Identifying Barriers to Financial Inclusion
To address these disparities, it will be important to understand and make progress on key impediments to financial access. Native communities face impediments to accessing a range of financial services, including banking, mortgage financing, small business credit, and financial education.
Perhaps most fundamentally, access to banking services is important to ensure the financial wellbeing of individuals and the vitality of the communities in which they live. Over 16 percent of AI/AN households were unbanked in 2019 — three times higher than the national average.12 The low levels of banking relationships are partly due to a lack of proximate bank branches: Majority-Native American counties, on average, have only three bank branches, which is below the nine-branch average in nonmetro counties, and well below the 26-branch overall average for all counties.13 Just the basic act of opening a bank account is challenging when the nearest bank branch is, on average, 12 miles away from the geographic center of a reservation and may be more than 60 miles away—in comparison to less than 1 mile on average for most counties.14
Native households also face barriers to homeownership, which is a vital tool to build wealth. According to the 2019 Survey of Consumer Finances, the median homeowner has 40 times the household wealth of a renter.15 While 75 percent of Native households reported a strong desire to own their home, Native American communities face significant impediments. First, they face a lack of adequate supply.16 Overcrowding and physical housing problems are far more severe than in other parts of the country.17 A 2017 Department of Housing and Urban Development assessment concluded that to alleviate substandard and overcrowded homes in Indian Country, 68,000 units need to be built.18 Second, tribally designated housing authorities reported that the credit readiness of individual tribal borrowers was a key challenge in obtaining credit, followed by the lack of homebuyer education.19 In addition, tribal members have trouble obtaining home loans, especially for properties located on trust land due to the complexity in using trust property as collateral.
Overcoming these challenges to expand homeownership options on trust and restricted land could strengthen reservation economies and the well-being of tribal members.20 Building new homes and preserving older ones employs a wide range of workers and provides opportunities to build valuable skills. These activities have a ripple effect as related jobs are spread over other sectors of the community, including manufacturing, retail, and business services.21
Native small businesses also face special challenges in obtaining credit. Small businesses can be the lifeblood of a community, providing jobs, goods and services, and stability as well as the opportunity for owners to build wealth.22 About 300,000 Native American-owned small businesses and enterprises exist in the U.S. today, generating around $50 billion of revenue a year.23 Native American business owners have made their mark in various industries, including tourism, gaming, energy, agriculture, forestry, manufacturing, and federal contracting.
Yet, Native small businesses struggle to access bank credit, a critical part of encouraging small business growth and formation. Data from the Survey of Business Owners and Self- Employed Persons show far fewer AI/AN-owned businesses were started by using bank financing compared with all business owners.24 These differences are supported by anecdotal perspective that Native Americans have more difficulty financing their new businesses with loans from traditional lenders than non-Natives do.25 In addition, Native business owners consistently reported using credit cards to finance business startups at a greater rate than other startups.26 The CDFI Fund's Accessing Capital and Credit in Native Communities Report concludes a possible explanation is that Native business owners have more difficulty accessing lower-cost standard bank loans than do other entrepreneurs.
Native small businesses faced much greater challenges as a result of the COVID-19 pandemic, and generally received less robust support.27 Small businesses in tribal areas were both less likely to receive Paycheck Protection Program assistance and received less, on average, than businesses in non-tribal areas.28
Financial literacy and personal financial management skills are critically important, especially for households with low liquid savings and wealth. While there are limited data about financial behaviors in Indian Country, available information suggests that Native Americans face higher levels of financial fragility than many other groups. Given these challenges, Native American youth may stand to Benefit from opportunities to develop personal finance skills and financial management experience.29