There is good news this morning: fewer people are being excluded from the banking system, correct?
According to a survey from the Federal Deposit Insurance Corporation, or the FDIC, which insures Americans’ bank accounts up to $100,000, more Americans are gaining access to a checking or savings account, a sign that the improving economy is helping lift the nation’s poorest households. The number of Americans who do not have a bank account – sometimes referred to as being “unbanked,” fell from 7.7 percent in 2013 to just 7 percent in 2015, a record low for the biannual survey. Think about that for a second. In just 2 years, the number of households who were unbanked dropped by 10 percent.
And one especially encouraging finding from the report: the majority of the people who now have access to bank accounts are from households making less than $15,000 a year and from people of color, particularly Black and Hispanic households.
Why is being “banked” so important?
There are many reasons. Having a checking or savings account is considered a cornerstone of financial stability and security in the U.S. The most immediate reason that having a bank account is important is the cost of financial transactions. Without a bank account, many households are forced to rely on check-cashing services, prepaid debit cards and other costly ways to pay bills and make routine transactions.
These transactions can add up to hundreds, if not thousands, of dollars a year. Secondly, it is much harder to build and improve your credit profile if you do not have an account where your financial transactions can be documented, either by paying your bills with that account or using a credit card linked to your name.
And consider the agency responsible for the survey. When you have a bank account, there are protections in place for emergencies or accidents, like losing your debit card or your checkbook. But if you are relying on prepaid cards, all of your financial means can disappear if you misplace that one card. Having access to the financial system is so important.
What is causing this reduction in the number of people who don’t have access?
The biggest cause is the economy. The steady economic growth we have seen has certainly helped to drive the number of unbanked Americans down. Remember, this report comes on the heels of the Census Department’s announcement last month that median household income rose 5.2 percent from 2014 to 2015, the first annual increase in that metric since before the great recession.
That same report showed the proportion of Americans in poverty also fell from 14.8 percent to 13.5 percent last year, the biggest annual decline in nearly 50 years. So not only did more people open accounts, but the number of people living on very low wages declined. That is a recipe for better financial health across the board.
Are there other reasons beyond wages that people stay away from bank accounts?
A lot of Americans lack trust in the financial sector after the great recession. Additionally, some Americans have negative perceptions that prevent them from engaging with the banking system. For example, there is also a persistent belief among the unbanked that bank accounts are not for the poor. More than half of unbanked households said they believe banks are “not at all interested” in serving households like theirs, the report said.
But the number one reason why unbanked americans say they do not have a checking or savings account is that they believe they do not have enough money to open an account. According to the report, roughly 57 percent of all unbanked households cited lack of money as a reason not to have an account, and roughly 38 percent of those same people said that was the main reason. In most cases, this is not true, and we need to continue to dispel this myth.
What would you suggest for those who would like to move toward being banked?
My first suggestion is for those who currently do not trust banks, or believe that the fees are too high: pull out your calculator and do the math. Whether it is being charged for loading money onto a prepaid card, the extra fee for paying bills with the cards or money orders, or the percentage of your check you lose when you cash it, these extra charges add up. In some cases, they can be nearly 10 percent of your annual income. Really think about that and compare it to the one-time cost of opening an account. That will help to put it into perspective.
If you are in the camp where you feel like you do not have enough money to open an account, or you have had financial struggles in the past, you may want to try a local bank or credit union, as they tend to have fewer requirements for account balances and account openings. If you are still having trouble, you may want to seek out financial counseling. You can search for that through the National Foundation For Credit Counseling (NFCC) of the Financial Counseling Association of America.