The release of the Federal Deposit Insurance Corp.'s 2011 National Survey of Unbanked and Underbanked Households triggered a new wave of discussions about the financial needs of consumers without bank accounts. Sadly, the discussions are laden with buzzwords that affluent people use to describe how less-affluent people should conduct their financial affairs.
But, as the survey shows increases in both the numbers of consumers without bank accounts and those with partial banking relationships, it may be time to stop using inaccurate and biased terms that inhibit understanding the real needs of consumers for whom the banking system is increasingly irrelevant.
The single greatest impediment to objective and productive discussions of improving the financial well-being of American consumers is use of the term "unbanked." The term presupposes that everyone needs a bank account to satisfy their financial responsibilities. It also suggests that those without bank accounts are disadvantaged, uninformed and secretly longing for banking relationships.
Because the term fixates on a bank account – a thing – rather than on "banking" – a process of conducting financial transactions – it fails to consider that tens of millions of Americans are totally unconcerned with banks. They do their banking at retail locations offering services that respond specifically to their financial needs. This includes using prepaid debit cards that can provide FDIC-insured accounts without the hassle of visiting a bank branch.
Consumers who eschew bank accounts know they cannot afford to leave hundreds of dollars in banks to escape monthly fees. They are uncomfortable reconciling checkbook registers and monthly statements to avoid punishing penalty fees, so they operate on a cash-basis.
They perform financial transactions when needed and when they have the money to pay for them. They patronize locations that are convenient to their work or home, open at hours that accommodate irregular work schedules, with staff who reflect the cultures, customs and languages of their neighborhoods.
Every transaction is discrete and the price is known before it is performed. Neither the consumer nor the provider bears any responsibility to the other once a transaction is completed. And there is no possibility of a subsequent charge.
There is no requirement for consumers to make long-term account commitments simply to perform short-term transactions. And nothing compels customers to return to a particular location if they don't like the way they were treated.
So in a world where consumers have little control over much of their lives, obtaining financial services on a "pay-as-you-go" basis empowers transaction-based consumers to be in control of their own money and to manage their finances in ways that make sense to them – not in ways that please others.
Without question, including consumers more fully into society is a laudable goal. But when the sole instrument of financial inclusion is a bank account, the concept is reduced to another meaningless buzzword with little or no impact on improving anyone's financial well-being.
Much of the developing world has recognized the folly of making bank accounts the primary means of financial outreach. They focus instead on financial capability, a concept that is more concerned with ensuring that people have the means to satisfy their financial needs and the skills to make good use of available options, rather than where they keep their money and where they perform transactions. These countries know that just giving people bank accounts does not necessarily make them financially included.