NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Editor’s note: This post is part of our Domestic Financial Innovation series – click here to read other posts in the series.

In America, as in the rest of the world, being poor is expensive – and so is being financially excluded. Underserved Americans spend almost $90 billion a year on fees and interest to meet their financial needs at pawn shops, check cashing services and payday lenders. For those with $20,000 incomes, check cashing and money order expenses amount to $1,200 a year. And on average, unbanked Americans spend almost $40,000 in unnecessary fees over the course of a lifetime.

But as an increasing number of Americans find themselves confronting the challenges of poverty, there’s a growing awareness that these burdens are unsustainable. And there seems to be new momentum within the financial services industry to address the problem. To take one high profile example, American Express is refocusing its products and brand to include low-income customers, and to raise awareness of their challenges.

As part of that effort, the company sponsored Spent: Looking for Change, a documentary aimed at encouraging new technology and new ideas that can help make managing money simple and more affordable. Produced by Academy Award-winning filmmaker Davis Guggenheim, the director of An Inconvenient Truth, the film premiered at the recent EMERGE conference and can be watched in its entirety on YouTube (or below).

“With the debut of Spent: Looking for Change, we hope to spark a national dialogue about re-imagining financial services as we know it today,” said Dan Schulman, American Express group president, enterprise growth. “Change is possible and we believe financial exclusion is a solvable problem, but it’s going to take lots of people working together, raising awareness, and investing in initiatives that help to create better, more affordable financial solutions for everyone.”

At a panel discussion after the premiere, Schulman described his hope that the documentary would help make the rather dry topic of financial inclusion more emotionally resonant. And it succeeds in that respect, by focusing on the lives of four American families that are struggling with the costs of living outside the traditional financial system. Its protagonists include:

• Debbie, a recent college graduate and small business owner in Philadelphia who makes leather purses and bags, which she sells to boutique stores and on her website. As the film describes it, her business would be booming if she could afford the materials to fill all her orders. But due to almost $100,000 in student loan debt, she’s unable to get the financing she needs, limiting the company’s growth – and her personal income.

• Alex and Melissa, a Rhode Island couple whose child was diagnosed with autism just before Alex was diagnosed with multiple sclerosis, leaving him unable to work. Trying to live on a single income, the family had poor credit and began to depend on payday loans to cover their bills, soon getting stuck in a cycle of debt.

• Justin, owner of a small video production business in Houston who had a difficult childhood and was living on his own by age 16. After accumulating some debt which he never paid off, he found himself with a low credit score that prevents him from getting a regular bank account and from qualifying for a home mortgage.

• Tiffany, a nurse and single mother in Stafford, Texas, who had a good-paying job and almost $100,000 in retirement savings before her life took a turn. Her financial life was in good order – she was even sending her daughter to private school – when her mother got cancer and she quit her job to take care of her. She thought she’d be able to resume her career later, but was only able to find part-time nursing jobs when she re-entered the workforce. After using up her savings, she had to take out a title loan to pay the bills, and ultimately fell behind on payments, lost her car, and had to take her daughter out of private school.

The film shows how the banking system has made life difficult for these families through costly and inaccessible products – and in some cases through more nefarious means. In one example, it describes how banks would target lower-income account holders by reordering debits posted on the same day. By withdrawing the largest amounts first, this tactic depleted low-balance accounts quicker, increasing the number of overdraft fees and extracting additional revenue from otherwise less-profitable customers. After these customers can no longer afford their accounts, the film explains, they’re driven into the arms of even costlier non-bank alternatives like payday lenders and check cashers.

But after spending some 35 minutes viscerally illustrating the problem, the film only dedicates about 30 seconds to proposing solutions – a stark contrast to the multitude of ideas being discussed down the street at the EMERGE conference. Right before the end credits roll, the narrator describes a few new approaches, like peer-to-peer lenders, affordable business loans, and credit scoring based on current payment activity rather than past history. The movie ends by calling for more discussion of how America can create a more inclusive financial system, without tackling the stickier questions of how this might be achieved on a large scale – or why the industry would voluntarily act to prioritize the needs of riskier, less-profitable customers.

And on a deeper level, the film left me with some nagging doubts. Its main characters are extremely sympathetic and it’s easy to relate to their struggles. But to what extent can we expect the financial services industry to come to the rescue of people who have made some highly questionable decisions? In three of the four cases profiled in the film, the protagonists were arguably dealing with financial dilemmas that – to varying degrees – they brought on or exacerbated themselves.

Take Debbie: It’s true that higher education is insanely expensive in America. But she chose to attend a private art and design college with tuition and fees that are over twice the national average. And if you graduate with a six-figure debt, is it really the right time to follow your bliss by starting a one-person handbag business? Are banks to blame for failing to finance an entrepreneur who’s awash in debt, with a business whose potential to scale is questionable at best?

Or take Justin: It’s hard to fault a young man emerging from a difficult childhood for a bad financial decision he made at age 16. But he has no dependents, a thriving business, an apartment full of expensive electronics, and plenty of time to save money and rebuild his credit. His inability to get financing to buy his dream home in his mid-twenties sounds an awful lot like a first world problem.

At the risk of sounding crass, so do Tiffany’s struggles. It’s heartbreaking to deal with a loved one’s illness, and admirable that she decided to care for her mother full-time. But how many of us can afford to voluntarily stop working, for any reason, without drastically cutting our expenses? Is it realistic to expect to be able to give up your entire income while continuing to send your child to a private school? In a world where many kids would be thrilled to have any sort of education at all, it’s hard to shed a tear at the idea of a child being forced to attend the apparently quite decent public elementary schools in her community.

Some of these issues boil down to the choices made by the film’s director – there are certainly many Americans who bear less responsibility for their financial struggles than the protagonists of Spent. And yes, the financial industry often fails to serve low-income customers’ needs, while taking advantage of their vulnerabilities. But many (if not most) Americans who are struggling financially share some responsibility for their plight – as uncomfortable as that is to contemplate. Though it may not have been deliberate, Guggenheim’s latest film illustrates yet another inconvenient truth: our life choices do have an impact on our financial health.

And there may be an even harsher truth underlying this fact: America may have reached the end of the continuous upward economic trajectory that we’ve grown to expect. Wages have been stagnant for decades, yet in many cases, we’ve maintained our lifestyles and spending habits by taking on unsustainable personal debt – even after a financial crash in which overindebtedness played a key role. How much can any evolution in the financial industry actually remedy those problems? And at what point do solutions that amount to easier access to credit become part of the problem? That’s a question that the developing world and the microfinance sector have been grappling with for years – perhaps now it’s America’s turn.

James Militzer is the editor of NextBillion Financial Innovation.