WASHINGTON-A two-year study of the nation's banking system revealed that more than a quarter of all American households are either unbanked or under-banked.
Some 17 million Americans, nearly 8% of all households, do not have an account with a financial institution, while another 43 million individuals, about 18% of all Americans, are considered under-banked, defined as those with accounts with insured financial institutions but have utilized other providers, such as check cashers and payday lenders, in the last year.
The data was released recently as part of research conducted by the FDIC. The numbers were even more striking among minority and lower-income groups, as the survey concluded that more than half of all African-American households, 43% of Hispanic households and 43% of households with less than $30,000 annual income are unbanked or under-banked.
FDIC Chairman Sheila Bair noted the study, which surveyed 47,000 households, revealed that most individuals who do not have accounts made "rational economic decisions" to avoid traditional financial institutions as they simply cannot afford them or cannot get access to them. Most unbanked or under-banked individuals used alternative institutions for basic transactions, such as check cashing and money orders. "Our challenge is... to provide the appropriate incentives to banks to make it cost effective for lower income Americans to use the banking system," said Bair.
Lack of awareness or understanding did not seem to play a major role in why the unbanked remain without accounts; about half of all unbanked survey respondents said they once had an account with a financial institution, FDIC vice chairman Martin J. Gruenberg pointed out.
"Just over one-third said they didn't have an account because they didn't have enough money to have an account, but nearly another third cited the cost of maintaining an account as the reason they no longer have an account," he said. "We really do believe there is a market opportunity and the need is very substantial.
The FDIC plans to look at three key areas — transaction accounts, savings accounts and small dollar lending — and work with the traditional banking world to improve access for the unbanked and under-banked while still proving profitable and safe for financial institutions. Gruenberg said the regulator might also look at encouraging banks to become more accessible to those on the periphery of the financial world through CRA credits. To view the study in full go to:
