Financial security for Oklahomans: The critical role of affordable credit

Access to credit has become a necessity for modern American living, touching virtually every aspect of our lives. Many consumers need credit to buy a house or a car, get an education, pay for medical expenses, or start a business.  ‘Credit’ is a generic term for an array of financial products and services that involve the borrowing of money and ‘affordable’ means terms of credit proportionate to a borrower’s ability to repay.  This post explores the critical role of credit in helping Oklahomans maintain financial security and build assets for a prosperous future, based on a newly released paper from Oklahoma Assets.  Oklahoma Assets advocates for policies and programs that can help create a more inclusive economy – one in which financial security and economic opportunity is available, not just to some, but to all Oklahomans.  Their new release, ‘Affordable Credit in Oklahoma: Asset-building and Financial Security‘ is available on their website along with their first brief on the importance of savings.

Affordable credit plays a pivotal role in a household’s capacity to maintain financial security and build assets. Lower income earners in particular need the flexibility that credit affords to handle emergencies, make ends meet, and avoid high cost credit products that could set them back even further.  When households without access to affordable credit face emergency situations that threaten their ability to work—like illness or car repairs—they either take the credit they are offered, often at prohibitive rates of interest, or face unemployment and insolvency.

American households have become increasingly reliant on credit cards to meet their monthly expenses and handle emergencies.  According to CFED, Oklahoma had the 41st lowest median credit card debt in the nation in 2008.  The Federal Reserve Bank puts the average revolving debt for an Oklahoma borrower in 2011 at $3,600, about half the national average of $7,700.  While Oklahomans have less debt than residents of most other states, they may be paying more to finance that debt because of poorer credit ratings. Oklahoma ranks 44th among the states for residents’ credit scores, with an average credit score 17 points below the national average of 683.

Many consumers are also turning to the alternative financial sector (AFS) to make ends meet.  AFS outlets typically offer check cashing, bill payment, short-term loans and rent-to-own contracts for popular consumer goods.  Oklahoma households use AFS credit services at a much higher rate (17.5 percent) than the average American household (11 percent). Oklahoma ranks 3rd – behind only Arizona and Kentucky – in overall use of AFS credit, and the rate is even higher among low-income households.  The drastically higher cost of credit through an AFS outlet – versus a traditional bank – can chip away at the discretionary income of lower-earning consumers with the least to spare.

Consumers in Oklahoma need access to affordable credit products – especially lower income earners who are more likely to struggle with meeting expenses. When low-income households come up short and lack access to affordable credit, they are faced with some grim realities: falling behind on bills and damaging their credit history or tapping a high-cost credit product whose debt service payments they can ill afford. Since maintaining financial security is a prerequisite for asset building, barriers to affordable credit can become life-long barriers to building the assets that provide families with a stable retirement and a prosperous future for their children.

For a deeper discussion about why Oklahomans might have difficulty accessing credit on terms they can afford to repay, and what we can do to enable access to affordable credit, click here to access the paper from Oklahoma Assets.  If you are interested in building strong financial foundations for Oklahomans and their communities, take a moment to connect at OklahomaAssets.Org or through Facebook and Twitter.