Our first problem was that we couldn't cash a check.
Our small group had come to a supermarket in west Los Angeles to cash a $15 personal check that we needed to help pay for several financial transactions we had set out to accomplish. But we couldn't take the first step because the store, it turned out, wouldn't cash an out-of-state check. So we were stalled at the starting line.
That was a revealing early moment in a financial scavenger hunt across Los Angeles last week that I joined along with several dozen participants from the financial industry, non-profit groups, and advocacy organizations. The field trip, called FinX, was organized by the Center for Financial Services Innovation, a group that works to expand access to the financial system. The goal was to expose us, if only briefly, to the daily experiences of the roughly 35 million American households who conduct much of their financial lives outside of the traditional banking system, according to federal figures.
Here are some of the lessons that the group took from our dip into this murky world. It's expensive to be poor. It's also very time-consuming. And there isn't much guidance to help you make good decisions, more effectively manage your money, or begin building a positive credit history.
But participants also concluded that many of the front-line workers who interact with customers are friendly and helpful. And that the archipelago of check-cashing storefronts, supermarket and dime-store money transfer counters, and payday and title loan lenders add up to an alternative financial system that can ultimately meet the needs of some families living at the margin, even if they involve costs in time and money that more affluent families might consider unacceptable. "The message is that it's nuanced," said Jennifer Tescher, president and CEO of the CFSI, which organized the outing as part of a conference it co-sponsored here last week on innovation in reaching underserved families. "It's complicated. We need to throw away our perceived ideas about what the consumer needs."
The group I joined included three young people from different corners of the industry: Ranjit, the manager of strategy and development for a leading microfinance lender; Katherine, a senior policy analyst for a DC-based group that advocates for greater financial access, and Rodolfo, who works at a venture capital firm that invests in financial services start-ups. Each of them was razor-sharp and expert on the big trends of technology, demography and business opportunity reshaping the financial system. Yet we sometimes found ourselves baffled by the trade-offs of time, cost and convenience that we faced.
The CFSI provided each group with two checks: a payroll check for $105 and a personal check for another $15. Using only the proceeds (and none of our own money), we were required to complete a series of financial transactions, including executing a money transfer, buying a money order to pay a bill, obtaining and loading a prepaid debit card, and inquiring into payday and title loans. And we were supposed to visit a pawnshop.
As compared to consumers who can only afford public transportation, we had a big advantage in that a car and driver were assigned to get us around. But we were provided only the most general guidance about the kind of places where we might complete the assigned transactions. We were told to search out the specifics through our smart phones, which research shows to be the principal way many lower-income families interact with the Internet.
We stumbled out of the gate. When we brought the $15 check, made out to Ranjit, to the financial counter at a supermarket on bustling Pico Blvd. they told us it would be $2 to cash it, but free if we bought something in the store. So we headed over to find our prepaid debit card.
When we returned to the counter, though, the clerk took a closer look at the check. And then announced that she could not cash it, even with a purchase. "We don't cash out of state checks," she said. "So," Ranjit told the rest of us, as he turned around to return the prepaid card, "we don't have any money to buy this."
The clerk told us to try a commercial bank two blocks east. We walked out to the street and didn't see a bank in sight. So we piled back upstairs to the car and drove down Pico until we found one. Once we arrived, Katherine successfully cashed the $105 payroll check made out to her-but for a $6 fee. Even so, the bank wouldn't let her complete any of the other tasks on our list, she explained as she rejoined the group, "because I'm not an account holder."
For our $15 check, we stopped next at a check cashing storefront squeezed next to a liquor store in a Venice strip mall. The room was stark: no chairs, no desks, glaring fluorescent lights, and a single clerk behind a plexiglass window. It vaguely suggested a police station. When Ranjit went to the counter, the clerk informed him that it would cost $5.99 to cash the $15 check. He also needed to fill out an extensive questionnaire of personal information. ("I was surprised," he said later, "by the amount they wanted to know.")