Red Lake Nation News - Babaamaajimowinan (Telling of news in different places)

Column: How growing up in a bank desert can hurt your credit for the rest of your life


February 21, 2020

A banking desert is an area without traditional financial institutions and services. They are common in rural areas because large financial institutions are reluctant to operate in less populated areas that are less profitable. Two colleagues and I found that people who grow up in a bank desert on Native American reservations are at a financial disadvantage throughout their adult life. They are less likely to use traditional credit, such as a credit card or a mortgage. When they do, their payments are significantly higher than average, and they're more likely to fall behind on payments. These effects persist even for people who move to areas with more banking services.

Why it matters

Young adults who were exposed to the financial system at an early age – for example, when a parent opens up their first savings account – are more likely to become financially literate. This is important because financial illiteracy leads to costly mistakes when navigating the intricacies of financial products. Our results highlight the importance of learning from interactions with local banks and developing a credit history at a young age.


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