68 million Americans don’t have access to reliable mainstream banking services and so remain effectively outside the financial systemAccording to data released by the Federal Deposit Insurance Corp in October 2014 as part of the National Survey of Unbanked and Underbanked Households. (FDIC) have been released.
This number includes 17 million unbanked peoplewhich means they don’t have bank accounts, and 51 million that do are considered underbankedleaving them dependent on check cashers and pawn shops for their financial needs.
After the economic recession six years ago, the number of households in both categories have increased significantly. Although numbers have since stabilized, half of African American and Hispanic households do not have significant access to financial services, compared to 1 in 5 white households. Americans under 35 are also disproportionately underserved.
Those who have never had an account cite a number of reasons for their financial situation — not enough money, dislike of dealing with banks, high fees, ID issues and privacy concerns.
Low-wage workers pay more to cash their checks and use their money, often requiring payday loans and other potentially predatory services that create a cycle of poverty and keep people poor. Check cashing fees can cost some low-wage consumers up to 5 percent of each paycheck. For a $600 biweekly paycheck, that translates to a $30 fee. Buying a money order or paying bills can come with additional fees, meaning families often waste money and time if they can’t use a traditional bank.
The income from such fees and interest amounted to more than $103 billion in 2013, thereby increasing the profits of many companies engaged in the industry. Now customers are complaining about it mistreated or ripped off of institutions that serve underserved populations say their plight gets little attention from the media or lawmakers.
Many people living on low wages are just a blunder or two away from serious problems when it comes to their ability to access the financial networks that so many other Americans are accustomed to.
“If you don’t pay back a cell phone bill or an electric bill, those types of bills that aren’t loans can be reported for nonpayment — not necessarily just student, car, or home loans,” said Joe Valenti, director of consumer finance at the Center for American Progress. “If it goes to collections, missed payments will be reported as derogatory information on your credit file.”
“Even if you had a bank account and had overdraft charges and the account was closed, that doesn’t affect your credit score, but it does go into a checking account audit database,” he added, suggesting so A negative banking history could affect a person’s chances of opening other accounts.
With many Bank branches are leaving communities, some cities have “launched Bank On programs to ensure low-cost and secure starter accounts are available,” Valenti said, referring to the government’s efforts to remove barriers to banking. He pointed to the success of banking services that people can access with their cell phones.
“Some people choose not to have access to traditional banking services,” said Jennifer Tescher, the president of the Center for Financial Services Innovation. “And we’re in a moment where prepaid debit cards can look like checking accounts. It’s worth considering whether the FDIC needs to update its definitions.”
“Access is not enough,” she said, adding that financial literacy is not a panacea in an increasingly complex environment. “If you have an account, it’s about what you do with it and more about being financially healthy.”
“It’s easy for those of us who have the financial cushion to look at the decisions that other people are making and say, ‘That doesn’t make sense. If they only knew better, they would do X and Y.” Often the choices that are available to them are not good.”
Jackson hopes to find new ways to deal with his financial woes and reduce the cost of poverty. He recently spoke to educational groups promoting best practices for those who are underserved. He is cautiously optimistic that he will find a way out of his predicament. “I’m not asking for sympathy for my situation,” he said. “I’m a father and I take care of my kids, but people out here need help to be successful.”
“It’s a crazy economy and we just have to find a way to navigate it.”