Channeling People Into the Economic Mainstream: Financial Access in Puerto Rico
Published on July 27, 2003
A significant segment of the Puerto Rican population, 36%, is unbanked. These households tend to be extremely poor, with an average income of $8,472, and headed by older single unemployed females with a less than average education. Close to 50% of all unbanked households are located in the greater San Juan area.
This lack of financial access precludes unbanked households from enjoying benefits associated with asset accumulation which exist in addition to the benefits conferred by the ability to defer consumption and creates a major obstacle for the implementation of asset-based policies to reduce poverty in Puerto Rico.
Recent research shows that assets have significant positive non-economic effects on children, families, and neighborhoods. In general, there is growing evidence that assets are associated with greater household stability, higher educational attainment, local civic involvement and increased levels of health and satisfaction among adults. Assets are also associated with decreases in both marital dissolution and intergenerational poverty transmission. Consequently, a large unbanked population is an impediment for the implementation of asset building policies, which, in turn, dilutes efforts aimed at reducing poverty in Puerto Rico. Therefore, reducing the number of unbanked persons should be a primary objective of social welfare and economic development policies.
In this paper we offer suggestions order to increase financial access and reduce poverty in Puerto Rico that are based on an analysis of innovative proposals and which constitute, in a sense, a synthesis of what could be called the “best practices” to reach the unbanked. In terms of financial products we discuss:
- Beginner accounts;
- Stored Value Cards; and
- Individual Development Accounts.
In the final section we offer a set of recommendations for local policymakers to help increase financial access in Puerto Rico. On the policy side, we analyze the following:
- Implementation of Direct Deposit for Government Employees;
- Changing the Mode of Paying Benefits Under Government Programs;
- Providing a Subsidy to Financial Institutions Offering Beginner Accounts;
- Revising Asset Limits in Social Welfare Programs;
- Offering a Tax Credit to Financial Institutions that Match IDA Deposits; and
- Funding Research to Yield Better Information about the Unbanked Population in Puerto Rico.
In the final analysis, at the dawn of the 21st century it is difficult to explain why 36% of the population of Puerto Rico, which has one of the most competitive financial service sectors in the world, does not have access to a bank account. It is clear the low-income and unbanked sectors present a growth opportunity to financial institutions in Puerto Rico. In addition, improving financial access would be a significant step in eliminating other forms of social exclusion. Financial institutions, in other words, can be of assistance in creating social structures which expand the set of opportunities and possibilities available for individual action in Puerto Rico, while selling profitable new products at the same time.