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The Inclusive Economy
Pew Releases New Research on the Unbanked and Underbanked
By Ethan Geiling on 10/27/2011 @ 01:30 PM
A few days ago, the Pew Health Group released a new report on the unbanked and underbanked: Slipping Behind: Low-Income Los Angeles Households Drift Further from the Financial Mainstream. This is the second report of a two-part series, building on Pew’s 2010 report: Unbanked by Choice.
This is by far one of the most comprehensive research studies of the unbanked and underbanked conducted to date, and many of us at CFED have been looking forward to seeing the results of the study for some time.
The study analyzed 2,000 households in eight low-income neighborhoods around Los Angeles; 1,000 households had at least one bank account and 1,000 households had no bank accounts.
The report had three key findings:
1. Between 2009 and 2010, the ranks of the
unbanked increased, with more families leaving
banking than opening bank accounts.
This is discouraging, especially given that many large banks, including Bank of America, are planning on introducing new fees on previously free banking products, like checking accounts and debit cards. These new fees will likely further discourage the unbanked and underbanked from opening accounts – which is the exact opposite of what we should be doing.
Interestingly, Pew’s study noted that significantly less people in neighborhoods targeted by Bank On LA left the banking world. This suggests that Bank On programs are successful at encouraging people to open accounts.
Source: Pew Health Group, 2011
2. Opening an account is only the beginning of a
beneficial banking relationship.
Pew’s study found that many people believe banks have more convenient locations, lower prices and better customer service than alternative financial service (AFS) providers (e.g. check cashers, payday lenders, etc.). However, many people use AFS providers anyway. Location, price and customer service are not always the most important considerations for underbanked consumers. Rather, it’s often more important to be able to access cash quickly and during convenient hours, and to use multiple services at once, like money orders and remittances. Financial institutions need to think more about the priorities of the un- and underbanked if they want them to keep them as customers.
3. Among the working poor, banking is associated
with savings.
This confirms what other studies have shown and one of the key tenets of financial access initiatives. People with a bank account are much more likely to save. Pew’s study found that 88% of banked households had at least one savings account and 67% of banked households are saving. However, only 9% of unbanked households reported being able to save. This suggests that climbing the economic ladder often begins with a bank account.
Overall, Pew’s report suggests that there is still a lot of work that needs to happen to meet the needs of the unbanked and underbanked.
In the next few weeks, CFED and a group of partners will launch the revamped www.joinbankon.org website, which will feature a new unbanked data tool. The tool will estimate the number of unbanked and underbanked households at every census tract, city/town, county and metro area in the United States. We hope this tool will help communities across the country better understand the financial needs of their communities, so they can design effective and well-targeted strategies to meet these needs. Stay tuned!
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