5 reasons we need greater financial inclusion

A fundamental rule of business is to focus on what customers need.

An unwavering customer focus that meets those needs can help a business blaze a trail to lasting success.

A new Principal^® project to promote financial inclusion, the Global Financial Inclusion Index, follows that same basic rule, applied more broadly to our social responsibility: As a global citizen, we’re dedicating ourselves to the cause of financial inclusion, which means the availability of financial products and services for increasingly more people. Affordable access to the financial sector, coupled with education about its resources, helps empower people everywhere to engineer their own long-term financial security. Principal aims to promote access to financial security—through financial inclusion and this new Index—with the seriousness and focus we bring to bear on our core business challenges.

This new effort builds on our consistent progress in corporate social responsibility and environmental, social, and governance strategy.

In our daily business, Principal within the next five years plans to double the number of diverse small and midsize businesses we support through product access, microfinance, community development, and financial education. We’re also aligning our responsible investment practices with seven United Nations Sustainable Development Goals.

The Principal^® Foundation in the next year plans to invest $30 million to help people meet basic needs, develop pathways toward economic mobility, and support financial empowerment and development. The philanthropy will focus on entrepreneurs, small businesses, and diverse populations.

With the Index, we’re encouraging everybody to join us as this work extends across industries and communities.

Overcoming the barriers to financial inclusion demands much more than any one product, product line, or company. We’re talking about a global collaboration among employers, the financial system, and governments.

That’s why we’re launching a new resource—not a product but a universal prompt to action: The Index will be a comprehensive and open body of research that spans 42 markets worldwide. We do this because the need for greater financial access in all our communities has become so evident, as shown by the following trends.

1. Large underrepresented and unbanked populations

People need to save and protect more of their finances but also need help to do so. The pandemic heightened awareness around protection products and financial well-being, but too many people still lack the financial literacy or employer access to make the necessary decisions regarding their financial future.

More than 1.7 billion people still fall outside the financial system as unbanked, although we’ve made progress. Over the last decade, 1.2 billion unbanked people gained access to financial services—a 35% decrease largely attributed to the greater reach and convenience of mobile access.

2. Growing wealth and income gap

The World Bank estimates that the pandemic has pushed the global poverty rate from 7.8% to 9.1%. Meanwhile, the share of income for the richest 1% of people increased in over half of countries between 1990 and 2015, while the poorest 40% earned less than 25% of income in all 92 countries with data.

Narrowing this gap can help drive economic growth: A global study found that when an additional 1% of income flows to the top 20% of earners, gross domestic product (GDP) falls. But when that 1% of income flows to the bottom 20%, GDP rises.

3. Changing work perspectives

The informal economy has surged and is here to stay. Most people today work part-time, on temporary contracts, or as self-employed—including through digital platforms. More than 60% of the world’s adult labor force—about 2 billion people—are informal workers. Ninety-three percent of them live in emerging and developing countries. Meanwhile, in the United States, the pandemic appears to be quickly shifting employees with the ability to work remotely from mostly on-site roles to majority hybrid.

Workers can benefit from portable savings programs that adapt with them through job transitions, coupled with effective government incentives to take full advantage of that individual savings to build their own financial security.

4. Retirement savings gap​

People everywhere need help bridging retirement and savings gaps under a variety of evolving economic and regulatory conditions. In eight countries with some of the largest pension markets or populations—the United Kingdom, Australia, Canada, China, India, Japan, the Netherlands, and the U.S.—the retirement savings gap is projected to balloon to $400 trillion by 2050.

In the U.S., one-third of workers in the private sector in 2020 still lacked access to retirement plans. Economic strain has placed some pension funds at risk through the repurposing of tomorrow’s assets for today’s social policy goals. Yet many markets continue to pursue pension reform, including regions such as Latin America and Asia that face rising political pressure to do so.

5. Aging populations

People are living longer, requiring us to innovate new approaches to their lifelong financial support.

• The share of the world’s population over age 60 is expected to reach 22% by 2050—more than doubling within just 35 years.
• The population age 80 and older may triple by 2050, reaching 426 million.
• As many as half of today’s 5-year-olds in the U.S. can expect to live to 100.

This means people will spend more years in retirement—millions more already do each year in the U.S.

Even before factoring in the costs of health care, this demographic trend represents a profound impact on the social protection systems designed to support us in our old age. An expanding middle class and fiscal pressures on governments worldwide add more incentive for markets to devise solutions to improve people’s financial security. That’s why Principal helped launch the Longevity Project, inspired by the Stanford Center on Longevity, as an ongoing conversation to promote healthy 100-year lives in keeping with our goal of lifelong financial security for every customer.

These five economic and demographic trends make it clear that too many people still lack access to the knowledge and resources that may enable financial security. The core business of Principal, through our products and services, already is dedicated to greater financial inclusion. The Index can exponentially expand on that work. Its holistic view of the progress toward financial inclusion (or lack thereof) can pinpoint opportunities for improvement and rally our industries and nations in response.

By focusing attention on these issues, we hope to build not only urgency but a far-flung coalition to act. We hope this includes you.