The Meaning of Being Unbanked: Causes, Consequences, and Solutions

Being unbanked means not having a traditional bank account, which can make everyday transactions and financial management a real challenge. According to the article, approximately 8.4% of the US population, or around 28 million people, are unbanked.

This can lead to a cycle of financial instability, making it difficult to pay bills, save money, and even access basic financial services.

In fact, many unbanked individuals rely on alternative financial services like check cashing stores, payday lenders, and money orders, which can come with high fees and interest rates.

These services can be expensive and may not provide the same level of security and protection as traditional banking.

Being unbanked means not having a bank account or using traditional banking services. This can make everyday transactions, like paying bills or receiving a paycheck, more complicated.

According to the Federal Deposit Insurance Corp. (FDIC), more than 5.9 million American households were unbanked in 2021. That's a significant number, but it's actually the fewest recorded since the FDIC started tracking this data in 2009.

Being unbanked can be a challenge, especially for households with low or no income. The FDIC found that people without a high school diploma are more likely to be without a bank account. Education can play a big role in accessing banking services.

Black and Latinx households are disproportionately represented among the unbanked. They make up 32% of the U.S. population, but account for 64% of unbanked households. This disparity is a concern and needs to be addressed.

The rate of unbanked households varies greatly from state to state. Here's a breakdown of the rates by region:

Mississippi has the highest rate of unbanked households, with 11.1% of households lacking a bank account. On the other hand, Utah has the lowest rate, with just 1.2% of households unbanked.

Being unbanked can be due to a variety of reasons. One of the main causes is a lack of access to a nearby bank branch or mobile phone. This can make it difficult for people to manage their finances and access basic banking services.

Some people may also avoid having a bank account due to minimum balance fees. These fees can add up quickly and make it hard for individuals to keep their accounts in good standing. I've seen friends struggle with these fees in the past, and it's a common problem.

The FDIC survey found that issues related to fees and minimum balances are the main reason unbanked households don't have a bank account, cited by 33.4% of respondents. Not having enough money to meet minimum balance requirements is also a significant issue, mentioned by 23.3% of respondents.

Lack of access can be a significant barrier to opening a bank account. For some people, in-person banking can be difficult if they don't have access to reliable transportation, which can require paying for public transit.

Having a nearby bank branch or mobile phone access is crucial for banking convenience. Without it, people may struggle to manage their finances. Online banking may not be an option for those without a secure Wi-Fi connection, making it harder to stay on top of their finances.

Public transportation costs can add up quickly, making it a significant expense for those who rely on it to visit a bank branch. This can be a major obstacle for people who are already struggling financially.

Here are some common transportation options and their estimated costs:

These costs can be a significant burden for people who need to visit a bank branch regularly. It's essential to consider these expenses when evaluating the feasibility of opening a bank account.

The unbanked are individuals or households that don't have a bank account. They often face unique challenges when it comes to managing their finances.

One of the main reasons people are unbanked is due to issues related to fees and minimum balances, which was cited by 33.4% of respondents in a recent survey. This can be a significant barrier, especially for those living on a tight budget.

Not having enough money to meet minimum balance requirements is another common reason, affecting 23.3% of respondents. This can be a vicious cycle, making it difficult to build up savings and stay afloat.

Distrust of banks is also a significant factor, with 15.7% of respondents citing this as a reason for not having a bank account. This can be rooted in past experiences or concerns about security and safety.

Here are some of the main reasons people are unbanked, according to the survey:

Being unbanked can have serious consequences and problems. It can be complicated and time-consuming to conduct banking transactions without a standard bank account. You may have to pay high fees for check cashing and other services from predatory businesses.

Carrying cash can be risky, as once it's lost or stolen, it's gone. You can dispute fraudulent transactions with a bank or credit union, but that's not an option with cash. Check cashing fees can be as high as 12% of the check amount, and there's also a fee for adding check funds to a prepaid debit card.

Not every retailer accepts cash, so you'll likely have to put cash onto a prepaid card to shop online or with a merchant that requires a debit or credit card. This can result in fees and won't do anything to build your credit.

Here are some of the downsides of being unbanked:

Using prepaid debit cards, money orders, and similar products to pay bills can be costly (fees) and time-consuming. Carrying and/or keeping cash at home can be risky; what happens if you are robbed? No convenient direct deposit for paychecks means you may have to utilize a check-cashing or payday loan service, which can charge very high fees or interest rates.

Being unbanked doesn't have to be a permanent situation. There are many resources and programs available to help individuals gain access to affordable banking services.

The Bank On Initiative is a great place to start, with 474 certified bank accounts available throughout the US, one in every state.

You can find an affordable and safe financial institution that meets your needs by referring to Bank On as a resource. Any of the certified bank accounts will meet the Bank On standards, including being $5 or less per month, no overdraft or NSF fees, and a minimum opening deposit of $25 or less.

Local coalitions also work with different groups to help individuals find the best bank account for their unique needs.

Approximately 1.7 billion people worldwide remain unbanked in emerging economies as of 2017.

This number has decreased from 2.5 billion people in 2014, showing a significant improvement in access to banking services.

In the United States, around 6% of adults were "unbanked" in 2022, according to the Federal Reserve.

The countries with the highest percentage of unbanked people include Morocco, Mexico, Vietnam, Egypt, and the Philippines, all with unbanked populations of 60% or more.

These staggering numbers highlight the need for accessible and affordable banking services for all.

Being unbanked can have its advantages, especially when it comes to avoiding financial fees. Not having to deal with the bureaucracy or paperwork of opening and maintaining accounts at banks can be a big plus.

No checking or savings account fees means you can save money right off the bat. This can be a significant benefit for those who struggle to make ends meet.

Overdraft and minimum balance fees are also a thing of the past when you're unbanked. This can be a huge relief for those who have accidentally overdrafted in the past.

Being unbanked also means you can maintain your financial privacy. No record of one’s finances means you can keep your financial business to yourself.