Personal Finance


What is unbanked?

Unbanked is an informal term for an adult who does not use a bank or banking institution in any capacity. While generally a problem in developing countries, there are also some unbanked adults in developed countries, including the United States.

key takeaways

  • Unbanked are adults who do not use or have access to any traditional financial services, including savings accounts, credit cards, or personal checking.
  • The unbanked tend to be concentrated in underdeveloped or poorer parts of the developed world.
  • Lack of funds, trust and privacy are the three main reasons Americans are unbanked.
  • The government and other organizations have launched several programs to “bank” the unbanked, such as the FDIC’s Money Smart program.

Get to know the unbanked

People without bank accounts usually pay in cash or by purchasing a money order or prepaid debit card. People without a bank account usually also don’t have insurance, pensions, or any other type of money-related professional services. They can take advantage of other financial services, such as check cashing and payday loans, if those are available to them.

Unbanked and Underbanked

Underbanked is a related term. It refers to households who have checking or savings accounts but often rely on alternative financial services (such as money orders, check cashing services, and payday loans) rather than traditional loans and credit cards to manage their finances.

U.S. unbanked households

More than 7 million, or 5.4 percent, of U.S. households in the U.S. were unbanked in 2019, the lowest number on record since the survey was first conducted in 2009, according to a study by the Federal Deposit Insurance Corporation (FDIC). In a 2017 study, the FDIC estimated that 8.4 million or 6.5 percent of households were unbanked.

The FDIC said rates tend to be higher for the unbanked among certain groups of people, namely households with low, unstable or no income. Education can also have an impact, as people without a high school diploma are considered more likely to be unbanked.

The rate of unbanked households varies by state. The highest percentage of households without a bank account is in the South, at 6.2%. Unbanked households in other parts of the country are as follows:

  • Midwest 5%
  • 4.9% in the West
  • Northeast 4.7%

Mississippi and Louisiana have the highest percentages of unbanked households, at 12.8% and 11.4%, respectively. New Hampshire and Vermont had the lowest rates of unbanked households, at 0.5% and 0.7%, respectively.

The Federal Reserve also surveyed how households use banking services. According to its findings, 5% of U.S. households will be unbanked in 2020.

Why people are becoming unbanked

People may not have a bank account for many reasons. Criminals, for example, avoid financial institutions because law enforcement can track their actions in their accounts. At the same time, seniors who survived the Great Depression may have a deep distrust of all financial institutions and decide not to use them; the same is true for newcomers who have experienced banking crises in their countries of origin .

Extremely poor people may also not need a banking system in their day-to-day lives, and they may indeed find themselves unable to maintain minimum balances, pay account fees, or arrange travel to and from a bank branch during Bank of Communications business hours.

The three main reasons people don’t have bank accounts are: not having enough money to meet minimum balance requirements; not trusting banks; and, according to the FDIC, privacy concerns.

Initiatives to help the unbanked

Politicians at the state and federal levels try to help the unbanked gain financial literacy and benefit from banking services. Some of these initiatives include former California Governor Arnold Schwarzenegger’s California Bank program and the FDIC’s Money Smart program.

Section 326 of the U.S. Treasury Department allows banks and credit unions to accept foreign government-issued identification and is designed to help undocumented aliens obtain bank accounts. The U.S. Department of the Treasury also uses the MasterCard prepaid debit card to make federal payments to unbanked recipients of federal benefits.

Why is not having a bank account a problem?

Not having a bank account is considered undesirable for several reasons. A key concern is that alternative financial services can be more costly, seriously hurting families already struggling to make ends meet. Another angle is that those without a bank account have a greater chance of evading taxes without getting caught.

How many people do not have a bank account?

The Federal Reserve claims that 5% of U.S. adults will be unbanked in 2020. Using a different standard, the FDIC said an estimated 7 million, or 5.4 percent, of U.S. households were unbanked in 2019.

What type of people don’t have a bank account?

The FDIC says that among low-income, less educated, black, Hispanic, American Indian or Alaska Native, working-age disabled, and unstable income families, unbanked interest rates are often higher.

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