What is not banked?
“Unbanked” is an informal term for adults who do not use banks or banking institutions in any capacity. Unbanked people usually pay things in cash or buy financial orders or prepaid debit cards. The unbanked also usually do not have insurance, pensions, or any other type of professional money-related services. They can take advantage of alternative financial services, such as check cashing and payday loans, if such services are available to them.
While this is often a problem in the developing world, there are pockets of unbanked adults in developed countries, including the United States.
Key points to remember
- Unbanked refers to adults who do not use or have access to traditional financial services, including savings accounts, credit cards or personal checks.
- Often concentrated in less developed countries or in poorer regions of developed countries, most unbanked people in the United States previously had formal bank accounts.
- Governments and other organizations have launched several programs to “bank” the unbanked, such as the FDIC’s Money Smart program.
Understanding the unbanked
Underbanked is a related term that refers to families who prefer to manage their finances through cash transactions rather than more traditional financial services, such as checking accounts, savings accounts, credit cards, and loans. .
Although some households are considered unbanked because they do not use banks or financial services at all, the underbanked segment of the population may have checking or savings accounts, but often has access to less traditional financial products and services, such as payday loans and check cashing services.
An FDIC study found that more than 7 million or 5.4% of American households were unbanked in 2019 in the United States.This is compared to 8.4 million or 6.5% of households that were not banked in 2017, a variation of -1.1%.This is the lowest number of unbanked Americans recorded by the survey since it was first carried out in 2009. Households with a family income under $ 15,000 remain highest unbanked at 23.3%, with those without a high school diploma at 21.4%.
But the rate of unbanked households varies greatly from state to state. The highest rate of unbanked households remains in the South at 6.2%.Unbanked households in the rest of the country were as follows:
- 5% in the Midwest
- 4.9% in the West
- 4.7% in the North East
Mississippi and Louisiana were the states with the highest rate of unbanked households, at 12.8% and 11.4%. New Hampshire and Vermont had the lowest cases of unbanked households at 0.5% and 0.7%, respectively.
Why people are no longer banked
Most of the unbanked are native-born White Americans, but neither are many immigrants, legal and illegal. There are a number of reasons people can choose not to be banked. Criminals avoid using financial institutions because law enforcement officials can track their actions in their accounts. The elderly who survived the Great Depression may have a deep distrust of all financial institutions and therefore not use them; The same goes for recent immigrants who have experienced banking crises in their home country.
Extremely poor people may also not need the banking system when trying to survive on a daily basis, and they may indeed find that they are unable to maintain a minimum balance, pay account fees or organize transport to and from bank branches during opening hours.
Initiatives to help the unbanked
Politicians at the state and federal levels have attempted to help the unbanked gain financial literacy and benefit from banking services. Some of these initiatives include the Bank on California initiative of former California Governor Arnold Schwarzenegger and the FDIC’s Money Smart program.
The US Treasury Department’s Section 326 regulations, which allow banks and credit unions to accept identity documents issued by foreign governments, are intended to help undocumented aliens get banked. The US Department of the Treasury makes federal payments to unbanked federal benefit recipients using a prepaid MasterCard debit card.