"Financial inclusion" is a concept in the banking industry focused on helping people get connected to essential banking services, so that people are not left behind and do not get excluded from economic opportunities. One important aspect of financial inclusion is helping people who are "unbanked" -- those who don't have a checking or savings account at a bank or credit union.
Being unbanked is risky, and can put people at a big disadvantage in their personal finances. Sadly, people who are unbanked are also more likely to be from communities that have faced other historic disadvantages like racial discrimination, language barriers, and exclusion from economic opportunity. Being unbanked can compound these disadvantages.
Let's look at a few communities that have disproportionately higher rates of unbanked households -- and see how banks are trying to help.
Which communities are less likely to have a bank account?
Approximately 5.9 million U.S. households do not have a bank account, and more than half of these unbanked households are Black, Latino, and Native American. The good news is that there has been progress. The unbanked rate has come down in recent years, in part because more people started using bank accounts to receive direct deposits of government pandemic relief payments.
But too many American families are still missing out on the safety, cost savings, and other financial benefits of having a bank account. According to FDIC research, while 4.5% of all U.S. households are unbanked, there are big gaps in the unbanked rates for people of different racial and socioeconomic groups:
- Only 2.1% of white households are unbanked.
- 6.9% of Native American/Alaska Native households, 9.3% of Hispanic households, and 11.3% of Black households don't have a bank account.
- Households with lower income and less education are more likely to be unbanked.
- Households with a working-age adult with a disability have an unbanked rate of 14.8% (compared to 3.7% for households without a disability).
- Households headed by a single mother have an unbanked rate of 15.9% (compared to 1.8% for married couples).
Why banks need to try harder to help underserved communities
None of these statistics is meant to be a criticism of people who are unbanked. People try to make the best choices they can for their finances, and many unbanked people just don't believe that opening a bank account is a good enough deal. For example, a survey from UnidosUS found that unbanked Latinos had the following big reasons for not getting a bank account.
Minimum balance requirements
For lower-income people who are living paycheck to paycheck, it can be hard to maintain a minimum balance to avoid a monthly account fee. Some banks offer checking accounts with no minimum balance, but it's understandable why unbanked people might feel like "banking isn't for me."
High account fees
People from lower-income families often get hit hardest by overdraft fees and other unexpected banking costs. Even though many banks are now offering accounts with no overdraft fees, not everyone who is unbanked might be willing to try their luck.
Lack of trust in financial institutions
Sometimes people from underrepresented communities don't trust banks, have had a bad experience with banks, have been discriminated against, or just otherwise feel like they don't "belong" at the bank. This lack of trust can be especially strong when there's a language barrier or cultural barriers.
Imagine that you're a recent immigrant to America, working long hours at a physically demanding job, and you want to send money home to your family in your native country. Do you trust a bank to manage your hard-earned money? Or are you more likely to use a check-cashing service, a convenience store money wire service, or an app that your friend recommends, even if it charges you a fee?
How banks can help the unbanked
The banking system needs to try harder to reach people who are unbanked, and offer the right products and services that make banking a good deal. When people exist outside the banking system, they are at risk for higher fees, predatory loans, and everyday disasters like getting robbed or losing their cash savings to a house fire or natural disaster.
Financial inclusion can bring everyone under the protections of FDIC insurance and other benefits of having a bank account. Here are a few types of bank accounts and services that can be good for unbanked people to get established within the banking system -- and improve their personal finances.
No fee checking accounts
In the past few years, checking accounts seem to be getting cheaper. More banks are offering free checking accounts that have no monthly account fees, no maintenance fees, and no overdraft fees. Some of the best free checking accounts also have no minimum balance requirement.
Secured credit cards
People who are unbanked might often not have established credit history. Building credit is so important, because it helps people save money on interest and reduce their borrowing costs. Opening a secured credit card could be a good financial move for many previously unbanked families.
Financial coaching and mentoring
Most banks and credit unions will help answer people's questions about personal finances. Some banks even have free financial coaching and mentoring programs:
- Capital One offers free "Money & Life Mentoring" to help customers with questions about personal finances.
- Wells Fargo offers free one-on-one sessions with HOPE Inside financial coaches at over 150 Wells Fargo branches.
Bottom line
Too many Americans have not felt welcome or included at America's banks. By improving financial inclusion, the banking industry can make sure no one misses out on the benefits of a bank account.
