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The Green Sheet Online Edition

December 28, 2009 • Issue 09:12:02

Unbanked + underbanked Americans top 60 million

By Patti Murphy
The Takoma Group

Editor's Note: This article, written by Inside Microfinance founder Patti Murphy, was originally published Dec. 5, 2009, by Inside Microfinance (www.insidemicrofinance.com). Reprinted with permission. Inside Microfinance. All rights reserved.

The Federal Deposit Insurance Corp. recently released the much awaited results of the first nationwide attempt to get a handle on America's unbanked population, and the news was even more astounding than I had expected.

Conducted as a supplement to the U.S. Census Bureau's January population count, the survey reveals that 25.6 percent of U.S. households remain, for the most part, outside the banking system, and these tend to be low-income and/or minority households.

Imagine, one year after the largest bailout of the banking system (Troubled Asset Relief Program money), upwards of one quarter of taxpayers who paid for the bailout don't even use banks. And who are the most likely of these among Americans? Households headed by single parents and black and Hispanic households. Little surprise there.

One thing I find especially troubling about the survey is the degree to which it illustrates just how difficult it has become for poor and working poor families to better their lives financially. Like it or not, the banking system plays a critical role in economic survival and the creation of wealth, which means it will be even tougher for poor Americans to improve their financial situations.

Who's being left out?

Among those Americans contacted for the FDIC survey, 7.7 percent were unbanked, which translates to about 9 million households, or 17 million adults. Another 17.9 percent, or 21 million households (43 million adults), were found to be underbanked.

Households were defined as underbanked if they replied no to the question: Do you or does anyone in your household currently have a checking or savings account? Underbanked households were defined as those that have a checking or savings account but also have relied on alternative financial services, such as money orders, check cashing shops, payday loans and pawn shops, at least once in the past five years.

"Access to an account at a federally insured institution provides households with an important first step toward achieving financial security - the opportunity to conduct basic financial transactions, save for emergency and long-term security needs, and access credit on affordable terms," said FDIC Chair Sheila Bair in a statement.

The research, a follow-up to a study released by the FDIC earlier this year on financial institutions' efforts to serve the unbanked, also detailed revealing facts about the unbanked in the United States. For example:

  • Certain minorities are more likely to be unbanked: blacks, 21.7 percent of households; Hispanics,19.3 percent; and American Indian/Alaskan, 15.6 percent. Whites (3.3 percent of households) and Asians (3.5 percent) are among the best banked.

  • Households with incomes below $30,000 a year account for at least 71 percent of unbanked households. Only 4.2 percent of households with annual income between $30,000 and $50,000 are in that same predicament, along with less than 1 percent of those with $75,000 or more in annual earnings.

  • Forty-one percent of unbanked households believe the likelihood of their opening a bank account in the future is "not likely at all."

Detailed data on unbanked and underserved Americans, broken down by state and metropolitan statistical area can be viewed online at a new FDIC Web site: www.economicinclusion.gov.

For more stories from SellingPrepaid E-Magazine, as well as breaking news and forums devoted to the prepaid sphere, please visit greensheet.com. end of article

Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.

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