Unbanked States of America: Life Outside the Financial System


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Being part of America’s financial system hasn’t always been easy, but in recent years the number of unbanked citizens, those who live without checking or savings accounts or credit unions, has slowly but surely declined.

In a report of the findings of Federal Deposit Insurance Corporation (FDIC), approximately 5.4% of US households were unbanked in 2020. That’s over 7.1 million households.

Although when these figures were released, travel has been quite restricted by the COVID-19 pandemic, leaving many people stuck at home with minimal access to basic financial services.

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Yet more recently, now that the pandemic has subsided somewhat, a significant portion of Americans are still considered unbanked or underbanked.

A current look at the conditions has revealed that more than 14.1 million American adults are unbanked according to a most recent study National Survey of Unbanked and Underbanked Households. This represents approximately 6% of the US adult population.

The allure of the US banking and financial services industry is slowly fading as more and more people lose faith in some of the country’s major banks.

A report by LexisNexis has highlighted several important and problematic issues regarding America’s unbanked population. For those without credit, checking or savings, a lack of transparency, support and knowledge has prevented them in recent years from becoming fully banked.

Issues related to cybersecurity threats, online fraud, inclusion initiatives, money laundering and regulatory compliance are just a few of the many challenges facing banks.

On the other side of the spectrum, banks also face a host of persistent issues that prevent them from accessing the information of those who are unbanked. About 69% of respondents in the same survey revealed that contacting or connecting with unbanked or underbanked people is the hardest part of the onboarding process.

The financial ecosystem, which includes a variety of companies, public and private, has become – in the minds of the unbanked – synonymous with big business and a lack of transparency.

While that’s not the case in most cases, life outside of the US financial system is only looking to get harder and harder.

Without the right paperwork and Social Security information, the millions of unbanked Americans will only find themselves pushed further into the abyss in the years to come as regulations change and the financial services industry becomes increasingly difficult. increasingly digital.

Who are the unbanked Americans?

Looking at the same data provided by the National Survey of Unbanked and Underbanked Households, the demographics of the unbanked are as follows.

About 16.9% of black households and 14% of Hispanic households are unbanked, numbers that make these minority groups five times more likely to be unbanked than their white counterparts.

The majority of unbanked people are those of low-income households and are in the low-income brackets. About 19% of households with an annual income of $30,000 or less are classified as unbanked, compared to 2.4% of households earning more than $30,000 per year.

Additionally, underbanked Americans, who have a bank account but have obtained non-bank alternative services in the past 12 months, represent just under 50 million adults.

The challenge here is that uncertain economic conditions and changing economic cycles have prevented low-income households and individuals from becoming banked in the near future.

Higher interest rates, runaway inflation and high bank charges only add further hurdles.

The lack of accessible financial services, being too expensive or even out of reach, has left a large portion of the American population unbanked and underbanked looking for alternative ways to help them with basic financial tasks and services.

Although alternative solutions are available, it is not meant to make life easier for those who are unbanked. Although it is possible that personal installment loans allow individuals to borrow more money as opposed to other short-term personal loan options, it still comes with a level of financial security many unbanked Americans may not have one. On the back of this, many adults who do not have access to the right financial services or products will also see an increase in their risk. in recessionary conditions.

carry the burdens

For the millions of unbanked or underbanked Americans, life outside the financial system is vastly different from that of its banked counterparts.

In a report from US Postal Service, it was found that underserved members, who have limited access to financial services, pay more in interest and bank charges. The report found that, on average, underbanked families use around 9.5% of their annual income to pay fees.

On average, these underserved households pay about $2,412 a year in interest and fees, and consumers with checking accounts pay an average of $100 a year in overdraft and NSF fees.

Unbanked adults are also victims of payday lenders who offer fast loans with interest rates of up to 500% according to most recent data. To put that into perspective, the average credit card might charge the borrower an annual percentage rate (APR) of 28-36%. Payday loan providers have an APR of 398% on average.

Being underbanked not only makes it more difficult to have financial stability, but it is also increasingly expensive to manage this type of lifestyle.

Those whose banking needs have not yet been met also struggle to save for important events, purchases and other emergencies.

Some reports found that unbanked adults have a savings rate of 17.4%, compared to 56.3% of the underbanked and 61.6% of the fully banked.

The slow pace of saving for emergencies, or even the lack of an emergency fund, makes it difficult for many people to financially prepare for any unexpected expenses.

Additionally, the Federal Reserve has found that about 36% of Americans do not have enough money to cover an emergency expense of just $400. On average, 78% of Americans have an emergency savings account, with 51% having $5,000 or less in savings. Only 35% have $1,000 or less available in their savings account at the time of observation.

The lack of savings and financial security not only hits those who are unbanked, but it also causes headwinds for the majority of banked U.S. residents.

Having little or no savings set aside in the midst of a changing economic cycle has left many Americans worried about whether they will be able to survive a sudden economic downturn. During a time of furloughs, layoffs, business closures and furloughs, much of which we are experiencing during the pandemic; Preparation is one of the most crucial aspects for both banked and unbanked Americans.

Lack of access to credit and credit cards is also another major burden borne by underrepresented communities. Without the proper information and social security, individuals will find it difficult, if not impossible, to borrow money or establish a credit score.

Although there are alternatives available in the market, reasonable interest rates make it extremely expensive for people to take out larger loans.

Although the lack of credit and access to it prevents many people from improving their wealth, there are a handful of unbanked households (7.2%) who still hold credit through a credit card, a more frequent access to building up credit.

Credit in certain areas of the financial system may prove to provide better access to a range of different products and services that can help individuals become more financially independent in building their wealth.

Addressing issues

While not as simple as one might think, having to track down the unbanked scattered across the country, the best possible solution would be for banks and government institutions to work together to include more underrepresented communities. within the financial system.

Even these collaborative efforts can still pose many challenges, and while there are many hurdles, in the coming year banks may be able to bring the rate of unbanked residents down even further.

Before that can happen, financial institutions, alongside help from government and other private entities, will need to address internal issues related to transparency, data capture, and digital security. As we have seen, most American unbanked remain blatantly anonymous due to a lack of transparency between financial institutions and the general public.

Ultimately, sooner or later, the unbanked and underbanked will have to make a financially viable decision. High costs and fees, exorbitant interest rates and a lack of savings do not help them break free from the financial system, it only pushes them further into the abyss of poverty.


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Don F. Davis