Inequality and biases in finance: We started from the bottom, now we’re here

When the first rural credit unions were formed way back in the late 1800s, the impoverished, weak, and underbanked were at the core of such systems. The pioneer of these cooperative financial organizations is Friedrich Wilhelm Raiffeisen, who was a young mayor in a small German town at the time. During his tenure, a dreadful winter famine enveloped the region – Raiffeisen was particularly affected by the misery of the town’s poverty-stricken population.

Remember, the first patrons of credit unions were not artists, royalty, the wealthy, but instead primarily working class, struggling business owners, and the generally poorer people; groups traditionally preyed upon by loan sharks, bookies, and rapacious banking institutions. Not to suggest our humble origins were 100% inclusive, rather that our focus began on the underserved. And while Raiffeisen’s idea revolutionized the way we offer cooperative finance today, sadly there were then, and continue to be, methods intended to keep the poor, well, poor.

Fast forward to the United States today, a country that suffers from levels of poverty beyond every other forward-thinking democracy in the world. Public policies, tax breaks, legislation, and the like are testament to the fact that the United States not only seems to reward the rich but designs how we operate, keeping such a status quo. All the same, the wealthier have more political pull – we see this in how affluent Americans are consistently the majority of those advocating for lower taxes, costs-of-living, working wages, and other legislation that effectively keep them richer.

A case of note might include subsidies doled out to homeowners by the federal government during 2020, the height of the pandemic. Over $193 billion in benefits all told went to primarily white families earning on average six-figure incomes. Citing an ongoing federal underinvestment, the case was that most low-income Americans simply don’t qualify for housing aid. This example represents merely a bit of the tip of an iceberg that’s been sinking families for generations while keeping the notorious 1% afloat and thriving.

Further, as automation rules the day, variables that profile and even punish the underprivileged are rampant in state and federal benefit practices. Automated eligibility systems do have their place, with implementation expectations of removing discrimination in how those decisions are made. Unfortunately, these systems are generally designed with fundamental unfairness that make such benefits even more difficult to attain and easier to take away. Many of these programs are designed by the very people who largely consider the poor to be mentally ill, convicts, drains on society, and as getting free rides from the government and others. Would it be safe to say then that because of this consideration, the United States almost habitually accepts systems that degrade and scrutinize the poor to a level that would not be accepted if employed upon alternative classes of society?

Not to suggest the U.S. government does nothing to alleviate poverty. There are numerous agendas tasked with aiding the poor, including job opportunities, tax credits, housing vouchers, and other programs. However, there exists a glaring lack of attention and effort regarding the root causes of poverty. In some cases, these aid programs may have an adverse effect where certain industries reduce wages or landlords bump rent. So, how do we keep these benefits with the people they are designed to serve rather than the bulk funneled backward through a revolving door? Investment programs, expanded financial well-being in low-income zip codes, financial education in schools and in prisons and everywhere, are just a handful of needs we are so desperately missing. Ultimately what I am saying is that there is a variety of potentials for credit unions to return to their roots.

April is Financial Literacy Month and Credit Union Youth Month, which the system embraces with great awareness. But what are we doing to teach our youth, our homeless, our indigent, and those most deserving about the systems in place that keep people poor? Every single minute the gap grows between the marginalized and the wealthy, exhausting proficiency, legislative progress, and ultimately healthier communities. The lower the income, the further away from financial well-being, and that is unacceptable on so many levels, especially when we recognize many of us don’t even realize we’re supporting this path. Perhaps it’s time we all take a deeper and longer look at what our shops are doing to change the past, nurture the present, and steer the future so that our people helping people philosophy doesn’t die with increasing fees and making more money, but balloons, embracing the folk we built ourselves for.

Michael Murdoch

Michael Murdoch

Michael, CUDE, CCUFC, (he/him) has primarily held marketing and communications roles within Pacific Northwest credit unions. Michael serves as a CUNA Diamond Awards and Conference Committees Member, Co-Chair of ... Details