How Financial Institutions Can Play a Key Role in Ending Cycles of Poverty
The challenges of bridging the gap between the poorest and wealthiest communities in our society have been well documented. Factors common to low-income households, such as low financial literacy, medical costs or tax complications, and inability to build credit only serve to widen discrepancies in generational wealth and create cycles of poverty that can be difficult to break.
Given the lack of a natural incentive for banks to do business in struggling communities, the federal government passed the Community Reinvestment Act (CRA) in 1977, with the purpose of requiring financial institutions to make credit available in low- and moderate-income areas. Under the CRA, banks are subject to evaluation every three years to ensure compliance, meaning each institution has to find ways of giving back to communities within the markets it serves or face sanctions that can seriously impact business opportunities.
But how effective has the CRA been in promoting balance within our local economies? While the intention behind the CRA was undoubtedly positive, one has only to read the news or look around to find reasons to doubt its effectiveness. Not only does poverty remain a critical issue across the country, but many banks find it easier to throw money at the problem to satisfy requirements, rather than take the time and energy to develop a strategy with tangible objectives or make any kind of emotional investment in the outcome of their efforts.
The reality is that banks have vast potential when it comes to making our communities better places to live. As primary sources of capital for businesses and individuals alike, banks can help change lives. Whether through mortgages, savings and investments, small business financing, or even day-to-day checking and credit card services, banks provide the means by which we can all work toward achieving prosperity. The question is where and how a bank chooses to offer its services, along with who is eligible for those services.
Of course, few people would suggest that banks should lower their lending criteria or start handing out free money – these are not sustainable solutions. Instead, it’s important to think about the ways we can make low- and moderate-income communities more bankable.
And this is where banks hold the key to unlocking some of the challenges facing community development. If banks were to focus greater energy and resources on providing no-cost financial education programs and helping people build credit in responsible ways, those in lower-income communities might well start to gain a measure of agency and control over their situation.
Many low- and moderate-income residents are simply trapped by a system they may not fully understand. Something as commonplace as filing taxes becomes a lot more complicated if your family can’t afford a computer. And when it comes to buying a house, the process of providing good credit history can be almost unfathomable. But with better financial education and a foundation of solid credit, it’s possible certain residents could get a better understanding of what’s necessary to find the prosperity they dream of. And in return, banks cultivate new customers who are loyal to the institution that gave them this opportunity.
The difficulties of community development are complex and not solvable with one initiative, or even a handful of initiatives. And there are many organizations – locally, nationally, and internationally – that truly do make a difference. But if we as financial institutions are serious about trying to improve quality of life in lower-income communities, it’s crucial that we recognize the level of commitment and responsibility required.
Our involvement must go beyond what is stipulated by the CRA. By giving our time and energy to foster community partnerships, provide educational programs, and help build credit, we can make a significant impact on the lives of people who are struggling. In this respect, we’re looking toward a future of banks collaborating and cooperating to make communities better for everyone, not just for those who live on the wealthy side of town.
Atlantic Capital’s community development initiatives make up a core element of who we are. Since receiving our charter in 2007, we have prided ourselves on consistently going above and beyond CRA requirements in providing grassroots support to low-and-moderate income communities in Atlanta and the surrounding areas. Click here to learn more about what Atlantic Capital is doing in the community.