Financial Capability and Asset Building for All: The Potential of Postal Banking for Under-Served Low-Income, Minority, and Rural Communities

Background and Purpose: Households need financial services to manage resources, cope with unexpected emergencies, and build assets. However, high-cost alternative financial service (AFS) providers such as payday lenders have filled gaps left by bank branch closures in many lower-income and minority communities (e.g., Barth, Hilliard, Jahera, & Sun, 2016; Fowler, Cover, & Kleit, 2014; Hegerty, 2016; Prager, 2014). Postal banking has been proposed as a third, "public option" to increase access to safe and affordable financial services in underserved communities (Baradaran, 2013, 2015; Warren, 2014). The purpose of our study is to examine geo-spatial variation in population-adjusted densities of banks, AFS providers, and post offices in the US to assess the potential role postal banking might play as a strategy to address the Financial Capability and Asset Building for all social work grand challenge.

Methods: Using data from the US Geological Survey, Federal Deposit Insurance Corporation, National Credit Union Association, and Esri Business Analyst, densities were calculated by determining the total number of bank and credit unions, AFS providers, and post offices within each zip code in the US (N = 31,489) per 1,000 residents. Also, a ratio of banks and credit union to AFS provider density was calculated to assess the relative mix of these services in metropolitan statistical areas (MSAs). Densities were truncated at the 99^th percentile to exclude zip code outliers (e.g., airports, movie studios). Bivariate and multi-level analyses were conducted to examine variation in densities and financial service ratios based on community social and economic characteristics from the American Community Survey (2010-2014 five-year estimates).

Results: For every 1,000 residents, there are 0.37 bank and credit union branches and 0.57 post offices in US zip codes, and 0.05 AFS providers. Post office density is much higher in rural (.89) than urban (.04) and town (.21) zip codes; 87% of all zip codes without a single bank or credit union are located in rural zip codes. In zip codes where 40% or more of residents live in poverty, there are as many AFS providers as banks or credit unions, yet over three times as many post offices. Though there are four banks or credit unions for every AFS provider, the percentage of residents living in poverty, who are Black, and who are Latino are all predictors of a lower ratio (p < .001) in multi-level models for MSAs.

Conclusion and Implications: All residents of the US do not have the same access to financial services. Residents living in rural zip codes and in zip codes with higher proportions of residents who are living in poverty, are African-American, or are Latino have less access to banks or credit unions and might benefit from accessing financial services through post offices. One exception may be community development credit unions, which have missions to serve low-income communities, yet comprise a tiny fraction of the financial services market.