Bank accounts of the poor are a sign of improvement
More Americans have access to a checking or savings account, according to a survey released Thursday by federal regulators, a sign that the improving economy is helping lift the nation’s poorest households.
Having a checking or savings account is considered a cornerstone of financial stability in the U.S. Without one, households must rely on check-cashing services, prepaid debit cards and other costly ways to pay bills and make routine transactions.
The portion of Americans who do not have a bank account, known in industry jargon as the “unbanked,” declined to 7 percent in 2015 from 7.7 percent in 2013, according to the survey from the Federal Deposit Insurance Corp. The improvements came mostly from households making less than $15,000 a year and among minority populations, particularly black and Hispanic households.
Another way of looking at it: For every 10 households that were unbanked in 2013, one of those households is now banked.
“The improving economy no doubt impacted these numbers in a positive way,” FDIC chairman Martin Gruenberg said in an interview.
The Census Department reported last month that median household income rose 5.2 percent from 2014 to 2015, the first annual increase in that metric since before the Great Recession. That same report showed the proportion of Americans in poverty also fell last year, from 14.8 percent to 13.5 percent, the biggest annual decline in nearly 50 years.
Not only did more Americans making less than $15,000 open bank accounts between 2013 and 2015, but the number of Americans making less than $15,000 also declined.
“The poor have more money in their pockets, and more are able to afford bank accounts,” said Aaron Klein, a fellow in economic studies at the Brookings Institution.
There are several reasons why people choose not to have a traditional bank account. Some don’t trust banks or want to avoid their fees, or they have privacy concerns, according to the FDIC report. There is also a perception among the unbanked that bank accounts are not for the poor. More than half of unbanked households said they believe banks are “not at all interested” in serving their households like theirs, the report said.
But the No. 1 reason why Americans say they do not have a checking or savings account is that they believe they do not have enough money to get an account. The FDIC said roughly 57 percent of all unbanked households cited lack of money as a reason not to have an account, and roughly 38 percent of those same people said that was the main reason.
The FDIC conducts a survey of the unbanked and underbanked every two years, gathering the data on odd years and releasing the results roughly a year later. The figures released Thursday were gathered in June 2015, so the results do not reflect improvements in the economy since then.
The FDIC report also showed the growing proliferation of prepaid debit cards as an alternative to bank accounts, particularly among the poor, young and minorities. Prepaid debit card usage grew to 9.8 percent of American households in 2015, up from 7.9 percent in the FDIC’s survey in 2013.
Prepaid cards, which can be picked up at most drugstores or grocery stores, have become increasingly sophisticated in recent years and in many ways can be thought of as a bank account replacement. The growth of prepaid cards has become so noticeable that federal regulators, notably the Consumer Financial Protection Bureau, moved to introduce regulations for the industry last month . But since only 17 percent of all prepaid debit cards were issued by a bank or through a bank website, the FDIC considers prepaid debit card users as unbanked.
Roughly 27 percent of unbanked households used a prepaid card in 2015, the FDIC said, up from 22.3 percent in 2013.
The number of unbanked Americans may continue to decline as the economy keeps improving, Gruenberg said. If more banks start offering low-fee transactional accounts with low barriers for access, that may also bring some of the unbanked back into the mainstream.