America’s staggering economic inequality, particularly impacting people of color, and the financial instability of most individuals and families in the United States, show that our society is not on a sustainable path to prosperity. Historically, many philanthropists, NGOs, financial institutions, and other industries working to support economic mobility have approached financial health from a purely financial perspective, generating specific products, tools, or financial education aimed at helping people with lower incomes save, reduce debt, achieve home ownership, or manage money. But the fact is, for a person experiencing poverty, it’s nearly impossible to think about savings or planning for the future when they don’t know if they’ll have enough to eat this month.

To truly make an impact, we have to examine the larger context in which people make their financial decisions, as well as address the systemic and structural barriers that prevent shared prosperity and have contributed to and amplified the racial wealth gap.

Of course, it matters whether a person is able to weather emergency expenses, afford to buy a house, build credit, or save for retirement. But equally important is what kind of neighborhood they live in, where they can send their kids to school, and if they have a reliable job with predictable hours that provides a living wage and affordable healthcare.

Traditional approaches to financial health have failed to account for the environmental, health, and social circumstances that impact a person’s overall wellbeing. That’s like clearing a street of litter each day without considering how to prevent litter from being dropped in the first place.

A deeper understanding of human behavior, and how people make decisions and take action in the real world based on their environment or context, can shed light on innovative ways to address the myriad of factors that contribute to poverty both in the immediate- and long-term.

Reduce the excess cost of poverty

The COVID-19 pandemic laid bare the complex and deeply rooted inequities and structural issues that have made it all the more challenging for people with lower incomes to escape the cycle of poverty. The fact is: there are many excess costs faced by people with low incomes making it more expensive to be poor in America.

Here are just a few examples. Across the U.S., those with less pay more in total for the same quality of housing, yet they have access to lower-performing schools. Living in poverty means less access to healthcare and worse health outcomes. And basic financial services cost significantly more for the 50 million people who are unbanked or underbanked in the U.S. than for others. While the unbanked population has declined in recent years, it’s important to note that unbanked rates for Black, Latino, Native American, and Alaska Native households remain substantially higher than for white households.

New, scalable technologies and tools that help reduce the many excess costs, be they financial, psychological, or time-bound, faced by people with lower incomes is one strategy for meaningfully improving financial mobility and overall well-being.

Read the full article about the cost of poverty by Josh Wright and Bonnie Wallace at ideas42.