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What the Percentage of Unbanked in Our Population Tells Us About the Economy

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March 10, 2014 – Comments (3)

 <em>unbanked</em>

More than 25% of the people in the United States who are considered to be in the lowest quintile economically do not have a bank account, according to the New York Times. This is a miserable number, compared to 3% in Australia and Britain for that same group of people. It reveals a great deal about the economy of the United States and how it is affecting the rates of the impoverished.

Lack of Saving

It has been shown that a lack of a formal account minimizes the amount of money that is saved over a course of a person's life. This is problematic because when disasters occur, such as when a car breaks down, a medical emergency results, or a funeral needs to be paid for, there is no cushion to help defray those costs. Instead, people will take out money to pay for those expenses. Leora Klapper, a World Bank leader, has stated that “Financial inclusion enables poor people to save and to responsibly borrow — allowing them to build their assets, to invest in education and entrepreneurial ventures — and to improve their livelihoods.”

Increased Number of People Living Paycheck to Paycheck

Impoverished people tend to need cash quickly and will be more likely to use check cashing joints, or high interest private loans, in order to immediately have access to those funds. While there are times that Detroit check Cashing Services might help people there, there are typically savings by using a established bank. Private loans, another common occurrence among the poor are risky, and typically some from acquaintances who will charge exorbitant fees to give people to have access to their money. This depletes a person's available financial resources and makes it more difficult for him or her to become more financially successful.

Expanded Inequality

It has been widely documented that inequality is growing in the United States. It is further compounded by the information about the unbanked. Of the people in the US that do not have banks, 2/3 of those people are women, while a solid 1/4 are immigrants. Because these populations are over-represented in the numbers of the unbanked, it reveals the composition of inequality with regards to economic success.

Lack of Trust

46% of the number of people in the US have reported that they will not get a bank account because they do not trust the banks. This has been exacerbated by the 2008 financial crisis, in which many banks failed. A lack of trust will cause impoverished people to make poor decisions that will leave the m trapped in debt.

 

In essence, the large number of unbanked citizens in the United States reveals the expanded inequality, lack of trust, and lack of savings that represent our economy. There is also a larger number of people living from paycheck to paycheck, revealing the inherent instability of our current economy for many.

3 Comments – Post Your Own

#1) On March 10, 2014 at 7:32 PM, awallejr (81.41) wrote:

Also don't forget that there is a sizeable underground economy where everything is all cash.

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#2) On March 12, 2014 at 8:44 AM, ellaerdos (< 20) wrote:

Banks are not trusted because they have never done anything to deserve trust - quite the opposite, read the papers!

If you live from paycheck to paycheck then you don't have any money to keep in the bank. Their are usually fees for checks an added expense.

If you work 2nd or 3rd shift the bank is not open when you need it. Cashing your check at the pawn shop or check cashing service is the only way to go.Same thing if you need a small loan.

If you don't have a car you probably can't get to a bank anyway, most banks seem to be in the suburbs. Most bank workers seem to be middleclass, educated and white collar.

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#3) On March 12, 2014 at 3:40 PM, outoffocus (23.32) wrote:

Another issue is many of the "unbanked" are in that situation because banks will not allow them to have a bank account because of bad credit or no credit. 

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