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On Thursday, January 27, Motohiro Yogo joined Markus’ Academy for a lecture on Financial Inclusion in the US. Motohiro Yogo (與語基裕) is a professor of economics at Princeton University. He is also a research associate of the NBER, a co-director of the NBER Insurance Working Group, and a research consultant at the Federal Reserve Bank of Minneapolis. Prior to joining Princeton in 2015, he held research and teaching positions at the Federal Reserve Bank of Minneapolis and Wharton.

Watch the livestream below. You can also watch all Markus’ Academy webinars on the Princeton BCF YouTube channel.

Executive Summary

  • [0:00] Introductory remarks. Financial inclusion is part of a resilient society because savings allow people to get through both personal and macro shocks/crises. Financial exclusion can leave some groups much worse off. Fintech companies may provide new opportunities for financial inclusion, reaching income and racial groups with low financial representation. 
  • [5:54] Usage of big data Using big data from the U.S. tax records allows for a much larger sample than survey data, covering 96% of the census population. Authors analyze bank and retirement account participation from 2008-2018. 
  • [20:07] Financial participation For both bank and retirement accounts, lower income households are less likely to participate. The disparity between the highest and the lowest income groups is nearly 57% for retirement account participation. What societal factors influence this disparity, and what can we do to reduce it? 
  • [27:00] Any time trends? High income households have always had access to these accounts, but lower income households have not. For low- and middle-income households, access to employer retirement plans has decreased over the last 10 years. In household surveys like the SCF, Hispanic and black households have significantly lower participation than white households, even conditional on income.
  • [43:58] Any geographic disparities? There are large differences in financial participation across ZIP codes that correlates with race. However, controlling for average income by ZIP code, the correlation with race disappears. Thus, the unconditional correlation between financial participation and race appears to not be directly about race but about economic factors that are associated with income.
  • [1:03:02] What can be done? 10 states now require universal access to employer retirement plans, which may boost retirement account participation over the long run. Although workers can opt out, the default option is to contribute a percentage of payroll into a state-sponsored plan. The authors provide an interactive map of financial participation by ZIP code. Fintech companies can potentially use the map to reach geographic areas and populations that have traditionally been underserved by traditional banking and financial service firms.