When you think about financial exclusion, what areas of the world come to mind? The unbanked people in Africa, Asia, and Latin America? What about financial exclusion USA?
7% of American households, representing 25 million adults, live without either a checking or savings account, compared to only 1% in Canada and the U.K.
Many don’t qualify for transaction accounts, like checking, due to low credit scores or no credit reports at all. Others can’t maintain minimum deposits to avoid hefty monthly account charges. Lacking checking accounts, too many Americans get caught in the web of costly charges for cashing a paycheck or sending money to pay bills or friends and relatives.
Financial Exclusion USA in New York City
According to one study, 12% or 360,000 New York City households are unbanked. Over two million people in the State of New York–mostly Afro-and Hispanic Americans–are unbanked or underbanked.
- 825,000 or 13% of all city adults lack a bank account, double the national rate
- 20 banks that offer reasonably-priced checking accounts only have 25 branches. They’re only 1.2 branches per 1,000 people where blacks live; 3.6 per thousand in white areas
- If unbanked, an average worker could end up paying $364 to cash payroll and other checks, not counting money order fees for rent and other bills
- Only 28% of banks advertised available “lifeline” accounts, required by the State, offering $25 minimum deposits to open, minimum one-cent balances and $3 monthly caps on fees. When asked about lifeline accounts by regulators, 20 banks couldn’t explain how they worked. Financial exclusion USA?
In response, the State’s Attorney General, Eric Schneiderman, late in 2015 reached out to 90 banks asking them to help residents qualify for bank accounts. Several banks, including Citi, had already begun developing alternatives to credit reports for account verification in 2014.
Could You Live On Cash—No Bank Accounts—for a Month?
In one of our blog posts, we told the story of Candice Choi, a reporter for the Associated Press, who decided to try living for one month without bank accounts, ATM’s, mobile banking and other services most Americans couldn’t live without.
Candice emptied her wallet of credit and debit cards, stopped direct deposit and opted for paper paychecks. She used check cashing shops, bought money orders for rent and other bills, and lived on cash. Candice paid $93 in fees, which equals $1100 a year.
Candice felt like a member of the underclass, a financial nomad living in a developing country. But more than the cost, she wasted time waiting in long lines to cash checks, buy money orders and carry enough cash with her for other expenses. She lost control over her financial affairs. And that’s the scariest thing about financial exclusion USA. You spend a lot of your time worrying about money rather than making money.
Solutions for the Unbanked in the United States
Here in no particular order are potential solutions or improvements to help Americans who are unbanked. Read the linked articles for pros and cons of each.
- U.S. Postal Service: From 1911 to 1966, we had postal banking in the U.S. before community banks took over, then abandoned low-income neighborhoods. Slate wrote about its history and Law Street Media reviews the positives and negatives of resurrecting USPS Banking.
- Mobile Banking: Since virtually every American has a mobile phone, adopt mobile money and banking models that have worked in other countries and modify how it works best in the U.S. Here’s an abstract from a Catholic University Law Review article. Download the complete PDF here. The Law Review article reviews Wizzit Bank in South Africa and M-PESA in Kenya. Listen to my podcast interview with Brian Richardson of Wizzit Bank for more information. You’ll also find a blog post about M-PESA on OpenFinInc.
- IDNYC: An attempt to offer an identification card to people in the New York area who don’t have other forms of identification. Only twelve banks accept the ID card, but the concept has potential.
- Apple Pay for the Unbanked: In use within the U.K. for the poor, this solution links a prepaid MasterCard to Apple Pay.
As you can see, if you’ve read any of the linked articles, there are ways to help the unbanked in the United States. Surely if the richest nation on Earth can’t come up with viable alternatives to the current dilemma, the country’s entrepreneurs, political leaders, and citizens should worry about the future of the entire economy, let alone those who are unlinked from the banking system.
To answer my original question—”Brother, can you spare a bank?—I say “yes, and more.” Financial exclusion USA came about through the financial needs of people and decisions by the financial industry. The way out of this dilemma may cost more than a dime but, hey, a dime was worth more during the Great Depression.