What Is Unbanked?
Let me explain to you what 'unbanked' means—it's an informal term for adults who don't use banks or any banking services at all. This is more common in developing countries, but you'll find unbanked people in developed places too, including right here in the United States.
Key Takeaways
Unbanked refers to adults without access to traditional financial services like savings accounts, credit cards, or checks. These individuals are often in less developed areas or poorer parts of developed nations. In the US, the main reasons include lack of money, distrust of banks, and privacy worries. Governments and organizations are working on programs like the FDIC's Money Smart to help bring these people into the banking system.
Understanding the Unbanked
If you're unbanked, you typically pay with cash or use money orders and prepaid debit cards. You won't have insurance, pensions, or other professional financial services. Instead, you might turn to alternatives like check cashing or payday loans if they're available.
Unbanked vs. Underbanked
Underbanked is a similar term—you have a checking or savings account, but you still rely heavily on alternatives like money orders, check-cashing, and payday loans rather than standard loans or credit cards to handle your finances.
Unbanked Households in the United States
According to the FDIC, in 2021, more than 5.9 million US households— that's 4.5%—were unbanked, the lowest since they started tracking in 2009. Back in 2019, it was 7.1 million or 5.4%. Unbanked rates are higher for households with low or no income, those without high school diplomas, and especially Black and Latino households, which make up 64% of unbanked homes despite being only 32% of the population. Geographically, the South has the highest rate at 4.9%, followed by 4.2% in the Midwest and West, and 4.1% in the Northeast. Mississippi tops the list at 11.1%, while Utah is lowest at 1.2%. The Federal Reserve's 2022 survey found 6% of adults unbanked.
Why People Become Unbanked
The top reason, per the FDIC, is cost—you can't meet the minimum balance requirements. Banks often don't offer what these populations need, like quick access to cash without waiting for checks to clear. In bank deserts, alternatives are more convenient with longer hours and easier access. Distrust is another big factor, especially among Black and Latino communities due to historical discrimination and predatory lending. Immigrants from countries with banking crises might feel the same. It's not always about lack of knowledge—half of unbanked people have had accounts before. The three main reasons are insufficient funds for balances, privacy concerns, and not trusting banks.
Initiatives to Help the Unbanked
There are state and federal efforts to get the unbanked into banking and teach financial literacy. Examples include California's Bank on California program under former Gov. Schwarzenegger and the FDIC's Money Smart. The US Treasury's Section 326 lets banks accept foreign government IDs to help undocumented immigrants. They also use prepaid Mastercard debit cards for federal payments to unbanked benefit recipients.
Why Is Being Unbanked a Problem?
Being unbanked creates issues because alternatives like check-cashing and payday loans are expensive. Without a bank account, you don't build credit history, so emergencies might force you into even costlier options, worsening financial struggles.
How Many People Are Unbanked?
The Fed says 6% of US adults were unbanked in 2022. The FDIC, with different measures, reports 5.9 million households or 4.5% in 2021.
Who Are the Unbanked?
The FDIC notes higher unbanked rates among low-income, less-educated, Black, Hispanic, American Indian or Alaska Native, working-age disabled, and single-mother households.
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