Unbanked By Choice: A Look at How Low-Income Los Angeles Households Manage the Money They Earn

American families without a bank account live in a dangerous financial world. Lacking access to government-insured savings or opportunities to build credit, they not only incur risks of theft, fraud and loss, but by using alternative financial service (AFS) providers such as check cashers or payday lenders, they also become prey to expensive predatory products and services that make it harder for them to achieve financial security. Prior research by the Pew Health Group (PHG) on California families confirms the widely shared view that having a bank account generally provides access to basic financial services at a lower cost than using AFS.

To reduce these risks and costs, PHG's Financial Security Portfolio has helped unbanked households open a safe and affordable bank account as the first step in joining the financial mainstream. The PHG Safe Banking Opportunities Project provided research and technical assistance to help more than 50 cities and localities kick off “Bank On” programs that bring together banks, local government and community groups to promote responsible bank account ownership. More recently, we investigated the products and services that banks might provide to attract and serve more unbanked individuals.

In 2009, we began an in-depth study of the financial behaviors of similarly situated unbanked and banked low-income families to inform policy solutions that would bring more Americans into the financial mainstream. This is the first report from a multi-phase survey of 1,000 banked and 1,000 unbanked households in greater Los Angeles, randomly selected from eight low-income study areas for in-person interviews at several intervals over the course of a year (July 2009 to July 2010). Our findings from the first wave, or phase, of this study suggest several policy directions for further investigation to help unbanked families shift to the safer world of the banked. The data shows different patterns of financial behavior between the Banked and the Unbanked in our study. Moreover, it reveals that the Banked and Unbanked further segment into distinct sub-groups based on their usage of financial services and providers: a banked only group, a cross-over group that has bank accounts but also uses AFS, an unbanked AFS-only group, and an unbanked cash economy group that uses cash only.

Pew is no longer active in this line of work, but for more information visit the Safe Banking Opportunities Project on