Jackson Walton is a fourth-year honors student from Trumann, AR, majoring in finance and economics. Jackson’s current thesis project explores the rapid decline of community banks, which results in a lack of financial access and financial literacy throughout many small communities in Arkansas and beyond.
1. How and why did you get involved in researching community banks?
I come from a small town that is only serviced by community banks and so I know how important they are. I’ve seen them work in our schools and just the community in general: they support festivals and our high school when they need someone to sponsor something.
When I got to the university and majored in finance and political science, the policy side of finance is what really interested me. I had the opportunity to intern for two summers with Southern Bancorp, which is a community development financial institution, or CDFI. They’re made to help small, underserved communities that might not have access to banking. In working there, I thought about how important these institutions are, because if they’re not there, so many small rural communities don’t have access to important banking assets or financial Literacy. There’s a correlation between financial literacy and access to a bank within a certain distance from your home. I know that these banks are important for small towns, and I know that these banks are dwindling away. The topic was just something that was a no-brainer.
I love financial health policy, and it just coincided perfectly with this project. It gives me an opportunity to try to do something good for the state and for the region. I want my research to be helpful–not to just be research that’s published. If I can be of help, that’s the ultimate goal.
2. What classifies something as a community bank, and what’s the role of community development financial institutions?
There’s a certain threshold of assets that you have to be under to be considered a community bank, and you’re typically operating within one state or one localized region. Up until the 1990s in Arkansas, banks actually could not work outside of the county that they were chartered in. Not that taking that law away was a bad idea, but when it was taken away, that was when a lot of these banks were able to either be bought up by other banks or spread out and become huge banks. That was fascinating to me because you couldn’t imagine that now. Right? A bank couldn’t work out of his county. But that was the case. And that’s why, for instance, in Trumann, we had a First National Bank, Bank of Trumann, all these things that operated only within points in that county alone. Now I think every bank that’s in Poinsett county has branches outside of the of the county.
A CDFI is a bank that receives some funding and backing by the federal government to support them and to help communities that might not typically be served by a bank, that it might not make sense for some banks to serve. There are so many success stories of people that get loans and otherwise would not have that start successful businesses because of them. And of course there are negative stories as well—people get loans and they don’t follow through, but in general it seems that if it wasn’t for CDFIs, a lot of people would be unbanked. A lot of communities would be unbanked. A lot of people have started successful businesses, especially in Central Arkansas, who would not have gotten loan funds to start their businesses. If we are truly going to revitalize and encourage economic growth in the state, that might mean having to support these banks that that are quite literally doing just that.
3. How are you conducting your research?
I’m actually in the middle of that right now. I have some contacts with some prior executives or current executives and some managers, as well as just workers in these in these banks across the state. I’m going to do in-depth interviews to gauge what they think is important for the industry going forward. If they think the industry is in trouble, what they recommend to help. And so through enough interviews, I hope to gauge the state of community banking and look at what the future looks like. These are people have worked in it for years, that know how these communities work, how to reach people that don’t want to be banked. They know how to reach these small communities, and so they’re invaluable.
After working at Southern Bancorp, I also have some connections there. And through some other classes I have been able to travel and see some of these community banks. My thesis advisor, professor Molly Rapert, also knows quite a few people that she’s going to be able to put me in contact with. And then just being from a small town with two or three banks there, I just know some people that work there to connect just kind of through the grapevine. Everyone I’ve mentioned the project to seems very excited. I think they’re all committed to the purpose of keeping these banks alive. They’ve seen what’s happened to most of the banks that are still around, which have taken on new regulations since 2008. If you’re still alive as a community bank, you’ve gone through a lot to be here.
4. What roles does financial literacy play in small communities, and what strategies do community banks use to help spread financial literacy?
I’ve done a lot of background research on financial literacy and communities, particularly how banks have historically been the centerpiece for financial activity in these in these small towns. As these banks go away, people no longer have the relationship banking you did 30 years ago where you might know the lender in your hometown. You might have been right on the line for getting a home mortgage or getting a business loan to start a business—something that could quite literally revolutionize your life, your town’s life, your state’s life, even—and relationship banking is all about getting someone to take a bet on you. Now, as bigger banks are taking over, there’s no bank at all in these towns. I’ve read a lot about how without these types of relationships, it can be very tough for economic activity to spur growth and that’s huge because these small towns are likely already struggling financially.
And there’s a cycle this lack of access can induce. If your parents don’t have a financial literacy background they’re never going to raise you with learning how to budget, learning how a loan works, what compounding interest means, how to save for retirement when you do start that first job. And so then you never know, your kids never know and their kids never know and so it’s repetitive cycle that’s parallel to the cycle of poverty. And so if you can put an end to that cycle, and you know, teach a whole new generation financial literacy and help them to understand the banking system, and to get them banked as what they say in the industry, that can be can have huge implications for the future.
Right now places like Southern Bancorp, where I worked, are working in the communities, working in schools, for financial literacy training. They have student saver programs–bring your loose change and little by little it’ll help you to save. So teaching those principles as early as elementary school is something that they’re doing in the schools. And then they’re also doing some things with high schools to teach them about basic budgeting, writing a check, things like that, that are quite frankly, not being taught in the high schools. You hear that all the time—the school never taught me how to do my taxes or write a check. So they’re getting in the in schools and things like that. Southern Bancorp also has this thing called the Opportunity Center which is a host of materials, pamphlets, things like that, with different options to teach about different financial services. What is this kind of loan, what is the fixed rate versus a variable rate, so trying to teach customers.
And so there are a lot of initiatives, and it’s tough work, because there isn’t always a respondent population. You can do all these things but if the population doesn’t respond, well, then you can’t help it. People are worried about what they’re putting on the table and things like that and so they really don’t care about maybe putting 10% into a savings account or maybe they don’t care about that extra percent on that loan, that they shouldn’t take out a quick loan because they just need the money to sometimes survive. And so you run a you run a fine line of helping people financially but also understanding that sometimes finances aren’t at the forefront of people’s lives, and that’s obviously understandable.
5. How has this experience impacted your post college plans?
I have either always said I was going to go to law school or go straight into finance, and I’m going straight to finance next year, but I now have a desire and a want now to go into policy. I like to see results, I like to see action driven on reason, and I think there’s a ton of room for that in this field. I also know that these institutions, that community banks and even some larger banks, are the reason that communities like mine are banked. They empower so many individuals and they’re so crucial and important to have—it’s very meaningful to me coming from small town, and it’s definitely changed my trajectory. I think I am definitely going to look more at a policy finance position, and if I do attend law school, I’m going to look at financial law financial policy as a definite option.