A little over a week ago I had the opportunity to attend an conference hosted by several agencies and organizations on the topic of economic inclusion and banking. At the event we were able to learn what it means to be unbanked, or underbanked, which segments of our population are most likely to fall into these categories, and factors and attitudes which cause some people to avoid the banking system.
According to the DC Department of Insurance, Securities and Banking, 36% of DC residents are either without a bank account or do not have full access to “traditional banking services”. This is problematic for multiple reasons, especially because being unbanked and underbanked is expensive. Residents who do not use a bank for their financial needs often end up paying significant amounts of money at check cashing locations, or paying unnecessary fees in order to use prepaid cards.
At the conference, we learned that a person is considered unbanked if they do not have a checking or savings account. On the other hand, one is defined as underbanked if they have a bank account, but still used an “alternative financial service” at least once in the past year.
African Americans, Latinos, immigrants, those with low incomes, people with disabilities, and young Americans (particularly young minorities) make up most of the country’s unbanked and underbanked populations – and these populations are banking deficient for various reasons. Common reasons for immigrant populations include the cost of bank accounts, documentation/identification issues, language barriers, and lack of knowledge about access to financial information. Conversely, the disabled are likely to lack full banking services because they often live with someone they are dependent on, and they do not make much income. As a result, they feel as if they are not a good candidate for a bank account, and many instead use prepaid cards. While young Americans between the ages of 15-25 are often unbanked or underbanked because they still rely on the use of their parents’ accounts. In addition, they may feel as if they do not make enough money to have a bank account.
While at the conference, I was able to hear the experiences of people who work with unbanked and underbanked populations. Some of the explanations they have heard regarding why people do not have bank accounts include “they didn’t want the government going through their account” or they are afraid that if they had a bank account, they would “mess it up”. I also learned that some people are unbanked due to being barred from the banking system as a result of previously bounced checks. Whatever one’s reasons or experiences, the fact remains that being banked allows for more financial mobility and stability.
The downsides to being unbanked or underbanked are many, and impact a family’s generational financial well-being and ability to build assets. Those without bank accounts do not have a safe place to keep savings in the case of an emergency. Fully utilizing a bank account can save time, and money, because it eliminates the need to handle every financial transaction in person, such as visiting check cashers, buying money orders, and making bill payments. Moreover, those without bank accounts may have trouble accessing affordable and responsible credit when they need to purchase household items, cars, or homes. This point is especially important to Manna. Our goal is to help people become financially secure and mobile through homeownership, which requires obtaining a mortgage loan. Banking is an essential part of the homebuying process, allowing households to build savings and credit. Access to low-cost, quality bank accounts is a building block for not only homeownership but also the ability to build assets that will help families weather financial trouble and climb the socio-economic ladder. This conference highlighted the disadvantages of being unbanked and underbanked, as well as informing us of which segments of our population are most likely to fall into these categories. In conclusion, the theme of the conference was addressing the fact that we need to find a way to promote the use of banks, and provide access to banking systems to those who traditionally would be barred from having one. At the end of the day, this is about more than a bank account – it’s about a household’s ability to build assets that will help them weather financial trouble and climb the socio-economic ladder. It’s about combatting generational poverty and the growing wealth gap in our country – it’s about our common future.