Americans Living Without Bank Accounts?

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Nov 19, 2013: Last weekend we were wondering how many Americans live without bank accounts. Our first thought was not many. Curious to know the facts we started researching on the web. We were stunned to find that 17 million Americans have no bank accounts! And 18% of the rest of the population that do have bank accounts use non-traditional banking services like pawn shops and payday lenders [1]. These are just a few of the findings of a new government (FDIC) survey on Americans' access to basic banking services. This survey tallied responses from roughly 54,000 U.S. households.

Taken together, at least 25.6 percent of U.S. households, close to 30 million, are either unbanked or underbanked. Approximately 60 million adults reside in these households.


According to the study, the most common reason cited for being unbanked was a lack of funds. More than a third of those considered "unbanked" said they did not have enough cash to warrant having a bank account. Another point that emerged from the survey, was that many Americans that actually have bank accounts still looked elsewhere to cash their checks, borrow money and used prepaid debit cards for their money transactions.

Nearly 18% of all U.S. households have relied on pawn shops, payday lenders or check-cashing outlets at least once in the past five years. That is quite a huge figure considering the fact that these type of businesses are often criticized for charging humongous consumers rates. For example, in some cases, borrowers pay the equivalent of an annualized interest rate as high as 500%!

But certain money transactions make sense to people who are unbanked primarily due to paucity of funds for maintaining a minimum balance at a bank. Here is a real life story of a person named Al Walker, a graduate of American University (2006), who uses non-traditional banking methods (despite FDIC warnings) to cash his check without a bank account, payday loans and the likes:

I don't have to worry about them posting anything to my account. I don't have to worry about them taking anything from my account. I don't have to worry about an overdraft fee here. I don't have to worry about overdraft protection. I don't have to worry about whether this is free. I know what I'm paying; it's the same every time I come here — and maybe that's something banks should look into. I have an extreme distrust and, I guess, disdain for banks, because so many of them have done me and my money wrong.

Walker was recently laid off from a doctor's office. He uses services from places like ACE Cash Express to cash unemployment checks. Walker pays bit less than $5 each time he gets an unemployment check. On the contrary, if he had used a traditional checking account, there'd be no fee at all!

Like Walker, most people who were polled in the survey said that they continued to use these services simply because they were easy and convenient.

According to the 2009 FDIC National Survey of Unbanked and Underbanked Households [2], an estimated 21.7% of black households, 19.3% of Hispanic households, and 15.6% of American Indian/Alaskan households are unbanked. The proportion of unbanked and underbanked households varies across different regions of the country, with the highest incidence in the Southern Region. In fact, nearly 20% of all U.S. households earning $30,000 or less per year did not have a bank account. The survey also found that almost a quarter of all households headed by someone who didn't finish high school were considered "unbanked" [1].


In an effort to aid consumers migrate away from such expensive options, the FDIC has enacted a number of initiatives including a short-term loan pilot program it launched in February 2008 [2]. A select group of banks who are a part of FDIC's program, have agreed to offer short-term loans of up to $2,500 to low-income Americans. In fact, FDIC's recent survey was yet another effort to expand consumers' access to basic financial services. FDIC Chairman Sheila Bair said in a statement:

By better understanding the households that make up this group, who they are and their reasons for being unbanked or underbanked, we will be better positioned to help them take that first step.

However, the banking community so far have not shown much interest in reaching this segment of Americans. According to the survey's poll, less than 20 percent of banks said reaching out to these communities was one of their priorities.

What are your views about Americans who are living without bank accounts? Is their choice of paying substantial fees for their money transactions a justified decision when they could have had free checking accounts? Can this situation be improved by educating Americans about personal finance right from middle or high school?

We are looking forward towards your views. Kindly leave a comment with your thoughts.

Reference(s):
[1]. Ellis, David, CNN Money: 17 million Americans have no bank account

[2]. FDIC: National Survey of Banks' Efforts to Serve the Unbanked and Underbanked

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