An important gateway to building financial assets is having a checking and savings account at a bank or credit union. People without an account at a mainstream financial institution are less likely to own a home or other significant assets, and more likely to pay higher transaction fees for cashing their paychecks, taking out small loans, and remitting money to family members in other countries. Also without an account to deposit money in, cash can be more easily stolen, lost (as in a house fire), and spent.
Meet the unbanked and underbanked members of the community. According to the FDIC, “unbanked” refers to people who rarely if ever have held a checking, savings, or “other type of transaction or check-cashing account at an insured depository institute in the conventional finance system.” Underbanked people have held bank or credit union accounts, but also rely on “non-bank alternative financial service provieders for transaction services or high-cost credit products” like notorious “pay-day lenders.”
People most commonly unbanked or underbanked have low incomes and low levels of education. Young people, people living in rural areas and select urban areas, immigrants, and people with negative financial histories also make up a high proportion of the un(der)banked population. People are unbanked partly because of realities of the banking system (outlined below), and also partly because of lack of understanding about the banking system, bad experiences with banking, and unstable living situations.
According to the results of an FDIC survey of the financial institutions it ensures, barriers to banking are clear.
Getting a bank account to start with can be tricky. Banks require government-issued identification to open a new account which can be troublesome for people with low incomes, as discussed last year in states where government-issued i.d. cards were required to vote. Another challenge in opening a new account may be a person’s rocky credit history. If you are on the financial edge, your credit standing can more easily slip.
Without a bank account, people can’t benefit from a bank’s services. Banks offer few services to people who don’t have a bank account with their institution. Fewer than a third of banks surveyed offer check-cashing opportunities for non-customers, only 37 percent offer bank checks and money orders, and six percent facilitate international remittances.
Even with a bank account, services aren’t tailored to people who are on the financial edge. Savings accounts often require a minimum balance of hundreds of dollars. Few banks (seven percent) offer savings accounts through workplace-based programs that help connect a paycheck with a savings account more easily. Only eight percent of banks participate in or offer Individual Development Account programs or other programs to help low-income people begin to build assets. Deposited paychecks may take a day or longer to access. Small loans eligibility may preclude low-income customers. Many banks offer limited evening and weekend hours.
What you can do.
If you or the people you serve are unbanked or underbanked, you can take action to change the situation.
1. Get educated for yourself and your community.
- One place to start is the FDIC‘s Money Smart financial education program and curriculum for adults. If you work with immigrants, note that the materials are available in different languages.
- You can also check out MyMoney.gov, the website of the U.S. Financial Literacy and Education Commission.
- You can invite a local bank or credit union to offer basic financial literacy workshops for your organization’s constituents, your fellow corps members, and yourself. According to the FDIC survey, about half the banks said they offer workshops on financial education; usually it’s larger banks that have the resources to do so.
- Check out this blog post on Personal Financial Management for you during your service term.
2. Figure out what your local financial institutions offer to unbanked and underbanked residents of your community. Besides addressing the issues I outlined above, you can ask:
- Do they offer alternative identification requirements? For example the Matricula Consular Mexican i.d. or Individual Tax Identification Numbers.
- Do tellers speak a foreign language that is useful for your client population?
- Do they offer second chance accounts? These accounts have limited check-writing privileges and are designed for people who have experienced hard financial times in the past and have poor credit, or otherwise fail to qualify for a conventional bank account.