01/30/2012 - Saving the unbanked will take more than what Suze Orman and Lil Wayne can offer.
Controversy surrounding celebrity-endorsed prepaid cards threw around words like “unbanked” and “underbanked.” But the real head-scratcher isn’t the high-fee cards and their Hollywood affiliations, but why it’s taken so long to recognize the plight of more than 30 million Americans.
1 in 4 American households is considered unbanked or underbanked, reports the FDIC, meaning they have little to no access to basic financial services like a checking or savings account. Unbanked households are often low-income and minority populations and their limited financial access means little to no credit, less savings, greater susceptibility to theft and fraud, and ultimately more financial risk.
While many assume unbanked consumers are unbanked because they cannot access financial services (which is true in some cases), the reality is that a bigger majority of consumers are unbanked because they choose to be.
Key reasons why these households remain unbanked: 37 percent said they don’t have enough money to need an account, 18 percent say they didn’t write enough checks to warrant an account, about 13 percent say the minimum balance required is too high, and another 13 percent see no need to have an account.
However, unbanked consumers are an at-risk population because “choosing” to be unbanked has its consequences:
2) Having fewer savings and more retirement risk. According to the Pew Health Group, having a bank account correlates to savings. In a study of low-income Los Angeles households, 73 percent of banked households deposited their payroll checks in a bank and are likely to save a portion of their checks. Comparatively, 73 percent of unbanked households that receive a payroll check patronize an AFS provider to cash the check with no intent to save. Without a bank savings account, consumers are at risk of having little to no savings on hand as well as long-term into retirement.
Read the full article, What Will It Take To Save the Unbanked?, on Forbes' Web site.
Pew is no longer active in this line of work, but for more information visit the Safe Banking Opportunities Project on PewHealth.org.