The Expansion of Financial Services in Social Policy: Does This Trend Benefit Vulnerable Populations?

Background: Financialization in the information age has changed the way in which social policies are designed and implemented. Traditionally, financial services have been used in policy implementation for resource transactions, a mechanism to deliver a policy benefit (Gilbert & Terrell, 2008). For example, cash benefits for Temporary Assistance for Needy Families (TANF) are delivered to recipients’ bank accounts or their Electronic Benefits Transfer cards via the banking system (DHHS, 2016). However, there is a growing trend in which financial services (e.g., cash transfer, asset accumulation, tax credits, and insurance protection) are integrated into social policy, and used to achieve policy goals through changing individual behaviors. Given that disadvantaged populations are the least likely to use financial services (e.g., FDIC, 2016), this trend raises questions about equity.

Methods: Using a case study approach, the authors conduct an in-depth, multi-faceted exploration of the trend of integrating financial services into social policy. Authors identify policy examples that are relevant to financial services in the screening phase, and collect documentary evidence (e.g., academic papers, government reports, field notes) to understand the roles of financial services in policy implementation. The study (1) describes the expansion of financial services in social policy, (2) proposes a framework to interpret this process, (3) tests and refines the hypotheses using policy examples, and (4) raises the question whether such expansion benefits vulnerable and disadvantaged populations.

Results: Financial services have assumed a new role in social policy, aiming to shape individual behaviors directly relevant to the social policy goals. For example, conditional cash assistance programs specify that certain “conditions”—such as pursuing schooling, training, health care, and employment—be met in order for recipients to receive cash assistance. These conditions go beyond using financial services to receive benefits (e.g., EBT), and are associated with promoting recipients’ behaviors aimed at moving them out of poverty. Other examples include Health Savings Accounts that permit people to save money tax-free for medical expenses, and also may offer a one-time financial incentive to encourage annual physical examinations. This trend can be observed in many other social programs, integrating financial services into social policy in ways that aim to directly achieve non-financial outcomes in health, education, savings, and so forth. Examples include 401(k)s, the Affordable Care Act, 529 College Savings Plans, and ABLE savings accounts for children with disabilities.

Conclusion: Social policies that integrate financial services have two key features. They often are created or transformed by the policy sector for social development purposes, and require close collaboration between the financial and the social policy sectors. The trend raises concerns about financial inclusion. As social policy increasingly relies on financial services—not only for resource transactions, but also for other policy goals—it is not clear that vulnerable populations will benefit, since these populations are more likely to be excluded from financial services. If financial services are to become a larger platform for social policy delivery, this platform should be more readily accessible to everyone.