Banking While Black and Brown

It is no secret that trust in banks is lower among some minority groups.  Financial advice often overlooks the historical and systemic factors contributing to economic disparities. These factors, rooted in a "persistent pattern of loss and mistreatment" (Hunter, 2015), have impacted wealth accumulation for many. It is no surprise then that Americans in the ethnic minority hold very little wealth – your money just doesn’t grow under your mattress. 

Let’s take it way back to 1865. No existing banks wanted to do business with recently freed slaves. President Lincoln signed the Freedman’s Bank Act on March 3rd, establishing a national bank to cater to this population. Black Americans were now able to stow away savings. However, only 5 years later, Congress authorized the bank to provide mortgages and business loans–which were going to white people. Essentially, the money black Americans were depositing into the bank was being lent out to white Americans while black Americans were being denied said loans. Of course, this practice fostered mistrust among black people! 

Today, disparities persist.  According to research by Newsom Reeves et al. (2021), Black and Latinx households, comprising 32% of the US population, represent 64% of the country's unbanked and 47% of its underbanked households. These households are also twice as likely as white households to lack a credit score. This isn't necessarily a choice;  alternative financial services like check cashers and payday lenders, while often more expensive due to high transaction fees (around 15%), may offer more immediate access to cash.  However, these services typically don't contribute to building creditworthiness. This leaves too many individuals bankless and without creditworthiness. 

The big picture problem is that lack of creditworthiness can hinder wealth building and long-term financial stability. While some might view using check cashers as a choice, several factors contribute to this.  Banks may have requirements like minimum balances, which can be difficult for those with limited funds, or hold deposits for several days, creating a hardship for those needing immediate access to their money.  Overdraft fees an also pose a significant challenge. As Newsom Reeves et al. (2021) point out, the timing of transactions can create overdrafts even when funds are expected to be available, especially for those with little savings.  For example, if someone deposits a check for $500 to cover a $700 rent payment and the bank processes the rent payment before clearing the deposit, an overdraft fee will be incurred, even if the account holder technically has $1000 when the check clears. 

I remember the burning frustration whenever my mom's bank account was hit with an overdraft fee. It felt like a cruel joke – how could they charge her $35, the equivalent of four or five hours of work when she clearly didn't have the money in the first place? That fee wasn't going to make her finances better magically; it just dug her deeper into a hole.

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These challenges create a system where those with existing financial resources can more easily accumulate wealth while those facing systemic barriers struggle to access traditional banking and build credit. The barriers to accessing and trusting traditional banking institutions are real and must be acknowledged, but keeping cash under a mattress is not a viable long-term financial strategy and it will make you neither financially stable nor independent. Unfortunately, banks are part of this game we don’t really want to play, but we kind of have to survive into retirement. 

SOURCES

Hunter, M. A. (2015, February 26). 22 million reasons Black America doesn’t trust banks. The Conversation. Retrieved February 14, 2025, from https://theconversation.com/22-million-reasons-black-america-doesnt-trust-banks-37982

Newsom Reeves, K., Hauptman, M., Hartman, C. G., Curley, R., & O’Malley, B. (2021, February 2). Racial equity in banking starts with busting the myths. BCG Global. Retrieved February 14, 2025, from https://www.bcg.com/publications/2021/unbanked-and-underbanked-households-breaking-down-the-myths-towards-racial-equity-in-banking