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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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April 26, 2021

Financial Literacy: Talk to Me Like I'm a Fifth Grader

Kids adapt to technology by repeated exposure, usually starting with interactive games, and can learn about money and payment choices in the same way.

While there are initiatives for teaching financial education in high schools, the age to learn about money may be around the time kids tap on their first iPad. A study by the University of Cambridge Adobe PDF file formatOff-site link reveals that kids form money habits by the age of seven.

April is Financial Literacy month. As my colleague Doug King noted in a recent post, financial literacy rates are low among adults, declining from 42 percent in 2009 to 34 percent in 2018. Open conversations create greater understandings and can lead to a more financially literate population. Early learning about money and our payment systems fosters those conversations and increases financial knowledge.

As kids learn more about money and finances, they also learn about risks and how to better protect themselves from fraud. Starting with cash and coin literacy, there are several options to explore from the agencies that produce them. These simple introductions to our currency could help kids become more comfortable and familiar with our units of payment.

The U.S. MintOff-site link introduces kids to currency and all the details that go into making coins, including the design, weight, materials, and locations of the actual mints. It's fun and informative for kids and adults.

The U.S. Treasury provides details for kids on paper money. More details are found at the Bureau of Engraving and PrintingOff-site link in Washington, D.C., and Fort Worth, Texas. The site explains how they print billions of dollars yearly that are delivered to the Federal Reserve System, which helps kids to understand the interaction of the U.S. Treasury with the Federal Reserve.

The U.S. Currency Education Program sponsors a Currency AcademyOff-site link, which is managed by the Federal Reserve Board, for K-5 classrooms. The program includes videos, games, and activities for kids along with lesson plans for educators. The site notes the materials are best suited for kids in grades two through five.

The Richmond Fed's My Money Adobe PDF file formatOff-site link workbook introduces young children to the characteristics and functions of money. They learn how to identify the different values of coins. Activities included in the workbook teach children that people earn money at jobs to use the money they earned to buy goods and services.

As kids learn about currency, they can extend their knowledge to other forms of payments they may see their family members use, including debit, credit, or prepaid cards, checks, and alternative payment methods such as Venmo, Square, CashApp, Paypal, or Zelle, among others.

You can order print copiesOff-site link of the workbook and other resources from the Federal Reserve Education's site. The St. Louis Fed has developed many parent reading guidesOff-site link to accompany popular children's books. These books and their associated parent guides include age-appropriate themes that encourage positive financial behaviors.

March 29, 2021

SNAP Continues to Pop

Over the last year, a number of our Take on Payments posts have expressed industry concerns about the impact that the major shift to digital payments propelled by the COVID-19 pandemic will have on the un- and underbanked population. While several governmental assistance programs have modified their programs to accommodate remote enrollment and ongoing participation, the actual use of these benefit funds was largely limited to in-store purchases of foods, drugs, and other items authorized by those programs. My colleague Catherine Thaliath authored a post last July reviewing how the Supplemental Nutrition Assistance Program (SNAP) had moved from a one -state, pilot program in 2019 to supporting online purchases by SNAP cardholders in six states by early 2020.

I'm excited to report that the expansion of SNAP's online ordering program has continued aggressively through the pandemic with the participation of 47 states and the District of Columbia. Only Alaska, Louisiana, and Maine are not currently participating in the digital payment program; Maine has plans to go live later this year. In most states, the major grocery retailers that were already supporting online ordering are participating. SNAP funds can be used only for the purchase of the eligible food items and not for delivery and any other convenience fees.

With the digital expansion of the assistance program, program administrators at the federal and state levels are well aware of the increased risk of fraudulent activity that comes with the buy-online-pick-up-in-store option (sometimes referred to as BOPIS). The SNAP program requires that online retailers support PIN entry, which helps to mitigate fraud risk. The retailers follow a number of traditional steps to ensure that the person picking up.

It is encouraging to see how agencies are adopting technology for social good in this challenging time.

March 15, 2021

Teach Financial Literacy to Build Financial Inclusion

Many of you reading this have probably ventured down the online or mobile video rabbit hole—watching a video on your favorite website or app, which leads to binge watching. While not nearly as entertaining, I spent the better part of a recent day down the rabbit hole of banking and payments research. Having initially embarked on researching the un- and underbanked, cash usage, and prohibitions on cash bans by municipalities or governments, I was drawn to the topic of financial literacy—or, more shockingly, the lack of financial literacy in this country.

According to the 2018 FINRA Foundation's National Financial Capability Study Adobe PDF file formatOff-site link (see pages 33–40), the U.S. financial literacy rate decreased from 42 percent in 2009 to 34 percent in 2018. This rate is based on the results of survey respondents' ability to correctly answer a series of five questions, plus one bonus question that requires a complex calculation, covering fundamental concepts of economics and personal finances. You can take the quiz hereOff-site link.

You can find a lot of material on the ability (or lack of ability) of financial institutions and other financial service providers to provide basic services such as deposits and payments to those considered un- or underbanked. A recent paper by my colleagues at the Atlanta Fed suggests that "instead of focusing on helping these people (the unbanked or underbanked) become banked to increase financial inclusion, a more effective approach could be giving cash users access to digital payment vehicles that don't depend on traditional banking accounts." I would suggest a different path. No doubt, multiple factors are at play, including access challenges, in keeping 7.1 millionOff-site link U.S. households (or 5.4 percent of the total population) unbanked and perhaps at risk of being left behind when it comes to digital payments. But how can those who are not financially literate make educated decisions on what financial services and products are best for them? Maybe the banks that can serve them are out there, but a lack of financial literacy keeps these people from understanding exactly how those banks can meet their needs. For example, can they compare the cost of maintaining a checking account and using a debit card to the cost of using a prepaid card and cash (which they could obtain through a check cashing service)?

It's time to focus efforts on teaching financial literacy in the United States through our education system. The Federal Reserve Bank of Atlanta recognizes the importance of financial literacy and offers the public and educational system numerous resources. Just as students must demonstrate proficiency in other basic courses, every high school student should be required to successfully complete a standalone course on personal finance to graduate. It's not enough to embed financial education in another class, such as consumer math. Currently, only six statesOff-site link—including Tennessee and Alabama, both in the Sixth District—require a standalone class, but it's high time for the rest to join.

Are you in favor of this idea?

January 19, 2021

Can the USPS Improve Financial Inclusion?

During the nationwide discussion regarding the distribution of the personal economic impact (stimulus) payments, the subject of having the United States Postal Service (USPS) offer basic banking services again surfaced—an idea that has been raised numerous times in the recent pastOff-site link. The premise is that the USPS, with its 34,000-plus retail locations, could provide a convenient and low-cost financial services channel for the estimated 7 million unbankedOff-site link and 24 million underbankedOff-site link households.

As I began to research this issue, I was surprised to learn that the USPS had provided savings deposit accounts in the past. In 1910, Congress created the Postal Saving System, which began operating on January 1, 1911. The program was designed to get money being held by families into circulation. It found particular favor with new immigrants who were familiar with postal office savings programs in their native countries. An individual could open a savings account with a minimum of $1 (equivalent to approximately $27 today), later raised in 1956 to $5. However, to help customers save lower amounts, the program offered a postal savings card. Customers would purchase postage savings stamps in 10 cent increments and affix them to the card. Once the customers accumulated stamps worth at least $1, they could deposit the card or redeem it for cash.

Initially, the maximum account balance was $500, but that was raised to $1,000 in 1916 and then to $2,500 in 1918. And until May 1916, the deposit limit was $100 per month. Interest was paid on the account at the rate of 2 percent. The USPS deposited the funds in local banks and earned 2.5 percent. The post office used the difference to cover the cost of the operating the program. In her book How the Other Half Banks, author Mehrsa Baradaran writes that the postal savings program "was the most successful experiment in financial inclusion in the United States. More effective than any other philanthropic or mutual effort to bank the poor, postal banking brought millions of new immigrants and rural dwellers into the U.S. banking system all at once. One of the central aims of the postal banks was also the most difficult to measure: teaching habits of thrift and saving to the poor."

At its peak during World War II, the program's deposits reached $3.4 billion ($40.6 billion today adjusted for inflation) with more than four million depositors. As interest rates paid by financial institutions after the war exceeded the rate of the USPS savings program, the program's popularity began to decline. It officially ended on July 1, 1967, with about $50 million in unclaimed deposits that was later turned over to states for holding and distribution under escheatment rules.

Today, Japan and a number of EU countries have successful postal banking programs. On the other side of the coin, Canada stopped its century-old postal banking program in 1969.

In 2014, the USPS Office of Inspector General issued a white paper, "Providing Non-Bank Financial Services for the Underserved Adobe PDF file formatOff-site link," that identified specific services that the USPS could partner with a financial institution on to offer reloadable prepaid cards, domestic and international money transfers, and possibly small dollar loans. The USPS today issues domestic and international postal money orders and cashes postal money orders and U.S. Treasury checks with certain limitations.

So what does the USPS management have to say about offering banking services? This 2016 statement still appears on their website.

The Postal Service's mission is to provide the American public with trusted, affordable, universal mail service. Our core function is delivery, not banking.

To the extent our research concludes that we can legally provide additional services at a profit and without distracting from our core business, we would consider these. However, public policy and regulatory discussions must be addressed before the Postal Service invests in an area outside our core function.

Advocates for the USPS offering financial services argue that providing these basic banking services could be a win-win situation for unbanked/underserved consumers and also bring in additional revenue for the agency. An Atlanta Fed white paper (September 2020) titled "Digital Payments and the Path to Financial Inclusion" lists public banking as a potential option for increasing financial inclusion. What do you think?