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Being unbanked: What does it mean?

Who are unbanked people? And why are they unbanked? Get the facts about unbanked people, and why the ultimate goal is for them to become part of the mainstream financial system.

In 2015, about 9 million households in the United States were unbanked. If you know or work with unbanked people, you need to understand more about them. Maybe you're unbanked yourself.

Unbanked people do not use mainstream financial services like banks or credit unions. Unbanked people do not have a checking or savings account with these services.

Why are people unbanked?

People are unbanked or underbanked for various reasons. A 2015 Federal Deposit Insurance Corporation (FDIC) survey offers several reasons. They include:

  • Don't have enough money to open or maintain an account.
  • Avoiding banks gives more privacy.
  • Don't trust banks.
  • Account fees too high or unpredictable.
  • ID, credit, or former bank account problems.
  • Banks do not offer needed product or services.
  • Inconvenient locations or hours.

Who is unbanked?

The same survey says unbanked and underbanked rates were higher among:

  • Households with low or unstable incomes.
  • Less-educated households.
  • Younger households.
  • Black and Hispanic households.
  • Working-age disabled households.

Many unbanked people end up using alternative financial services. These include payday lending, check cashing outlets, and pawn shops. See Alternative financial services and avoiding the debt trap for more information.

Why it's important to be banked

Everyone's ultimate goal should be to open a checking or savings account with a mainstream bank. That takes a good credit history, and it's difficult for unbanked people to build credit. It's not impossible, though. Again, see Alternative financial services and avoiding the debt trap for more information.

Once you have an account with a mainstream bank, you'll be better able to manage your money. You'll be better able to build wealth. And you can avoid the high cost of using alternative financial services.

Ways to increase access to bank accounts

The 2015 FDIC study suggests several ways to improve access to mainstream bank accounts. They include:

  • Develop products and services for households with unstable incomes.
  • Offer more ways to use smartphones for banking.
  • Provide more multi-functional ATM machines. This would allow transactions without bank visits.
  • Place bank outlets in grocery and other retail stores.
  • Bring privately held savings into the banking system.

Latino consumers without driver's licenses have trouble accessing mainstream financial services. The same is true for Latino customers without a Social Security number. A 2006 study by the Federal Reserve Bank of Chicago and the Brookings Institution offers a suggestion for this situation. It recommends that banks accept other forms of documentation from Latinos.

Extension also offers financial capability workshops that help unbanked people. Contact our Financial Capability Team or Latino Financial Literacy Program for more information.

Shirley Anderson-Porisch, Extension educator emeritus in family resiliency

Revised by Antonio Alba Meraz, Extension educator in family resiliency

Reviewed in 2018

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