The Unbanked and Underbanked

If you don't have a bank account, then you pay extra for many day-to-day financial transactions. Need a check cashed? Lots of non-bank places will do that--for a fee. Need a money-order to pay a bill? Lot's of non-bank places do that--for a fee. Need a loan? Payday loans and rent-to-own stores and pawnshops are available--for a fee. Of course, banks have fees, too, but the unbanked typically pay a lot more for basic financial transactions. In addition, those who live in the cash economy often find it harder to save for an emergency, and are highly vulnerable to losing a substantial part of their assets if their cash is stolen or lost.

The FDIC does an annual survey in partnership with the U.S. Census Bureau to find out more about the "unbanked," who lack any deposit account at a banking institution, and the "underbanked," who have a bank account but also rely on providers of "alternative financial services" like payday loans, pawnshops, non-bank check cashing and money orders, and the like. The results of the 2011 survey have now been released in "2011 FDIC National Survey of Unbanked and Underbanked Households." 
From the start of the report, here are some bullet-points (footnotes omitted):

 "• 8.2 percent of US households are unbanked. This represents 1 in 12 households in the nation, or nearly 10 million in total. Approximately 17 million adults live in unbanked households. ...
• 20.1 percent of US households are underbanked. This represents one in five households, or 24 million households with 51 million adults....
• 29.3 percent of households do not have a savings account, while about 10 percent do not have a checking account. About two-thirds of households have both checking and savings accounts.
• One-quarter of households have used at least one AFS product in the last year, and almost one in ten households have used two or more types of AFS products. In all, 12 percent of households used AFS products in the last 30 days, including four in ten unbanked and underbanked households."

The survey provides considerable detail about the unbanked and the underbanked. For example, about 30% of the unbanked don't use any of the "alternative financial services"--and thus are living in something close to a pure cash economy. Nearly half of unbanked household had a bank account at some point in the past and nearly half report that they are likely to have a bank account in the future.

Some people will prefer to live in a non-bank world. I suspect that a substantial number of them are in the underground economy, staying under the government's radar and avoiding taxes. About 5.5% of those in the survey report that they can't open a bank account because of identification, credit, or banking history problems. But there are also a substantial number of the unbanked who have notions about bank accounts that are misleading or false: like a belief that they don't have enough money to open a bank account or in some way wouldn't "qualify" to open an account. Many of the unbanked also like the convenience and speed of dealing with nonbank firms that cash checks or give instant loans, and they are familiar with these firms in their neighborhoods.

But I fear that many of the unbanked dramatically underestimate the size of the fees that they pay for dealing with these alternative financial service providers, and have little notion of the programs at many banks that are designed to provide services to those who will tend to have low balances.