Public Banking
Government can and should enter the financial sector to help Americans. Financial literacy and access should be a focus of our government. I have been astonished by how many people in my age group and within my income bracket have no idea how stocks, bonds, ETFs, or mutual funds work. What is worse is how many people are unbanked. About 1/10 people have no bank, and the FDIC statistics find they are people earning 30,000 or less, minorities, households headed by disabled earners, and young adults and teens. People being unbanked is a market failure and is problematic; the private sector has given few options to the unbanked or underbanked. This discrepancy is why we should take another look at postal banking, the now-defunct myRA program (a government sponsored retirement savings plan), and improve financial literacy.
First off, the government can not get past the fact it has failed to educate individuals on financial literacy. The lack of focus on home economics and economics in general in k12 education is abhorrent. The obvious fix to this is to add more financial literacy classes in k12 education, but that is not enough on its own. There needs to be constant education or at least shared information because it is not just teens who need this education. Contracting or incentivizing financial institutions to give regular events around financial literacy for everyone along with using other mediums like tv, radio, podcast, social media, and so on would also help. Just explaining how financial institutions work, their products, and the cost benefits compared to check cashing or reusable debit cards would all be invaluable.
Postal banking is the solution to the issue of access. Postal banking is plain and simple, allowing the postal service to do basic to intermediate financial services. Yes, online banking, check cashing locations, and reloadable debit cards exist, but they all have their costs. The cost to online banking is the ease of access of your money; the cost of check cashing and reloadable funds are the compounding fees. That is not to say all banks and credit unions are free, which is where postal banking comes in. There are post offices in almost every community, and they already provide mailing services and at one-time basic banking. In fact, in some areas, they are piloting postal banking again. Expanding access to financial services is one of the best ways government can provide financial stability to households. Allowing people to cash checks, use a debit card, secure a loan, and access their money is something too many of us take for granted. When you think of the people most likely to be poor, or unbanked then think of all the charges they face just to access their money it makes sense they are struggling.
Finally, we should revisit retirement savings. I know the pushback regarding retirement services. The myRA program was attacked as not cost-effective, limited in usage, and ineffective. We can and should fix all of that. The program had limited access and interest in a time many Americans strongly distrusted financial services. We are in a different universe where people are clamoring for access to the market and you can see that with the uptick in Robinhood downloads. People are also more interested in safe places to store money that is where this program shines. The previous iteration limited itself to 15k and could open for as little as 25 dollars. Both can and should be changed. There is no reason to force them to roll into a new account if they are comfortable investing in safe treasury bonds. The myRa program would provide them no risk investing access and should be accompanied with additional financial literacy when opened. Too many Americans do not have access to an employer-sponsored 401k, and fees at most financial institutions will eat away anyone without a sizable minimum investment. Government should step in here to help the most vulnerable.
Giving individuals financial access through expanding government services is not only a common good but the right thing to do regardless of costs. Government should break down barriers to access and increase competition. By entering the market and showing there is a market they encourage others to serve low-income individuals and pressure them to keep costs low to get their business. More importantly, it shows the government can do things to meaningfully improve people’s lives; which is what we should all want.