Meeting the needs and demands of black consumers could pay off for the country’s financial services industry — a whopping $225 billion in new revenue, to be precise.
The number represents the cumulative spending expected by black Americans between 2022 and 2030. The disclosure was retrieved from Investing in – and with – black consumers in financial servicesrevealed a new report from the McKinsey Institute for Black Economic Mobility.
That to learn Suspected financial service providers may find a stroke of luck in offering black people “fairer, more accessible, and better products and services” while addressing black consumer dissatisfaction with existing services.
Strategies to better serve black consumers
The report examined several issues that posed challenges for Black people in financial services and suggested five strategies companies could use to solve them. Some of the strategies included “developing and personalizing financial products according to clients’ income profiles and needs; Providing viable alternatives to high-interest, short-term penalties such as payday loans and high-fee check cashing services; and optimizing their presence in predominantly black communities.”
Two of the main findings of the study concerned wealth and services. The study concluded that the persistent racial wealth gap remains a problem. It showed that the average black family wealth in 2019 was $24,100, about an eighth of what the average white family had. Another problem: 47% of black households have no or an inadequate bank account, and black applicants are more likely to face loan denials than white applicants.
The study pointed to “a lack of access to financial services – particularly banking and insurance – ‘both as a symptom and as a cause'” of the wealth gap. It added that “historical exclusionary policies and programs” have protracted matters and complicated the relationship between black people and financial institutions.
For their part, observers from banks and insurance companies countered that in recent years they have taken more steps to make services available to black people. And advocates said many black people who are unbanked or unbanked have chosen or are choosing this path based on their perceptions or experiences with financial firms.
More help with building wealth is in high demand
Interestingly, the study found that black respondents were more eager than non-black respondents to increase and protect their wealth — filling in historical gaps. It showed that black Americans, compared to other racial groups, were “more anxious to save for emergencies, pay mortgages and monthly bills, and avoid burdening their families with debt should they die prematurely.”
More than half of black respondents — 10 percentage points more than non-black respondents — said they wanted to increase their financial services spending and explore new products and services. For example, they wanted solutions that would help build long-term wealth. 33% wanted products for old-age provision, 31% for financial planning and 26% for wealth management. Exactly 28% of blacks considered life insurance to be the most important insurance product, compared to just 18% of non-black respondents.
Correcting injustices could prove beneficial
When asked what some of the biggest current racial disparities are between financial services firms, including banks, wealth management firms and insurance companies, McKinsey & Co. senior partner Shelley Stewart III said black Americans face injustice across the board.
He addressed injustices including living in banking deserts with less access to financial institutions in their communities, lower approval ratings, less availability and participation in a range of financial products and services, and lower overall satisfaction with financial service providers.
“By helping to address these injustices, financial services firms can help solve this seemingly intractable wealth gap problem and drive economic mobility among this group.”
So how are these gaps preventing black Americans from building wealth?
Stewart said wealth protects families from financial shocks, whether from job loss or a medical condition or other unexpected expenses. With wealth, he said, people could invest in their own or their children’s education, home ownership and entrepreneurship.
It could be useful to collect more consumer data
Stewart, who helped write the report, suggested that financial service providers offer to help black people improve their financial status. He said one way is to continue investing in collecting, analyzing and acting on data about black consumers and to better serve them.
Although some progress has been made, Stewart said a major challenge for companies is not having the consumer data to highlight the strong business case for supplying black consumers equitably. For example, understanding how and where black consumer spending is increasing could influence where a company opens its next office.