Nearly 10 million US households are unbanked. This represents 1 in 12 households in the nation according to a 2011 FDIC National Survey of Unbanked and Underbanked Households. The survey was first taken in 2009 and the current unbanked households represent a slight uptick.
Numbers for the underbanked are even higher. One in five households are underbanked. This represents 20.1 percent of US households. The underbanked number also increased from 2009 when it was 18.2 percent of US households.
According to the 2011 Survey, “more than half of all unbanked households said they do not have an account because they believe they do not have enough money or that they do not need or want an account.”
The report also shows that three in ten households nationally do not have a savings account.
The Unbanked Community
Survey results showed approximately 29.3 percent of households do not have a savings account, while about 10 percent do not have a checking account.
The minority population represents the majority of the unbanked. The numbers are staggering and translate into one-quarter of households relying on other means to conduct financial transactions.
The alternative financial service (AFS), such as non-bank check cashing or payday loans, or money orders can cost the unbanked as much as $1,200 yearly according to the Federal Reserve Bank of St. Louis.
Considering half the unbanked believe they do not have enough money to warrant a bank account, the realization of how much alternative financial services actually cost may be cause for reconsideration; especially when honestly free checking is available.
Ethnic Breakdown of the Unbanked
African Americans made up the majority of the unbanked at 21.7%, followed by Latinos at 19.3%; Native Americans at 15.6%; Asians at 3.5% and Whites at 3.3%. This population of consumers had neither a checking nor savings account and did not use any banking services.
Moreover, out of the households without any bank account, 41% said they were not likely to open an account in the future or at all. However, the numbers shift when the households previously had a bank account. Of the previously banked, 16% believe they will likely open a bank account in the future.
Annual Income of the Unbanked
Many unbanked households are lower-income families. The annual income of approximately 71% of the unbanked households is less than $30,000. Low income may be the reason so many of the unbanked feel they do not have enough money to warrant a bank account.
Alternative Financial Products
The financial industry stands to benefit if they find a way to tap into the unbanked segments of society. Consumers who do not have traditional bank accounts still have to utilize some way of paying mortgage or rent, utilities and other obligations.
According to another report, Markets and Markets, 43 million unbanked and underbanked consumers spend approximately $10.4 billion on alternative financial products.
What banks can do to reach the unbanked
Financial education is vital to build trust among many of the unbanked. The 2009 FDIC survey revealed that 1.2 million U.S. households closed their bank accounts in 2008. The reasons behind the exodus ranged from high minimum balance limits, overdraft fees, and service charges to increased fears about bank failures.
Many of the unbanked can start with something as simple as opening an online savings account. New products tailored to consumers without bank accounts and increased knowledge may help bring unbanked consumers into the banking system.
Connecting financial stability and personal finance management skills to growing wealth may help the unbanked climb the economic ladder. When consumers do not have bank accounts, the opportunity to create assets is unlikely. Creating a good banking relationship and having a place to grow your money is vital to building wealth. Banks can offer investment products like mutual funds and brokerage accounts. Banks can also offer credit card products that help build your credit history.
As more information is compiled about the unbanked and underbanked, financial institutions have a unique opportunity to market and tailor products to provide unbanked consumers access to basic, safe and affordable bank services.
If ChexSystems is your reason for being unbanked find no-chexsystems and second chance banks. A ChexSystems record, even if paid, can remain on your ChexSystems report for 5 years. That’s a long time to go without bank account.