are cashing checks at liquor stores, it starts to change how you look at financial literacy,” says one of the Banking Desert Initiative’s founders, Larry Lambert. “It changes how you handle money.”

Share