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Why Don’t More Americans Have Bank Accounts? And Should They?

• August 07, 2013 • 11:03 AM

(PHOTO: WAVEBREAKMEDIA/SHUTTERSTOCK)

If you’ve ever bounced a check, you could be blacklisted.

The nation’s major banks are shutting out a million Americans from having a checking account, reported the New York Times on its front page recently. Banks like Wells Fargo and Citibank are paying consumer credit reporting firms for customer data, and effectively blacklisting customers that have bounced checks and other mistakes in their banking history. But all told, around 10 million U.S. households have no checking or savings account. The Times piece is only addressing why a tenth of those people live off the financial grid. So why don’t more Americans—up and down the income ladder—have bank accounts?

According to the Federal Deposit Insurance Corporation’s National Survey of Unbanked and Underbanked Households, the main reason people reported not having a bank account was that they thought they didn’t have enough money (roughly a third of respondents). Nearly as large percentages think they don’t need or want a bank account.

One in 10 households earning between $50,000 and $75,000 only have a checking account.

Further down the list of reasons for no accounts: lack of identification, or a history of credit and banking problems. The FDIC estimates that nearly eight percent of the 5.3 million households that have never had a bank account reported some combination of these issues. “Banking history” issues like those described in the Times piece were identified by just over a quarter of that eight percent—a relatively small sliver of the problem (though the survey only asked for the primary reasons households didn’t have bank accounts; it’s possible many more households have been turned away for other reasons as well).

What’s so great about having a bank account anyway? They do appear to make a difference in encouraging people to save money. For example, according to a recent Federal Reserve Bank of Cleveland report, over the last two decades, the phasing-in of electronic transfer of funds from government assistance programs like food stamps may have encouraged the poverty-stricken recipients of those funds to open checking accounts, which in turn increased the value of their financial assets—an indicator that the recipients were saving some of what they received more than before they had a bank account to hold those funds. The fraction of low-income households with checking accounts has jumped from 50 percent to 75 percent since 1989; over the same period, the median value of financial assets among the poor (the bottom 20 percent of earners) increased by almost 50 percent. And it’s not just because the country is getting wiser as it’s population gets older: The share of low-income households headed by people under 29 that have financial assets like checking accounts jumped from less than 75 percent in 1989 to almost 90 percent in 2009.

That said, the poor aren’t the only ones not banking: 17.1 percent of households without a bank account earn between $15,000 and $50,000 a year (most, though, less than $30,000). And one in 10 households earning between $50,000 and $75,000 only have a checking account. That could be part of the reason it’s not just the poor that find themselves living in a financially fragile position—49 percent of households in the United States would have trouble coming up with $2,000 in 30 days to cover even a moderate financial mishap. As for getting those more than 55 million households into the banking system: Citibank and Wells will probably not be opening their doors for a big chunk of them, according to the Times, very soon.

Michael Fitzgerald
Michael Fitzgerald is an associate editor at Pacific Standard. He has previously worked at The New Republic and Oxford American Magazine.

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